RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2013

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

8.

RELATED PARTY TRANSACTIONS

One of our shareholders, directors and officers, Mr Karnick, who, together with his wife, owns approximately 16 million shares of restricted common stock, also owns a 100% interest in Numerity Corporation from whom we have licensed our engineering technology, IP and set top box (“STB”) designs, and to whom we are committed to pay royalties of $50 per STB after the first 100,000 units have been shipped, and $20 per STB after 200,000 units have been shipped. No royalty payments have been made through June 30, 2013 since no STBs have been shipped as at that date. In addition, the Company committed to pay $415,000 per annum to Numerity Corporation in respect of a maintenance agreement on the licensed software, but has not made any such payments to Numerity as of June 30, 2013. On July 1, 2010, the Company and Numerity agreed to amend that licensing agreement to provide a deferral of maintenance dues, and an extension of credit until the after the first commercial shipment. The amendment was authorized for the Company by Mr Danny Mabey, a board director with no interest in Numerity.

One of our shareholders, directors and officers, Mr Karnick, who, together with his wife, owns approximately 16 million shares of restricted common stock, also owns a 100% interest in Numerity Corporation, a provider of contract executive, administration and business development services (the “Service Agreement”) to the Company. Initially, the Service Agreement provided for contract service fees of $40,000 per month, but subsequently, as of January 1, 2011 the Company and Numerity agreed to discontinue contract service charges, and instead have Numerity bill the Company for the actual cost of any goods or services provided wholly, exclusively and necessarily for the benefit of the Company. Effective September 1, 2012, in an effort to promote new business development efforts, the Company agreed to further amend the Service Agreement such that they again pay $40,000 per calendar month in service fees to Numerity. The amendments were authorized by Mr. Danny Mabey, a board director with no interest in Numerity.  

As a result of these transactions, and the occasional need for Numerity to advance loans to the Company with which to meet its bills, the Company typically has a balance payable which is reported as a long term account payable to a related party. Through June 30, 2013, Numerity has assigned $1,375,000 of this related party debt to third parties who subsequently accepted the issuance of fully paid restricted shares of common stock, in settlement, leaving a balance due to Numerity at June 30, 2013 of $252,751. In order to regularize a de facto extended credit arrangement between the Company and Numerity Corporation, we  have obtained a formal agreement from Numerity Corporation, effective as of December 31, 2010, agreeing to interest-free, revolving credit terms of one year and one day on all amounts due to Numerity. This extended credit can be terminated at any time subject to either party giving notice to the other, and subject to repayment of the balance being made one year and one day after receipt of notice.

One of our shareholders, Guifeng Qui, who owns approximately 13 million shares of restricted common stock, has a controlling interest in the Chinese distributor who we have appointed to represent us in developing our business in China. The Agreement with this distributor provides that we will receive a margin of $20 on each unit of set-top box sold through that distribution channel, and an additional $5 per month per subscriber for content distribution contracts using our content library.  There have been no such sales or margins to date.

One of our shareholders, directors and officers, Mr Karnick, who, together with his wife, owns approximately 16 million shares of restricted common stock, also owns a 100% interest in Numerity Corporation which owns the library of film content which we intend to include as part of our product offerings. Numerity has agreed to make the library available to us at no charge.