Related Party Transactions with Multichip Display, Inc. (MDI)

12 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 4 - Related Party Transactions with Multichip Display, Inc. (MDI)

MDI is owned by a minority shareholder (2,000,000 shares or 2.7%) of the Company at September 30, 2014 and 2013. In addition, obtained additional shares (4,330,000 shares or 5.7%) through debt conversion (see below). The total direct and indirect ownership of REAP by MDI is 8.6% at September 30, 2014 and 2013.

The Company has an exclusive contract to manufacture products under contract from MDI. MDI will be the sales agent for certain government and private company contracts; REAP manufactures products based on bid prices as agreed between the parties. The Company has also agreed to purchase parts from MDI. As part of the agreement, MDI has agreed to support the operations of the Company through December 31, 2015. MDI is both a significant customer and significant vendor of the Company. For the year ended September 30, 2014 and for the period ended September 30, 2013, all of the Company’s sales and accounts receivable of $930,901 and $327,080, respectively, resulted from transactions with MDI.

	September 30, 2014					September 30, 2013
	Amount		Percent			Amount		Percent
Sales to MDI	$	603,821		100	%	$	327,080		100	%
Receivable from MDI		930,900		100	%		327,080		100	%
Inventory purchases from MDI*		586,205		51	%		256,662		51	%
Accounts payable to MDI		1,018,831		100	%		402,656		100	%
Accrued interest payable to MDI		38,333		100	%		18,333		100	%
Convertible note payable to MDI		250,000		100	%		250,000		100	%
Rent expense		30,000		100	%		27,500		100	%

* Includes borrowings to pay for direct labor.

The agreement with MDI includes an offset clause for accounts receivable from MDI and accounts payable to MDI. Neither party has requested to offset the balance. 

Acquisition of equipment from MDI

On November 2, 2012, the Company acquired equipment from MDI totaling $438,000 through the issuance of a convertible note payable. The Company obtained an appraisal of the equipment on October 25, 2012 which valued the equipment at $438,000 just prior to the acquisition. The convertible note payable bore an interest rate of 8% and matures on December 31, 2014. The rate of conversion is $0.10 per share and is convertible at the option of the lender. On January 7, 2013, the convertible note payable was converted into 4,330,000 shares of common stock. Since the fair market value of the Company’s common stock was not readily determinable at the date of conversion, there was no gain or loss recognized on the conversion.

Acquisition of intangibles from MDI

On November 2, 2012, the Company acquired designs and technology for the light emitting diode manufacture from MDI totaling $250,000 through the issuance of a convertible note payable. The Company obtained an appraisal of intangibles dated October 25, 2012 to determine the fair market value which approximated the cost. The convertible note payable bears an interest rate of 8% and matures on December 31, 2014. On October 31, 2014, the maturity date was extended to November 1, 2015. The rate of conversion is $0.10 per share and is convertible at the option of the lender. If the lender converts, all accrued interest is forfeited. The note balance outstanding is $250,000 at September 30, 2014 and 2013 and accrued interest payable is $38,333 and $18,333 at September 30, 2014 and 2013, respectively.

Sublease of office space from MDI

The Company sub-leases office space from MDI with the term commencing October 15, 2012 and ending November 1, 2015 at a monthly rate of $2,500. Rent expense for the year ended September 30, 2014 and 2013 totaled $30,000 and $27,500, respectively, and is included in accounts payable to MDI at September 30, 2014 and 2013. The deposit for the facility is $5,000 and the amount was included in accounts payable, MDI at September 30, 2014 and 2013. Future lease commitments are as follows:

Year Ending	Amount
2015	$	30,000
2016		2,500