NOTE 12 – RELATED PARTY TRANSACTIONS

There were no sales to Starlight Electronics Company, Ltd. (“SLE”), a related party, during the three months ended December 31, 2015 and December 31, 2014. During the nine months ended December 31, 2015 and December 31, 2014 the Company sold approximately $116,000 and $403,000, respectively to SLE. These goods were sold at a discounted price, similar to prices granted to major direct import customers shipped internationally with freight prepaid. There was no gross profit margin on sales to SLE for the three months ended December 31, 2015 and December 31, 2014. The average gross profit margin on sales to SLE for the nine months ended December 31, 2015 and December 31, 2014 was 16.0% and 16.5%, respectively. These products were drop shipped to Cosmo Communications of Canada (“Cosmo”), a related party and the Company’s primary distributor of its products to Canada.

During the three months ended December 31, 2015 and December 31, 2014 the Company sold additional product to Cosmo of approximately $516,000 and $14,000, respectively, from our California warehouse facility. During the nine months ended December 31, 2015 and December 31, 2014 the Company sold an additional $961,000 and $259,000, respectively, of product to Cosmo from our California warehouse facility. These amounts were included as a component of net sales in the accompanying condensed consolidated statements of income.

For the three month periods ended December 31, 2015 and 2014 the Company received approximately $0 and $64,000, respectively, in licensing fees from SLE for sales of the Company’s products that were sold directly to Cosmo by SLE. For the nine month periods ended December 31, 2015 and 2014 the Company received approximately $0 and $181,000, respectively, in licensing fees from SLE for sales of the Company’s products that were sold directly to Cosmo by SLE. These amounts were included as a component of net sales in the accompanying condensed consolidated statements of income.

The Company purchased products from SLE. The purchases from SLE for the three month periods ended December 31, 2015 and 2014 were approximately $1,396,000 and $0, respectively. The purchases from SLE for the nine month periods ended December 31, 2015 and 2014 were approximately $4,206,000 and $0, respectively.

During the three months ended December 31, 2015 and December 31, 2014 the Company sold approximately $368,000 and $276,000, respectively, to Winglight Pacific, Ltd. (“Winglight”), a related party. During the nine months ended December 31, 2015 and December 31, 2014 the Company sold approximately $1,539,000 and $1,249,000, respectively, to 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 months ended December 31, 2015 and December 31, 2014 was 25.1% and 17.0%, respectively. The average gross profit margin on sales to Winglight for the nine months ended December 31, 2015 and December 31, 2014 was 22.4% and 16.3%, respectively. These products were drop shipped to Cosmo.

The Company purchased products and services from Starlight Consumer Electronics USA, Inc., (“SCE”) a related party. The purchases from SCE for the three month periods ended December 31, 2015 and 2014 were approximately $151,000 and $221,000, respectively. The purchases from SCE for the nine month periods ended December 31, 2015 and 2014 were approximately $306,000 and $2,042,000, respectively. These amounts were included as a component of cost of goods sold in the accompanying condensed consolidated statements of operations.

The Company purchased products and services from Starlight R&D, Ltd, (“SLRD”) a related party. The purchases from SLRD for the three month period ended December 31, 2015 and 2014 were approximately $59,000 and $1,275,000 respectively. The purchases from SLRD for the nine month period ended December 31, 2015 and 2014 were $679,000 and $4,704,000, respectively. These amounts were included as a component of cost of goods sold and general and administrative expenses in the accompanying condensed consolidated statements of operations.

Effective April 1, 2015, SMC-L entered into a service and logistics agreement with SCE, Cosmo and SLE, to provide logistics, fulfillment, and warehousing services for Shihua affiliated companies SCE, Cosmo and SLE’s domestic sales. For these services, Starlight USA, Cosmo and SLE have agreed to reimburse the Company for actual warehouse space occupied by these companies at $0.096 per cubic foot and for logistics services performed based on an agreed to fee schedule specified in the agreement. For the three months ended December 31, 2015 and 2014, the company received approximately $36,000 and $0, respectively. For the nine months ended December 31, 2015 and 2014, the company received approximately $83,000 and $0, respectively. The Company estimates it will receive approximately $100,000 in expense reimbursements for the fiscal year ending March 31, 2016 related to this agreement. These amounts were included as a component of general and administrative expenses in the accompanying condensed consolidated statements of income.