Related Party Transactions

6 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Note 6 - Related Party Transactions

Parties, which can be a corporation or an individual, are considered to be related if we have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

A customer of the Company, Multichip Display, Inc. (“MDI”) is owned by a minority shareholder (1,000 shares or 0.45%) of the Company at March 31, 2017. In addition, MDI owns 2,165 shares or 1.05%. The total direct and indirect ownership of the Company’s common stock by MDI is 1.54% at March 31, 2017.

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; the Company 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, 2017. MDI is both a significant customer and significant vendor of the Company. For the six month ended March 31, 2017 and 2016, almost all of the Company's sales and accounts receivable resulted from transactions with MDI. See related party transactions below.

Six months ending :	March 31, 2017		March 31, 2016
Sales to MD I	$	374,901	$	332,500
Receivables from MDI		610,000		1,209,018
Inventory bought from MDI		323,945		281,025
Accounts Payable to MDI*		1,047,314		205,737
Accrued Interest due to MDI		120,868		63,450
Convertible note due to MDI		109,785		109,785

________

* Includes borrowings to pay for direct labor.

Accounts receivable and account payable with MDI have a net balance feature in the contract.

In prior periods, 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 December 31, 2016. A new note was written in December 2016 which extends the agreement to December 31, 2017.The rate of conversion is $0.001 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 $109,784.88 and $109,784.88 at March 31, 2017 and 2016, respectively. Accrued interest payable is $83,468.04 and $63,450.04 at March 31, 2017 and 2016, respectively.

During the three months ended March 31, 2017 we issued 25,000,000 shares of our common stock to officers and directors as payment for accrued salaries. The price was $0.001, the par value of the shares.

These issuance of securities were made in reliance on Section 4(2) of the Securities Act of 1933, as amended (“Securities Act”) for transaction of an issuer not involving a public offering.

In addition to the above described related party transactions, the Company incurred $21,000 and $13,000 for the three months ended March 31, 2017 and 2016, respectively, and $109,889 and $30,305 for the six months ended March 31, 2017 and 2016, respectively, consulting fees which are payable to three officers and to two shareholders of the Company. Consulting fees payable to these officers and shareholders at March 31, 2017 and March 31, 2016 were $277,475 and $100,975 respectively.

Also in prior periods a shareholder paid certain professional fees incurred by Company. The amount due to the shareholder at March 31, 2017 and 2016 was $74,110. This amount is also included in the figures immediately above.

Short-term loan payable to officer

During the year ended September 30, 2016, an officer advanced the Company $27,253. The payable to the officer totaled $58,874 and $25,901 at March 31, 2017 and September 30, 2016 respectively.

During the three months ended March 31, 2017 and 2016, an officer of the Company advanced/(repaid) $540 and $(1,100), respectively, and $5,720 and $8,075, for the six months ended March 31, 2017 and 2016, respectively. The balance due to the officer was $58,874 at March 31, 2017.