NOTE 12. COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Liabilities are accrued when it is believed that it is both probable that a liability has been incurred and that the Company can reasonably estimate the amount of the potential loss. The Company does not believe that the outcome of these proceedings or matters will have a material effect on the condensed consolidated financial statements.

In April 2020, the Company entered into an agreement with a supplier, as further amended in March 2021 (the "Supplier Agreement"), to purchase minimum volumes of certain products through August 2022. Due to significant failure rates and other defects, the Company ceased ordering product from this supplier as of December 2020. Despite the Company’s requests, the supplier indicated they are not willing to refund the Company for the malfunctioning products previously purchased, and therefore, the Company filed a complaint against the supplier on March 22, 2022 in the Superior Court for the State of California, County of Santa Clara (the "Court"). During the three months ended March 31, 2024, the Company recorded a legal expense of $5,300 within general and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss. The final settlement agreement was signed in June 2024. In July 2024, the inventory was returned to the supplier and the Court granted the parties' Request for Dismissal of the action with prejudice.

In February 2024, a putative class action complaint was filed against Fifth Wall Acquisition Sponsor, LLC, Fifth Wall Asset Management, LLC (the “FWAA Defendants”), and the individual directors of Fifth Wall Acquisition Corp. I (“FWAA”) (the “Director Defendants” and collectively the “Defendants”) in the Delaware Court of Chancery by a stockholder of FWAA for purported damages arising from the business combination with SmartRent.com, Inc. (“the 2024 Class Action”). The complaint asserts claims for (i) breach of fiduciary duty against the Director Defendants; (ii) aiding and abetting breach of fiduciary duty claims against Fifth Wall Asset Management LLC; and (iii) unjust enrichment claims against all Defendants, for purported actions relating to FWAA’s August 24, 2021 merger with legacy SmartRent.com, Inc. The parties are engaged in discovery and document production to date, and the Company and the defendants believe the allegations and claims made in the complaint are without merit.

As the surviving entity following the business combination, the Company presently has certain advancement obligations to the Director Defendants in connection with the 2024 Class Action which includes the costs of their defense of such litigation. While the Director Defendants are the beneficiaries of coverage for such costs up to $10,000 by directors’ and officers’ insurance (“D&O insurance”), the D&O insurance is subject to a retention of $5,000. The Company has notified the relevant D&O insurance carriers of the 2024 Class Action and is litigating coverage and allocation issues in a separate action filed in the Delaware Superior Court in December 2024. As a result of recent developments, the Company recorded a legal accrual of $5,000 within general and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss and accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets.

In May 2021, the Company entered into a licensing agreement with a service provider, as further amended in July 2021 (the "Service Provider Agreement"), to license the provider’s software and participate in the provider’s energy demand response program to generate revenue for the Company. The Company paid the service provider $3,500 for the first 25 months of the 60-month license, with no additional payment due until July 2023. In October 2022, the Company sought to rescind the Agreement on the basis that it believed it was misled about the business opportunity available and the nature of the parties’ arrangement. In January 2024, the service provider brought suit against the Company for breach of contract in the Superior Court of California for the County of San Francisco seeking damages for the Company’s failure to make the monthly $140 payments for the license. In February 2024, the Company filed a cross-complaint against the service provider for fraudulent inducement; recission; breach of contract; and related equitable claims. The parties engaged in substantial written discovery and depositions. In January 2025, the Company moved for summary judgment on the Agreement’s limitation of liability provision, asserting that the service provider could not recover damages under the contract. In February 2025, the parties participated in a mediation, which ultimately led to the parties agreement to settle the matter. The final settlement agreement was signed in March 2025, and the case was dismissed with prejudice.

In April 2023, a collective action was filed against the Company in Federal Court in Georgia (the "Federal Court") by two former employees alleging failure to pay overtime wages in violation of the Fair Labor Standards Act (“FLSA”). The plaintiffs claim they were improperly classified as exempt employees under the FLSA and thus should have been entitled to overtime pay. Limited discovery was conducted in 2023, and Plaintiffs moved for conditional certification of a collective class in July 2023, which was granted on March 31, 2024. Notice was issued to potential class members, who had until July 15, 2024, to opt into the lawsuit. In October 2024, the parties engaged in a private mediation and agreed to settle the matter for a total amount of $1,500, inclusive of all Plaintiffs’ attorneys’ fees and costs and related releases, subject to a written agreement and the Federal Court’s approval. The Court approved the settlement and dismissed the case on December 31, 2024. As of December 31, 2024, the Company recorded a legal accrual of $1,500 related to this matter within general and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss and accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. The settlement amount was paid in full in January 2025.

The Company regularly reviews outstanding legal claims, actions and enforcement matters, if any exist, to determine if accruals for expected negative outcomes of such matters are probable and can be reasonably estimated. The Company evaluates any such outstanding matters based on management’s best judgment after consultation with counsel. There is no assurance that the Company's accruals for loss contingencies will not need to be adjusted in the future. The amount of such adjustment could significantly exceed the accruals the Company has recorded. As of March 31, 2025 and December 31, 2024, an accrual of $5,000 and $1,500, respectively, was included within accrued expenses and other current liabilities related to the legal matters discussed above.