NOTE 13 –RELATED PARTY TRANSACTIONS

DUE TO/FROM RELATED PARTIES

On March 31, 2016 and 2015, the Company had $26,152 and $0, respectively due from related parties for goods and services sold to these companies.

On March 31, 2016 and 2015 the Company had $400,000 and $583,247 due to Ram Light Management, Ltd. for prior years purchases of karaoke hardware. Effective October 1, 2015 the amount due to Ram Light began bearing interest at 6% per annum. The Company paid $16,179 and $0 in interest expense to Ram Light for the fiscal years ended March 31, 2016 and 2015, respectively. On March 31, 2016 and 2015 the Company had amounts due to other related party companies in the amounts of $0 and $802,959 for goods, repair services, one-time engineering fees, storage and administrative services provided to the Company by these related parties.

NOTE PAYABLE

In connection with the Revolving Line of Credit agreement there was a conversion of past due trade payables to a note payable of $1,100,000 to Ram Light Management, Ltd. on July 15, 2014. As of March 31, 2016 and 2015 the principal amount due on the note was $696,612 and $1,100,000, respectively. The note bears interest at 6% per annum and the Company recognized interest expense in the amount of $63,921 and $46,494 for the fiscal years ended March 31, 2016 and 2015, respectively.

SUBORDINATED DEBT

In connection with the Revolving Credit Facility the Company was required to subordinate related party debt from and Starlight Marketing Development, Ltd. in the amount of $1,924,431. The debt cannot be repaid until after the expiration of the Revolving Credit Facility, therefore the subordinated related party debt is classified as a long-term liability on the accompanying balance sheets as of March 31, 2016 and 2015.

TRADE

Approximately 15% of our karaoke products in Fiscal 2016 were produced by factories owned by the Shihua Group.

During Fiscal 2016, 2015 and 2014 the Company sold approximately $0, $285,000 and $1,861,000, respectively to Star Light Electronics Company, Ltd. (“SLE”), a related company, for direct shipments to Cosmo Communications of Canada, Ltd (“Cosmo”), another related company, at discounted pricing granted to major direct import customers shipped internationally with freight prepaid. The average gross profit margin on sales to SLE for Fiscal 2016, 2015 and 2014 was n/a, 16.5% and 14.8%, respectively. These amounts were included as a component of net sales in the accompanying consolidated statements of income.

During Fiscal 2016, 2015 and 2014 the Company received approximately $0, $181,000 and $0, respectively in licensing fees from SEC 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 consolidated statements of income.

During Fiscal 2016, 2015 and 2014 the Company purchased products approximately $4,397,000, $0 and $0, respectively from SLE. These purchases were a component of cost of sales in the accompanying consolidated statements of income.

During Fiscal 2016, 2015 and 2014 the Company paid approximately $149,000, $144,000 and $145,000 respectively to SLE as reimbursement for engineering and quality control services performed on our behalf in China. During the Fiscal 2016, 2015 and 2014 the Company received $60,000 from Starlight USA as reimbursement for customer support services performed by the Company on behalf of Starlight USA. In Fiscal 2016, 2015 and 2014 the Company also paid non-recurring engineering fees to SLE of approximately $22,000, $0 and $0, respectively. These expense reimbursements were included in general and administrative expenses on our consolidated statements of operations.

During Fiscal 2016, 2015 and 2014 the Company sold approximately $1,655,000, $1,249,000 and $0, respectively of product to Winglight Pacific, Ltd. (“Winglight”) a related company, for direct shipment to Cosmo Communications of Canada, Ltd (“Cosmo”), another related company, at discounted pricing granted to major direct import customers shipped internationally with freight prepaid.. The average gross profit margin on sales to SLE for Fiscal 2016, 2015 and 2014 was 22.0%, 17.9% and 0.0%, respectively. These amounts were included as a component of net sales in the accompanying consolidated statements of income.

During Fiscal 2016, 2015 and 2014 the Company sold approximately $969,000, $272,000 and $1,318,000, respectively of product to Cosmo from our California warehouse facility. 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 Cosmo yielded 18.4%, 17.9%, and 16.2%, respectively. These amounts were included as a component of net sales in the accompanying consolidated statements of income.

During Fiscal 2016, 2015 and 2014 the Company purchased products from Starlight Consumer Electronics USA, Inc, (“Starlight USA) an indirect wholly-owned subsidiary of Starlight International of approximately $198,000, $1,640,000 and $8,012,000, respectively. These amounts were included as a component of cost of goods sold in the accompanying consolidated statements of income. The goods were sold to the Company at net 60 day terms with interest of 6% per annum assessed on amounts on past due invoices. For Fiscal 2016, 2015 and 2014 the Company incurred approximately $9,000, $4,000 and $0, respectively of interest expense related to past due invoices. These amounts were included as a component of other expenses in the accompanying consolidated statements of income.

In Fiscal 2016, 2015 and Fiscal 2014 the Company purchased products of approximately $509,000 and $4,626,000 and $0, respectively, from Starlight R&D These amounts were included as a component of cost of goods sold in the accompanying consolidated statements of income. In addition, the Company purchased product repair and engineering services from Starlight R&D during Fiscal 2016, 2015 and Fiscal 2014 of approximately $211,000, $49,000 and $2,000, respectively. These amounts were included as a component of general and administrative expenses in the accompanying consolidated statements of income. These services were sold to the Company at net 60 day terms with interest of 6% per annum assessed on past due invoices. For Fiscal 2016, 2015 and Fiscal 2014 the Company incurred approximately $0, $18,000 and $0 of interest expense related to past due invoices.

In Fiscal 2016, 2015 and Fiscal 2014 the Company paid approximately $38,000, $0 and $0, respectively to Merrygain Holding Company, Ltd. (a related party subsidiary) for storage fees and other services provided to the Company by this company. These amounts were included as a component of general and administrative expenses in the accompanying consolidated statements of income.

In Fiscal 2016, 2015 and Fiscal 2014 the Company purchased products from Star Fair Electronics Co., Ltd., a related company, of approximately $0, $0 and $873,000, respectively. These amounts were included as a component of cost of goods sold in the accompanying consolidated statements of income.

Effective April 1, 2015, SMC-L entered into a service and logistics agreement with Starlight R&D, Cosmo and SLE, to provide logistics, fulfillment, and warehousing services for Starlight USA, Cosmo and SEC’s domestic sales that expired March 31, 2016. For these services, Starlight R&D, 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 Fiscal 2016 the Company received approximately $108,000 in service fees from these affiliates. These amounts were included as a component of general and administrative expenses in the accompanying consolidated statements of income.

Subsequent to our fiscal year ended March 31, 2016, SMC-L renewed the service and logistics agreement with Starlight R&D, Cosmo and SLE, to provide logistics, fulfillment, and warehousing services for Starlight R&D, Cosmo and SLE’s domestic sales effective April 1, 2016 and expiring on March 31, 2017. For these services, Starlight R&D, 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.

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 Shihua (formerly Starlight International), Cosmo and SLE to provide logistics, fulfillment, and warehousing services for Starlight USA, Cosmo, and SEC’s domestic sales. For these services, Starlight USA, Cosmo and SLE 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. For Fiscal 2015 the Company received approximately $141,000 in service fees from these affiliates. These amounts were included as a component of general and administrative expenses in the accompanying consolidated statements of income.

Effective April 1, 2013, SMC-L entered into a service and logistics agreement with Starlight USA, Cosmo and SLE, to provide logistics, fulfillment, and warehousing services for Starlight USA, 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 $0.50 per square foot and for logistics services performed based on an agreed to fee schedule specified in the agreement. For Fiscal 2014 the Company received approximately $330,000 in service fees from these affiliates. These amounts were included as a component of general and administrative expenses in the accompanying consolidated statements of income.