NOTE 13 – RELATED PARTY TRANSACTIONS

During the three months ended September 30, 2014 and September 30, 2013 the Company sold approximately $86,000 and $1,189,000, respectively to Starlight Electronics Company, Ltd. (“SEC”). During the six months ended September 30, 2014 and September 30, 2013 the Company sold approximately $403,000 and $1,416,000, respectively to SEC. 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 SEC for the three months ended September 30, 2014 and September 30, 2013 was 16.5% and 8.6%, respectively. The average gross profit margin on sales to SEC for the six months ended September 30, 2014 and September 30, 2013 was 16.5% and 8.5%, respectively. During the three and six months ended September 30, 2014 and September 30, 2013 the Company sold approximately $973,000 to Winglight Pacific, Ltd. (“Winglight”). 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 Winglight for the three and months ended September 30, 2014 and September 30, 2013 was 16.0%. These products were 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, 2014 and September 30, 2013 the Company sold additional product to Cosmo of approximately $144,000 and $498,000, respectively from our California warehouse facility. During the six months ended September 30, 2014 and September 30, 2013 the Company sold an additional $245,000 and $780,000, 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.

For the three and six month periods ended September 30, 2014 and 2013 the Company received approximately $117,000 and $0, respectively in licensing fees from SEC for sales of the Company’s products that were sold directly to Cosmo by SEC. These amounts were included as a component of net sales in the accompanying condensed consolidated statements of operations.

The Company purchased products and 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, 2014 and 2013 were $3,404,499 and $164,057, respectively. The purchases from SLRD for the six month period ended September 30, 2014 and 2013 were $3,429,268 and $206,162, 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, 2014 and 2013 were $0 and $665,164 respectively. The purchases from SFE for the six month period ended September 30, 2014 and 2013 were $0 and $741,867 respectively. The Company purchased products and services 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, 2014 and 2013 were $222,495 and $7,748,415, respectively. The purchases from SCE for the six month period ended September 30, 2014 and 2013 were $1,820,695 and $9,701,934, respectively. These amounts were included as a component of cost of goods sold in the accompanying condensed consolidated statements of operations.

Effective April 1, 2014, SMC-L entered into a service and logistics agreement with SCE, Cosmo USA, Inc. (“Cosmo USA”) and Starlight Electronics USA, Inc. (“Starlight Electronics USA”) to provide logistics, fulfillment, and warehousing services for SCE, Cosmo USA and Starlight Electronic USA’s domestic sales. For these services, SCE, 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. The Company received $41,923 and $0 in service fees from these affiliates during the three month periods ended September 30, 2014 and September 30, 2013, respectively. The Company received $85,208 and $0 in service fees from these affiliates during the six month periods ended September 30, 2014 and September 30, 2013, respectively. The agreement expires on March 31, 2015 and 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 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 $0 and $108,804 in service fees from these affiliates during the three month periods ended September 30, 2014 and September 30, 2013, respectively. The Company received $0 and $191,304 in service fees from these affiliates during the six months ended September 30, 2014 and September 30, 2013, respectively. This agreement expired on March 31, 2014.