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

3 Months Ended

Dec. 31, 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. In addition, MDI became a minority shareholder (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 December 31, 2014 and 2015.

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 three months ending December 31, 2014 and 2015, all of the Company's sales resulted from transactions with MDI. The Company had the following related party transactions through December 31, 2015 for the time periods shown in the tables below. 

	Three Months Ending December 31,
	2015		2014
Sales to MDI	$	170,000	$	125,001
Inventory purchases from MDI*		150,705		2,939
Rent expense paid to MDI		-		7,500
Interest expense to MDI		3,471		5,000
Receivable from MDI		115,000		1,055,901
Accounts payable to MDI		112,118		1,036,497
Accrued interest payable to MDI		61,804		58,333
Convertible note payable to MDI, net of discount of $96,590		13,195		250,000

* 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. 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. The Company issued a new 8% Convertible Promissory Note for the remaining convertible note payable balance of $109,785. This note matures on December 31, 2016 and is convertible at the common stock par value of $0.001 per share.