8. COMMITMENTS AND CONTINGENCIES

12 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Leases

On September 9, 2015, we signed a lease for new office space consisting of approximately 12,775 square feet, located in San Diego, California, at a monthly rent of $23,115, which commenced on October 28, 2015. In addition to monthly rent, the new lease includes payment for certain common area costs. The term of the lease for the new office space was four years from the lease commencement date and was then extended by an additional fifty months, to December 31, 2023. Our facility is covered by an appropriate level of insurance and we believe it to be suitable for our use and adequate for our present needs. FTI leases approximately 10,000 square feet of office space, located in Seoul, Korea, at a monthly rent of approximately $8,000 that expires on August 31, 2021. Beginning on June 12, 2015, FTI leased additional office space consisting of approximately 2,682 square feet, also located in Seoul, Korea, at a monthly rent of approximately $2,700 that expires on August 31, 2021. We lease one corporate housing facility primarily for our employees who travel, under a non-cancelable operating lease that expires on September 4, 2020.

Rent expense for the years ended June 30, 2019 and 2018 was $415,443 and $414,252, respectively. Future minimum payments under operating leases are as follows:

	Payments Due by June 30,
	2020		2021		2022		2023		2024		Total
Administrative office, San Diego, CA	$	313,243	$	321,930	$	321,930	$	321,930	$	160,965	$	1,439,998
Administrative office, Korea		128,400		128,400		21,400		–		–		278,200
Corporate housing facility		9,913		2,478		–		–		–		12,391
Total Obligations	$	451,556	$	452,808	$	343,330	$	321,930	$	160,965	$	1,730,589

Litigation

We are from time to time involved in certain legal proceedings and claims arising in the ordinary course of business. Management does not expect any material adverse outcome.

We entered into a Professional Services Agreement with Anydata Corp. (“Anydata”) for the productACT233F Smart Link OBD device on May 5, 2017, for a minimum purchase commitment of 250,000 units, which is associated with Anydata’s irrevocable purchase orders received from its customer. We have delivered approximately 25,000 units and 7,000 units during our second and fourth quarters of fiscal 2018, respectively, and an additional 18,000 units during our first quarter of fiscal 2019. Sales to Anydata were approximately $1.8 million for the year ended June 30, 2019. We have received information that Anydata may not be able to fulfill the entire purchase commitment for which parts have already been ordered with our main vendor, Quanta. Management believes that the Company will be able to supply some of the products to another customer and has received personal guarantees from the ownership group of Anydata. As of June 30, 2019, the remaining purchase commitment unfulfilled by Anydata to the Company was approximately $3.1 million. The total preliminary product purchase commitment with Quanta was approximately $1.9 million. This amount is subject to further changes depending on the ability of Quanta to repurpose some of the component parts to its other customers. We have not recorded a receivable from Anydata, nor a liability owed to Quanta. Management believes, at this time, a loss contingency is reasonably possible but not estimable as to how much ultimately would be paid to Quanta. For the year ended June 30, 2019, we paid $100,000 for the right to call on inventory and has recorded this amount as a prepaid. Additionally, we have agreed pricing adjustments with Quanta for other products to ensure demand is met and have recorded an additional $22,000 as a prepaid related to pricing adjustments. As of June 30, 2019, there is a reasonable possibility we may incur a loss, however, the amount is not estimable at this time.

Change of Control Agreements

On September 21, 2009, we entered into Change of Control Agreements with OC Kim, our President, and Yun J. (David) Lee, our Chief Operating Officer. Each Change of Control Agreement provides for a lump sum payment to the officer in case of a change of control of the Company. The term includes the acquisition of Common Stock of the Company resulting in one person or company owning more than 50% of the outstanding shares, a significant change in the composition of the Board of Directors of the Company during any 12-month period, a reorganization, merger, consolidation or similar transaction resulting in the transfer of ownership of more than fifty percent (50%) of the Company's outstanding Common Stock, or a liquidation or dissolution of the Company or sale of substantially all of the Company's assets.

The Change of Control Agreement with Mr. Kim calls for a payment of $5 million upon a change of control, and the agreement with Mr. Lee calls for a payment of $2 million upon a change of control.

The Board of Directors has approved extension of the Change of Control Agreements with Mr. Kim and Mr. Lee, through September 30, 2021.

Chinese Tariffs

We believe that our products are currently exempt from Chinese tariffs. If this were to change at any point, a tariff of 10%-25% of the purchase price would be imposed. If such tariffs are imposed, they could have a materially adverse effect on sales and operating results

Customer Indemnification

Under purchase orders and contracts for the sale of our products we may provide indemnification to our customers for potential intellectual property infringement claims for which we may have no corresponding recourse against our third-party licensors. This potential liability, if realized, could materially adversely affect our business, operating results and financial condition.