9. RELATED PARTY TRANSACTIONS

9 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 9 RELATED PARTY TRANSACTIONS

Buying Agency and Supply Agreement

On March 12, 2012, the Company entered into a Buying Agency and Supply Agreement (the “Supply Agreement”) with Forward China. The Supply Agreement, as amended, provides that, upon the terms and subject to the conditions set forth therein, Forward China will act as the Company’s exclusive buying agent and supplier of Products (as defined in the Supply Agreement) in the Asia-Pacific region.  The Company purchases products at Forward China’s cost and also pays to Forward China a monthly service fee equal to the sum of: (i) $100,000; and (ii) 4% of “Adjusted Gross Profit”, which is defined as the selling price less the cost from Forward China. The amended Supply Agreement expires October 22, 2020. Terence Wise, Chief Executive Officer and Chairman of the Company, is the owner of Forward China. In addition, Jenny P. Yu, a Managing Director of Forward China, beneficially owns more than 5% of the Company’s shares of common stock. The Company recorded service fees to Forward China of $346,000 and $353,000 during the three months ended June 30, 2020 and 2019, respectively, and $1,022,000 and $1,056,000 during the nine months ended June 30, 2020 and 2019, respectively, which are included as a component of cost of sales when revenue is recognized on sales of the related products.

Promissory Note

On January 18, 2018, the Company issued a $1,600,000 promissory note payable to Forward China in order to fund the acquisition of IPS. The promissory note bears an interest rate of 8% per annum. Monthly interest payments commenced on February 18, 2018. The original maturity date was January 18, 2019 and has been extended to September 30, 2020. The maturity date of the note has been extended on several occasions to assist the Company with liquidity. For the three months ended June 30, 2020 and 2019, the Company incurred and paid $32,000, and for the nine months ended June 30, 2020 and 2019, the Company incurred and paid $96,000, in interest payments associated with the note. The entire note payable is classified as a current liability and included as a component of notes payable on the accompanying condensed consolidated balance sheets.

Related Party Sales

The Company’s design division provided services to a customer whose Chief Operating and Financial Officer and equity owner is an immediate family member of a director on the Company’s Board of Directors and a member of the Board’s Audit and Compensation committee. The Company sold design services to this customer of $0 and $80,000 in for the three months ended June 30, 2020 and 2019, respectively, and $44,000 and $140,000 for the nine months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and September 30, 2019, there were outstanding receivables of $0 and $9,000, respectively, from this customer.