NOTE 13 – RELATED PARTY TRANSACTIONS

During the three months ended September 30, 2013 and September 30, 2012 the Company sold approximately $1,189,000 and $906,000, respectively to Starlight Electronics Company, Ltd. During the six months ended September 30, 2013 and September 30, 2012 the Company sold approximately $1,416,000 and $1,166,000 respectively to Starlight Electronics Company, Ltd. These goods were sold at a discounted price, similar to prices granted to major direct import customers shipped internationally with freight prepaid. The average gross profit margin on sales to Starlight Electronics for the three months ended September 30, 2013 and September 30, 2012 was 8.6% and 13.7%, respectively. The average gross profit margin on sales to Starlight Electronics for the six months ended September 30, 2013 and September 30, 2012 was 8.5% and 12.4%, respectively. The product was drop shipped to Cosmo Communications of Canada (“Cosmo”), the Company’s primary distributor of its products to Canada. During the three months ended September 30, 2013 and September 30, 2012 the Company sold an additional $498,000 and $271,000 respectively of product to Cosmo from our California warehouse facility. During the six months ended September 30, 2013 and September 30, 2012 the Company sold an additional $780,000 and $326,000 respectively of product to Cosmo from our California warehouse facility. These amounts were included as a component of cost of goods sold in the accompanying condensed consolidated statements of operations.

The Company purchased products from Starlight Consumer Electronics USA, Inc. (“SCE”) a subsidiary of Starlight International Holding Ltd. The purchases from SCE for the three month period ended September 30, 2013 and 2012 were $7,748,415 and $4,960,073, respectively. The purchases from SCE for the six month period ended September 30, 2013 and 2012 were $9,701,934 and $4,960,073, respectively. The Company purchased product services from Starlight R&D, Ltd, (“SLRD”) a subsidiary of Starlight International Holding Ltd. The purchases from SLRD for the three month period ended September 30, 2013 and 2012 were $164,057 and $0 respectively. The purchases from SLRD for the six month period ended September 30, 2013 and 2012 were $206,162 and $0 respectively. The Company purchased products from Starfair Electronics Co., Ltd, (“SFE”) a subsidiary of Starlight International Holding Ltd. The purchases from SFE for the three month period ended September 30, 2013 and 2012 were $665,164 and $0 respectively. The purchases from SFE for the six month period ended September 30, 2013 and 2012 were $741,867 and $0 respectively. These amounts were included as a component of cost of goods sold in the accompanying condensed consolidated statements of operations.

Effective April 1, 2013, SMC-L entered into a service and logistics agreement with Starlight Consumer Electronics (USA), Inc. (“Starlight USA”), an indirect wholly-owned subsidiary of Starlight International, Cosmo USA, Inc. (“Cosmo USA”) and Starlight Electronics USA, Inc. (“Starlight Electronics USA”) to provide logistics, fulfillment, and warehousing services for Starlight USA, Cosmo USA and Starlight Electronic USA’s domestic sales. For these services, Starlight USA, Cosmo USA and Starlight Electronics USA have agreed to reimburse the Company for actual warehouse space occupied by these companies at $0.50 per square foot and for logistics services performed based on an agreed to fee schedule specified in the agreement. The agreement is estimated to generate approximately $370,000 in expense reimbursements during the term of the contract. The Company received $108,804 and $0 in service fees from these affiliates during the three months ended September 30, 2013 and September 30, 2012, respectively. The Company received $191,304 and $0 in service fees from these affiliates during the six months ended September 30, 2013 and September 30, 2012, respectively. This agreement terminates on March 31, 2014 at which time another annual agreement is expected to be signed for the same terms.

On July 1, 2012, SMC-L entered into a service and logistics agreement with Starlight Consumer Electronics (USA), Inc. (“Starlight USA”), an indirect wholly-owned subsidiary of Starlight International, Cosmo USA, Inc. (“Cosmo USA”) and Starlight Electronics USA, Inc. (“Starlight Electronics USA”) to provide logistics, fulfillment, and warehousing services for Starlight USA, Cosmo USA and Starlight Electronic USA’s domestic sales. For these services, Starlight USA, Cosmo USA and Starlight Electronics USA agreed to pay the Company annual service fees totaling approximately $435,000 payable monthly beginning July 1, 2012. The Company received $0 and $133,119 in service fees from these affiliates during the three and six months ended September 30, 2013 and September 30, 2012, respectively. This agreement terminated on March 31, 2013 and was replaced by a new agreement effective April 1, 2013.

On August 1, 2011, SMC-L entered into a service and logistics agreement with affiliates Starlight Consumer Electronics (USA), Inc., Starlight USA, Inc. and Cosmo USA to provide logistics, fulfillment, and warehousing services for these affiliates’ domestic sales. The Company received $0 and $249,999 in service fees from these affiliates during the six months ended September 30, 2013 and September 30, 2012, respectively.