NOTE 17 – RELATED PARTY TRANSACTIONS

TRADE

Approximately 35% of our karaoke products in Fiscal 2014 were produced by factories owned by the Starlight Group and we anticipate that approximately 30% of our karaoke products will be manufactured by the Starlight Group in Fiscal 2015. Starlight International has verbally agreed to manufacture our karaoke products without requiring prepayment from us and will instead assume the cost of manufacturing the products until such time as we are paid by the customers who are purchasing those products from us.

During Fiscal 2014 and 2013 we sold approximately $1,861,000 and $1,813,000, respectively of product to Star Light Electronics Company, Ltd. (“Star Light”) a related company, for direct shipment to Cosmo Communications of Canada, Ltd (“Cosmo”), another related company, at discounted pricing granted to major distributors. In addition, we sold an additional $1,318,000 in Fiscal 2014 and $410,000 in Fiscal 2013 of product to Cosmo from our California warehouse facility. The average gross profit margin on sales to Cosmo yielded 16.2% and 14.4%, respectively.

During Fiscal 2014 and 2013 we purchased products from Starlight Consumer Electronics USA, Inc, (“Starlight USA) an indirect wholly-owned subsidiary of Starlight International of approximately $8,012,000 and $4,932,000, respectively. In Fiscal 2014 and Fiscal 2013, we also purchased products from Star Fair Electronics Co., Ltd. (“Star Fair”) of approximately $873,000 and $3,061,000, respectively, Starlight R&D, Ltd (“Starlight R&D”) of approximately $2,000 and $21,000, respectively, Cosmo USA of approximately of $41,000 and $286,000, respectively and Cosmo Canada of approximately $114,000 and $0, respectively. All of these companies were indirectly wholly-owned subsidiaries of Starlight International. During the fiscal years ended March 31, 2014 and 2013 we received charges for repair defective products from Star Fair in the amount of approximately $52,000 and $39,000 respectively. In connection with the import of these products to our California warehouse we paid inbound freight and duty charges during the fiscal years ended March 31, 2014 and 2013 to Starlight Consumer Electronics USA, Inc. of approximately $109,000 and $54,000, respectively and to Starlight R&D, Ltd of approximately $263,000 and $229,000, respectively.

During the fiscal years ended March 31, 2014 and 2013, we paid $145,000 and $96,000, respectively to Star Light as reimbursement for engineering and quality control services performed on our behalf in China. During the fiscal years ended March 31, 2014 and 2013, we received $60,000 from Starlight USA as reimbursement for customer support services performed by us on behalf of Starlight USA. These expense reimbursements were included in general and administrative expense on our consolidated statements of operations.

Effective April 1, 2014, 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 $8 per pallet and for logistics services performed based on an agreed to fee schedule specified in the agreement. This agreement is estimated to yield approximately $180,000 in reimbursements for the fiscal year ending March 31, 2015.

Effective April 1, 2013, SMC-L entered into a service and logistics agreement with Starlight USA, Cosmo USA and 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 $330,000 and $0 in service fees from these affiliates during the twelve months ended March 31, 2014 and March 31, 2013, respectively.

On July 1, 2012, SMC-L entered into a service and logistics agreement with Starlight USA, Cosmo USA and 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 pay the Company annual service fees totaling approximately $435,000 payable monthly beginning July 1, 2012. The Company received approximately $0 and $399,000 in service fees from these affiliates during Fiscal 2014 and Fiscal 2013, respectively. This agreement terminated on March 31, 2013.

On August 1, 2011, SMC-L entered into a service and logistics agreement with affiliates Starlight USA, Starlight Electronics USA and Cosmo USA to provide logistics, fulfillment, and warehousing services for the affiliates’ domestic sales. The Company received approximately $0 and $250,000 in service fees from these affiliates during Fiscal 2014 and 2013, respectively. This agreement terminated on June 30, 2012.