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

12 Months Ended

Sep. 30, 2015

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, 2015 and 2014. In addition, MDI obtained additional shares (4,330,000 shares or 5.7%) through convertible debt (see below). The total direct and indirect ownership of REAP by MDI is 8.4% at September 30, 2015 and 2014.

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 years ended September 30, 2015 and 2014, almost all of the Company's sales and accounts receivable resulted from transactions with MDI. See related party transactions below.

	September 30, 2015					September 30, 2014
	Amount		Percent			Amount		Percent
Sales to MDI	$	623,500		98.4	%	$	603,821		100	%
Receivable from MDI	$	1,554,401		100	%		930,900		100	%
Inventory purchases from MDI*	$	452,162		99.6	%		586,205		51	%
Accounts payable to MDI	$	1,429,046		100	%		1,018,831		100	%
Accrued interest payable to MDI	$	58,333		100	%		38,333		100	%
Convertible note payable to MDI	$	250,000		100	%		250,000		100	%
Rent expense	$	31,744		100	%		30,000		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. The agreement expires on November 1, 2016. On November 11, 2015, the Company and MDI agreed to offset the receivable from MDI of $1,609,401, the accounts payable to MDI of $1,474,186 and $135,215 of the convertible note payable to MDI balance.

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 matured on December 31, 2014. On October 29, 2015, the maturity date was extended to November 1, 2016. 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, 2015 and 2014 and accrued interest payable is $58,333 and $38,333 at September 30, 2015 and 2014, respectively. See Note 8.

Sublease of office space from MDI

The Company sub-leases office space from MDI with the term commencing October 15, 2012 and ended August 31, 2015 at a monthly rate of $2,500. On August 25, 2015, the Company and MDI interested into a five year lease agreement with a third party and the payment totaled $4,575 per month. Rent expense for the years ended September 30, 2015 and 2014 totaled $31,774 and $30,000 respectively, and is included in accounts payable to MDI at September 30, 2015 and 2014. The deposit for the facility is $5,000 and the amount was included in accounts payable, MDI at September 30, 2015 and 2014. Future lease commitments are as follows:

Fiscal Year Ending	Amount
2016	$	54,902
2017		54,902
2018		54,902
2019		54,902
2020		36,602