NOTE 14 – RELATED PARTY TRANSACTIONS

During the three months ended December 31, 2013 and December 31, 2012 the Company sold approximately $357,000 and $647,000, respectively to Starlight Electronics Company, Ltd. During the nine months ended December 31, 2013 and December 31, 2012 the Company sold approximately $1,773,000 and $1,813,000, 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 December 31, 2013 and December 31, 2012 was 15.1% and 12.4%, respectively. The average gross profit margin on sales to Starlight Electronics for the nine months ended December 31, 2013 and December 31, 2012 was 14.8% and 12.6%, 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 December 31, 2013 and December 31, 2012 the Company sold an additional $537,756 and $36,150, respectively of product to Cosmo from our California warehouse facility. During the nine months ended December 31, 2013 and December 31, 2012 the Company sold an additional $1,317,941 and 361,824, 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 December 31, 2013 and 2012 were $1,104,447 and $2,346,387, respectively. The purchases from SCE for the nine month period ended December 31, 2013 and 2012 were $8,920,712 and $7,306,460, 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 December 31, 2013 and 2012 were $328,861 and $0, respectively. The purchases from SLRD for the nine month period ended December 31, 2013 and 2012 were $535,023 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 December 31, 2013 and 2012 were $242,931 and $0, respectively. The purchases from SFE for the nine month period ended December 31, 2013 and 2012 were $984,798 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 Company received $72,939 and $0 in service fees from these affiliates during the three months ended December 31, 2013 and December 31, 2012, respectively. The Company received $264,243 and $0 in service fees from these affiliates during the nine months ended December 31, 2013 and December 31, 2012, respectively. The agreement was expected to terminate on March 31, 2014 and to generate approximately $370,000 in expense reimbursements during the term of the contract. However, due to the significant decrease in logistics support to these affiliates, both parties have agreed to terminate the agreement effective December 31, 2013 and no further logistics agreements are expected to be consummated with these affiliates in the future. The company is actively seeking independent clients to perform similar logistics services for to replace the expense reimbursements received from the terminated contract.

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 $133,219 in service fees from these affiliates during the three months ended December 31, 2013 and December 31, 2012, respectively. The Company received $0 and $266,238 in service fees from these affiliates during the nine months ended December 31, 2013 and December 31, 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 nine months ended December 31, 2013 and December 31, 2012, respectively.