PART II 2 tm2114542d1_partii.htm PART II

 

 

 

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549

 

FORM 1-K

 

ANNUAL REPORT 
PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933

 

For the fiscal year ended December 31, 2020

 

Rayton Solar Inc. 
(Exact name of registrant as specified in its charter)

 

Commission File Number: 24R-00080

 

Delaware   46-4933370
(State or other jurisdiction of incorporation or   (I.R.S. Employer Identification No.)
organization)    

 

7230 Foothill Blvd.  
Tujunga, CA   91042
(Address of principal executive offices)   (Zip Code)

 

(310) 458-5900 
Registrant’s telephone number, including area code

 

Common Stock, par value $0.0001 per share 
(Title of each class of securities issued pursuant to Regulation A)

 

 

 

 

 

 

TABLE OF CONTENTS

 

DESCRIPTION OF BUSINESS - 1 -
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - 11 -
   
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES -13 -
   
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS - 16 -
   
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS - 17 -
   
FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019 - 17 -

 

In this Annual Report, references to “Rayton,” “Rayton Solar,” “we,” “us,” “our,” or “the Company” mean Rayton Solar Inc.

 

THIS ANNUAL REPORT MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE.

 

 

 

 

DESCRIPTION OF BUSINESS

 

Overview

 

Rayton Solar, Inc., which does business as Rayton, was incorporated in the State of Delaware on October 17, 2013. The Company’s initial mission was to develop the most cost-efficient source of renewable energy through ion implanted, ultra-thin, float zone silicon photovoltaic modules (“PV modules”). The Company has pivoted to use its same manufacturing processes to create lower cost gallium arsenide (“GaAs”) wafers for the semiconductor industry as a whole. GaAs wafers serve as the foundation for microchips that are used in automotive, aerospace, 5G, LED, and solar applications. The Company’s management believes that this pivot strengthens its market positioning.

 

Transition from Purely Solar to Wider Product Range

 

At Rayton, we are very excited about the interest today in GaAs wafers. Our shift away from solely thinking about solar technology applications is a result of seeing an industry opportunity which we are strategically positioned to service. Silicon has played an essential role to the semiconductor industry to-date. However, we are now entering an age where certain applications require more expensive semiconductor material than silicon. In the high-frequency and high-power regimes, silicon is not suited to play a strong role. Semiconductor compounds such as gallium nitride (GaN), gallium arsenide (GaAs), and silicon carbide (SiC) have better electronic properties than silicon. However, the material costs for GaN, GaAs and SiC are magnitudes higher than silicon.

 

New applications, such as 5G, 3D image recognition, fast high-power charging, and electric cars, require better performing semiconductors than silicon. At Rayton we have decided to service the people making these applications by providing them with lower cost GaAs wafers. The wafers serve as the building blocks for these devices, so Rayton has the opportunity see the upside of multiple applications of GaAs wafers. Solar and renewable energy is still part of our business plan. We believe that GaAs wafers can be part of the solution for the development of high efficiency solar cells for electric cars, and high current power electronics.

 

The shift away from our sole focus on solar was also determined by our need to serve the financial interest of our investors. Over the past few years there has been significant change in the solar industry. Factors such as low-cost Chinese manufactured panels, and trade tariffs have made it difficult for solar companies such as Sun Edison, Solar World, Vivint, and Solar City to continue with their business, thereby reducing the potential customer market for our PV modules.

 

Principal Products and Services

 

Following the acquisition of additional semiconductor processing equipment, Rayton intends to use its technology to engineer GaAs wafers for use by chipmakers. GaAs is a semiconductor compound of two elements, gallium (Ga) and arsenic (As). GaAs wafers are used in a variety of applications because of their advantages over other semiconductors, like high electron mobility, wide temperature operating range, high thermal stability, and low noise. This makes GaAs wafers well suited for ultra-high radio frequency and fast electronic switching applications.

 

We intend to be part of the manufacturing process that takes GaAs and applies it into retail electronic goods. We would start by buying GaAs wafers in bulk from producers like Freiberger, and Sumitomo. We would then engineer those GaAs wafers into a product suitable for foundries like VPEC and IQE, who build microelectronic devices on the wafers. Those foundries then sell these devices to the chipmakers who turn them into products used in retail electronics. A current example of a GaAs based device is the VCSEL chips used for facial recognition in iPhones and other smartphones.

 

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The following image displays examples of current participants in the semiconductor wafer production process and where Rayton would fit:

 

 

 

Technology

 

The Company's previous focus was on solar energy. Through the use of a particle accelerator co-developed with Phoenix Nuclear Labs, LLC ("PNL"), Rayton is able to achieve close to zero waste and create cost-efficient PV modules. However, the Company realized that the developed technology could be put to additional use beyond just the development of PV modules. Applying the technology that Rayton has already developed, the Company believes it will be able to manufacture engineered GaAs wafers at a price significantly lower than existing manufacturers. The manufacturing process for Rayton’s PV material and GaAs wafers is patented.

 

Particle Accelerator Technology

 

We use a high-current, high-voltage proton particle accelerator from Phoenix Laboratories to slice GaAs wafers. This process, as compared to the current practice of using diamond wire saws for cutting semiconductor materials, reduces waste by up to 50%. Use of diamond wire saws wastes half the processed materials, and typically results in silicon wafers which are 200 microns thick. Our process allows for cutting the materials down to two micron wafer thickness without significant yield loss or breakage.

 

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Further, the Company’s accelerators cost less and operate with less energy compared to competing particle accelerator methods. Because of this, we believe our particle accelerator is capable of making up to 100 times as many wafers with the same amount of semiconductor material as our competitors use to make just one wafer.

 

Fabrication Process

 

To produce our engineered wafers, we first accelerate protons within our particle accelerator and they are accelerated towards and implanted a few microns deep into a semiconductor wafer (e.g. GaAs, SiC, or GaN). Second, the implanted wafer is bonded to a less expensive, compatible carrier wafer. For example, sapphire is a good option as the carrier wafer for GaAs bonding. Third, with a thermal annealing process, a thin layer of the semiconductor material is exfoliated from its original wafer, while maintaining the bond with the carrier wafer. This process can be used to produce an engineered wafer that has a device layer of a few microns on a carrier wafer. For instance, two-micron thick layers of GaAs on sapphire can be produced. The advantage of this process is that the original wafer can be reused more than 100 times which produces over 100 engineered wafers for each source wafer.

 

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Rayton's unique fabrication process makes use of a one-of-a-kind proton implanter jointly designed and built by Rayton and Phoenix Nuclear Labs.

 

 

 

The high current of this proton implanter and a unique set of magnets to shape the proton beam, allows for a potential throughput that is much higher than the current industry standard. Based on our desire to sell GaAs wafers below the current market price, and potential throughput, we believe a full production line beginning with our particle accelerator could lead to the production of a sufficient number of wafers to generate approximately $32 million in annual gross revenue. We then estimate that the full production line would incur a cost of goods sold of approximately $9 million, and total operating expenses of approximately $5.2 million.

 

Engineering and Development to Date

 

The particle accelerator for producing engineered GaAs wafers is fully assembled with PNL. Additional payment and testing is required before they will release it. Rayton does not currently manufacture GaAs wafers. In order to do this we need to raise an additional $14M for equipment and operations to manufacture at scale. This includes a final $654K payment on the accelerator which is currently at the manufacturer, PNL. As of April 20, 2021, Rayton has paid $1,731,000 toward the original $2,385,000 price for the accelerator. We have completed research and development and identified the specific conditions needed to create our engineered wafers. We have also planned out a beta operations phase which would involve making samples with the production quality accelerator. These samples would then be used to secure letters of intent and sales agreements from potential customers. The capital needed for the beta operations phase does not require the $10M in equipment costs needed for phase 1 revenue.

 

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The Company previously intended to slice silicon wafers into thin 2-4 micron slices and attach to a less expensive handle wafer and then make solar cells out of this new "engineered wafer." The Company does not intend to do this anymore, but rather conduct the same slicing and bonding process on GaAs instead of silicon and then sell this GaAs wafer to the semiconductor industry as a whole. A number of devices can be made on Rayton's GaAs wafer including solar, but Rayton does not intend to make the devices as this requires a significantly larger upfront equipment cost which Rayton does not intend to undertake. We have determined that the fastest route to revenue for our shareholders is to service the companies who make devices on GaAs wafers such as IQE, TSMC and other companies with MOCVD capabilities. The largest segment of the GaAs wafer market is currently for 3D-Facial recognition, and other applications such as 5G are rapidly growing.

 

In 2020, the Company made $300,000 worth of payments towards the purchase price for equipment that is necessary for entering the “Beta Phase” of production. Additionally, the Company has begun planning for site commissioning. Rayton’s manufacturing partner has also commenced factory testing of equipment with successful beam operation.

 

Management

 

The Company is led by Andrew Yakub, who has been the Company’s Chief Executive Officer since its inception. The Company has been further supported by its Board of Directors and advisors. The Company believes that this management team knows what is required to develop, finance, and commercialize its engineered GaAs wafers.

 

Market

 

The Company plans to sell specific engineered GaAs wafers for $75 as opposed to the $100 current market price. The GaAs wafer market was $3l 6.49M in 2019 and growing with a CAGR of 7.2%. The overall GaAs device market is expected to grow to $22 billion by 2026. Rayton would buy GaAs wafers in bulk from producers such as Freiberger, and Sumitomo. Rayton would then use its processes to lower the cost of the GaAs wafer. Rayton would then be able to sell its engineered GaAs wafers to foundries like VPEC and IQE who grow devices on the wafers. They then sell these devices to the chipmakers who turn them into products used in retail electronics. The Company has not yet established relationships with the identified bulk wafer manufacturers or foundries.

 

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Currently, wafer growth foundries such as Freiberger and Sumitomo grow ingots of GaAs in crucibles. They then slice these ingots into 500-600 micron thick wafers. The slicing process wastes up to half of the raw material from the ingot, and the thickness is much greater than what is needed for an active region in semiconductor devices. These 500-600 micron thick wafers are then sold to MOCVD capable companies such as VPEC and IQE. These companies grow many more layers on the wafer creating devices for applications such as 3D-Facial Recognition. Those devices are then packaged into chips which then end up in electronic goods such as the iPhone 12 and Microsoft Surface tablets.

 

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Rayton plays a role in mitigating the costs associated with the 2 problems identified above. Rayton can buy the 500-600 micron thick wafers from ingot producers, and then conduct our process to put a 2 micron thick layer of GaAs on a much cheaper handle wafer; in our case sapphire. We would then sell these new "engineered wafers" to the MOCVD capable companies such as VPEC and IQE.

 

Competitors and Industry

 

There are a few companies who manufacture bulk GaAs wafers including but not limited to Freiberger, Sumitomo, and AXT. It is Rayton's understanding that these companies use conventional diamond wire saws to slice their wafers. This process experiences Kerf Loss where up to 50% of the raw ingot can be lost. Additionally, the wafer thickness cannot be thinner than approximately 200 microns due to the mechanical stresses placed on the wafer from the diamond wire saw. Rayton believes we have an advantage over these companies since we replace the diamond wire saw with our particle beam ion implant technique. We believe that our advantage comes from being able to slice 2 micron thick pieces of material with minimal raw material ingot loss, and that we will be able to reduce the overall cost of a GaAs wafer on the open market by up to 25%.

 

The price for wafers produced by our competitors is dropping. As the GaAs wafer market increases in size the price comes down due to economies of scale. There may come a time when the price of conventionally diamond wire cut GaAs wafers has reduced to a point where our ion implantation method is no longer advantageous. We are planning for future products when this event does occur by examining other wafers which have significantly higher price points than GaAs and slower rates of scaling economies. For example, Rayton could conduct a similar ion implantation process on GaN, InP, or SiC wafers to reduce their price as compared to the market price. Rayton is also examining a value-added product where the advantage does not come from the reduction in price, but rather an additional functionality due to the properties of the engineered wafer. While rolling out a GaAs product Rayton plans to examine the possible future products and fulfill the most optimal market demands as they are presented.

 

Rayton sits in between the bulk wafer growers and the epitaxial foundries. Currently we are aware of only one company in the semicoductor space that uses ion implantation technology to create engineered wafers. This company is Soitec and they use different machinery to create a silicon on insulator product. We are not aware that they are manufacturing and marketing a GaAs product as we have described in our business model. We believe that their existing machinery has a lower beam energy and lower beam current than what is needed to produce GaAs engineered wafers in bulk; thus, we believe Rayton is better positioned to address this market.

 

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Solar Applications

 

Rayton intends to continue servicing the solar industry by providing a cost effective solution to high-efficient and light-weight solar cell manufacturing. The record for single junction solar cell efficiency is held by GaAs based solar cells at 28% while silicon solar cells average about 21% in production volumes. These high-efficient GaAs-based solar cells are made using Metal Organic Chemical Vapor Deposition (“MOCVD”) equipment. A GaAs wafer is placed in a reactive MOCVD chamber, and the solar cell is grown on top of this GaAs wafer. The initial GaAs wafer can be reused, but this step has proven to be a bottleneck in the process. Rayton believes that by bringing down the cost of this initial “building block” wafer, it will reduce the cost of the entire process and unlock these types of solar cells for commercial applications. Rayton plans to sell lower cost GaAs wafers to the companies who utilize MOCVD equipment for their products. There are applications of these high-efficient and light-weight solar cells which serve the cause of transforming the world to a fully renewable source of energy.

 

Research and Development

 

Rayton has invested $0 in 2020 and $39,795 in 2019 in research and development. The Company’s research and development costs consist primarily of payroll, equipment, and material costs.

 

Employees

 

The Company currently has one full-time employee and one contractor.

 

Regulation

 

Environmental Regulations

 

Once it begins manufacturing its product, the Company may use, generate, and discharge toxic, volatile, or otherwise hazardous chemicals and wastes in its research and development, manufacturing, and construction activities. The Company will be subject to a variety of federal, state, and local governmental laws and regulations related to the purchase, storage, use, and disposal of hazardous materials. The Company expects to be required to obtain environmental permits necessary to conduct its business. Compliance with these laws and regulations may be costly and may have a material adverse effect on our business and results of operations.

 

Intellectual Property

 

The Company relies on a combination of patent, trademark, copyright, trade secret, and contractual protections to establish and protect its intellectual proprietary rights.

 

The Company’s intellectual property includes U.S. Patent No. 9,404,198 directed to a process and related apparatus for manufacturing silicon wafers from a solid core ingot by way of ion implantation and exfoliation, which was issued August 2, 2016 and is set to expire on September 27, 2033; and U.S. Patent No. 9,499,921 directed to a process for manufacturing silicon wafers from float zone silicon, which was issued on November 22, 2016 and is set to expire on July 30, 2033. This same patented process allows us to create our manufactured GaAs wafers.

 

Rayton has a co-engineering agreement with PNL for the development of the ion implantation system of the particle accelerator. Pursuant to the agreement with PNL, PNL owns the intellectual property of the developed particle accelerator. Rayton, however, has the exclusive right to this machine in the solar industry and receives a 3.5% royalty if the machine that was co-developed is sold outside of the solar industry. All other components of the manufacturing process, Rayton’s proprietary end station and modified off-the-shelf processing equipment, belong to Rayton.

 

On October 21, 2020 the Company and PNL amended the price quote dated February 24, 2017 (the “Quotation”) that PNL previously provided to the Company (the “First Amendment”). The First Amendment set forth a payment plan for the remaining balance on the accelerator equipment. See Exhibit 6.2 hereto. The Company and PNL again amended the Quotation on April 6, 2021 (the “Second Amendment”). The Second Amendment bifurcated payment 4 as set forth in the First Amendment such that $50,000 of such fourth payment would be due on April 2, 2021 and the remaining $185,000 would be due on May 28, 2021. All other payments were unaffected. See Exhibit 6.3 hereto.

 

Litigation

 

Rayton is not currently involved in or aware of any pending litigation.

 

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Properties

 

Rayton does not currently own or lease any premises for its operations. Rayton anticipates signing a lease for a facility that will be suitable through [Phase 1/Phase 2] of the Company’s operations, which would likely cost between $12,000 and $20,000 per month.

 

We anticipate entering the Beta Phase of production in the summer of 2021 where Rayton anticipates signing a lease for a facility which would likely cost between $8,000-12,000 per month.

 

Impact of COVID-19 on Operations

 

The COVID-19 outbreak has generated unprecedented levels of economic uncertainty and it is unclear how it will impact economies, standards of living, and behavior into the future. We anticipate global responses to COVID-19 may result in increased difficulty obtaining financing to continue with development and marketing efforts. To date, our operations have been interrupted by stay-at-home orders. The company has been unable to have in person strategy meetings. We have had to do this virtually. The effect of virtual meetings on efficiency has been minimal.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

 

Operating Results

 

The Company has not yet generated any revenues, and it does not expect to do so until after the necessary machinery is received and prepared for production activity, and the manufacturing and selling of engineered GaAs wafers has begun.

 

Total operating expenses includes general administrative, sales and marketing, and research and development expenses. Total operating expenses decreased to $804,942 for the year ended December 31, 2020 from $1,095,854 for the year ended December 31, 2019, a decrease of 26.5%.

 

General and administrative expenses decreased to $667,434 from $980,923 for the years ended December 31, 2020 and 2019, respectively, a decrease of 31.95%. General and administrative expenses decreased primarily as a result of a reduction of the size of our internal team due to outsourcing accounting and legal responsibilities.

 

We increased sales and marketing expenses by $62,372 from $75,136 for the year ended December 31, 2019 to $137,508 for the year ended December 31, 2020. This increase came from promoting our regulation CF equity fundraising campaign to prospective investors.

 

Research and development expenses decreased to $0 from $39,795 for the years ended December 31, 2020 and 2019, respectively, a decrease of 100%. Research and development expenses decreased primarily as a result of prioritizing and allocating the majority of funds towards paying off the accelerator equipment. Once we are in the Beta Phase of operations then we anticipate R&D expenses increasing.

 

The Company also recorded a increase of $176,245 in other (income) expense as interest expense increased to $255,977 for year ended December 31, 2020 from $79,732 for the year ended December 31, 2019. Interest expense is comprised of interest on the convertible notes and an equipment loan. The increase in primarily due to increased interest on all the convertible notes.

 

The Company recorded a provision of $800 for income tax in 2019 compared to $800 in 2020.

 

As a result of the foregoing, Rayton reduced its net loss for the year ended December 31, 2020 to $1,061,719, compared to $1,176,386 for the year ended December 31, 2019.

 

Liquidity and Capital Resources

 

We had a working capital deficit at December 31, 2020 and 2019 of $279,954 and $642,631, respectively. The decrease is primarily due to a decrease in current liabilities from $681,537 for the year ended December 31, 2019 to $346,934 for the year ended December 31, 2020. As of December 31, 2020, the Company had $10,109 cash on-hand. As of the date of this report, the Company is currently raising additional funds through Regulation Crowdfunding.

 

On December 31, 2020, $1,059,900 in convertible notes, which were issued pursuant to Regulation Crowdfunding in 2019, converted into 3,578,104 shares of common stock.

 

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Cash Flow

 

The following table summarizes, for the years indicated, selected items in our Statements of Cash Flows:

 

   For the Year Ended 
   December 31, 
   2020   2019 
Net cash (used in) provided by:          
Operating activities  $(609,493)  $(319,541)
Investing activities  $(250,000)  $- 
Financing activities  $857,881   $331,262 

 

Operating Activities

 

Cash used in operating activities increased to $609,493 from $319,541 for the years ended December 31, 2020 and 2019, respectively. The increase in cash used in operating activities was primarily due to a decrease in stock-based compensation.

 

Investing Activities

 

Cash used in investing activities increased to $250,000 from $0 for the years ended December 31, 2020 and 2019, respectively. The increase in cash used in investing activities is primarily due to payments of deposits for property and equipment.

 

Financing Activities

 

Cash provided by financing activities increased to $857,881 from $331,262 for the years ended December 31, 2020 and 2019, respectively. The increase in cash provided by financing activities was primarily due to proceeds received from the sale of our common stock and convertible debt.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements, including arrangements that would affect the liquidity, capital resources, market risk support, and credit risk support or other benefits.

 

Plan of Operations

 

Over the next 12 months, we intend to undertake significant steps in furthering the business of the Company, subject to the availability of capital.

 

Rayton is on track to enter the planned “Beta Phase” of production. The Beta phase will bring us to a full proof-of-concept where we can begin marketing our product.

 

The estimated timeline of our Beta Phase is 12 months beginning when the accelerator equipment arrives at our facility. Provided that the Company raises enough capital to make final payments on its production equipment this is anticipated to be in the summer of 2021. During this phase, Rayton will produce engineered wafers in-house to sample out to epitaxy and wafer foundries for high-speed high-power electronic components. We estimate operating costs during this phase to be approximately $60K per month. Some of the milestones in this phase include optimizing beam uniformity, cooling the target wafer, bonding and exfoliating to a handle wafer, clean room commissioning, and optimizing vacuum chamber loading and unloading.

 

Trend Information

 

As discussed above, we will not be able to begin generating revenues until we complete acceptance of the accelerator developed with PNL. This will require final payment to be made, which will significantly increase expenses for the period that acceptance of the accelerator occurs. Until then, we will continue to market Rayton as a source for engineered GaAs wafers for use in the growing GaAs wafer market.

 

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DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES

 

me  Position  Age  Term of Office1  Approximate
Hours per week
for part-time
employees
Executive Officers:            
Andrew Yakub  CEO and Founder, President, Treasurer, Secretary  34  October 27, 2013  Full-time
Directors:            
Andrew Yakub  Chairman of the Board of Directors  34  October 27, 2013  Full-time
James Rosenzweig  Director  60  February 18, 2014  n/a
Mark Goorsky  Director  60  February 18, 2014  n/a

 

Dates appointed to office.

 

Executive Officers and Directors

 

Andrew Yakub, Chief Executive Officer and Chairman of the Board of Directors.

 

Andrew Yakub is the founder of the Company and has served as its Chief Executive Officer and Chairman of the Board of Directors since October 2013. Prior to Rayton, in September 2009, Mr. Yakub founded and has since acted as the Chief Executive Officer of ReGen America, Inc., a producer of commercial and residential solar photovoltaic systems. In that position, he was responsible for the development of over 6 megawatts of solar installations. Mr. Yakub has ceased providing services to ReGen America, Inc. and currently devotes all of his time to Rayton.

 

Named to Forbes’ “30 under 30” list in 2016, Mr. Yakub is a two-time clean technology entrepreneur with a previous solar startup company. Mr. Yakub’s experience spans from UCLA’s Particle Beam Physics Lab to NASA’s Jet Propulsion Lab and has managed over 6 megawatts of commercial solar projects. He holds a Bachelor’s degree in Physics from UC Santa Barbara.

 

James Rosenzweig, Director

 

Dr. James Rosenzweig has been a Director at Rayton since February 2014. He is a professor of physics at UCLA, a position he has held since 1999, and Chair of UCLA’s Physics and Astronomy Department. Dr. Rosenzweig is a world-renowned expert in the physics of intense, ultra-fast charged particle beams and their interactions. He is a frequent lecturer in the US Particle Accelerator School and the author or co-author of over 400 scientific articles, and several topical books in beam and accelerator science. He has been named a Fellow of the American Physical Society and was awarded the International Free-electron Laser Prize. His expertise in particle beam physics is extremely valuable to the development of the ion-cutting process and high-current proton implanter. Dr. Rosenzweig is a co-founder of RadiaBeam Technologies, a manufacturer of particle accelerator components, diagnostics and turnkey accelerator systems. Dr. Rosenzweig received his Ph.D. from the University of Wisconsin – Madison in 1988.

 

Mark Goorsky, Director

 

Mark Goorsky has been a Director at Rayton since February 2014. Dr. Goorsky is a Professor of Materials Science and Engineering at UCLA, where he was chair of the department from 2004-2009. He received his Ph.D. in Materials Science and Engineering in 1989 from the Massachusetts Institute of Technology, and his B.S. in Materials Science and Engineering in 1984 from Northwestern University. Dr. Goorsky held a post-doctoral position at the IBM Thomas J. Watson Research Center (January 1989 - June 1991) and started at UCLA in 1991. Dr. Goorsky’s research focuses on materials integration and the relationship between materials defects and device performance in semiconductor structures. Dr. Goorsky’s expertise in materials science and wafer bonding is incredibly crucial to the development of Rayton’s ion-cutting process.

 

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Advisors

 

Mingguo Liu, Technology Advisor

 

Dr. Mingguo Liu has over 10 years of research and development experience in the solar industry. Prior to joining Rayton in October 2016, he was the Director of Product Engineering at Arzon Solar (a concentrator photovoltaic technology company) where he led the team to break the world record of solar module efficiency two times. He also has extensive experience in prototyping and manufacturing ramp-up. He obtained his M.S. and Ph.D. in Electrical Engineering from University of Texas at Austin and the University of Virginia.

 

Jeffrey Scheinrock

 

Jeffrey Scheinrock is a distinguished serial entrepreneur lending his talents to Rayton in its investment stage. Jeffrey is the Assistant Dean and Faculty Director, MBA Applied Management Programs at the UCLA Anderson School of Management.

 

Michael Curtis

 

Michael Curtis was the Executive Vice President and third-generation owner of Wilbur Curtis Co., Inc., a 75-year-old foodservice equipment manufacturing company. He is also the Founder, President and owner of World-Wide Advantage, a global sourcing company, and the executive advisory board member for Prime Advantage, a Group Purchasing Organization focused on improving cost considerations for manufacturers. He also is a strategic advisor with North American Foodservice Equipment Manufacturers (NAFEM) and Food Equipment Manufacturers Association (FEMA).

 

Carl Nettleton

 

Carl Nettleton heads Nettleton Strategies, a firm specializing in forming complex community coalitions and handling high profile issues involving government, media, business, and neighborhoods. The firm provides critical insight and strategic problem solving for both old and new issues. He serves on the national and California advisory councils for Environmental Entrepreneurs (E2), a national, nonpartisan group of business owners, investors and others who advocate for policies that are good for the economy and good for the environment. Carl also founded OpenOceans Global, an NGO linking people to the world’s oceans. His subject matter expertise includes oceans, all things water, energy, climate, and U.S./Mexico border issues.

 

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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

 

The following table sets forth the compensation paid to our Chief Executive Officer for the year ended December 31, 2020.

 

Name  Capacities in which compensation
was received
  Cash
compensation ($)
   Other
compensation ($)
   Total
compensation ($)
 
Andrew Yakub  Director and Chief Executive Officer  $74,000.00   $   $74,000.00 

 

Compensation for Directors

 

Directors James Rosenzweig and Mark Goorsky do not receive a salary; however, the Company has previously granted to each of them an option to purchase 4,500,000 shares of common stock pursuant to the 2014 Equity Incentive Plan at an exercise price per share of $0.133 subject to the following vesting conditions: (i) 25% of the shares subject to each option shall vest and become exercisable on the first anniversary of the vesting commencement date (February 18, 2014) and (ii) the remaining 75% of the shares subject to each option shall vest and become exercisable in 12 successive equal quarterly installments. All of the 4,500,000 shares subject to each option have vested. No additional options were granted in 2020.

 

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS

 

Set forth below is information regarding the beneficial ownership of Rayton’s Common Stock, its only outstanding class of capital stock, as of December 31, 2020 by (i) each person whom the Company knows owned, beneficially, more than 10% of the outstanding shares of its Common Stock, and (ii) all of the current officers and directors as a group. Rayton believes that, except as noted below, each named beneficial owner has sole voting and investment power with respect to the shares listed. Unless otherwise indicated herein, beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, and includes voting or investment power with respect to shares beneficially owned.

 

Title of class  Name and
address of
beneficial owner(1)
  Amount and
nature of
Beneficial
ownership
  Amount and
nature of
beneficial
ownership
acquirable
  Percent of class 
Common Stock  Andrew Yakub  80,500,000 shares      52.2%
Common Stock  Marooned, Inc.  30,523,432 shares      21.4%
Common Stock  James Rosenzweig;  0 shares  Options to purchase 4,500,000 shares of common stock   0%(2)
Common Stock  Mark Goorsky  0 shares  Options to purchase 4,500,000 shares of common stock   0%(2)
Common Stock  Officers and Directors as a Group  80,500,000  Options to purchase 9,000,000 shares of common stock   56.6%

 

(1) c/o Rayton Solar Inc., 7230 Foothill Blvd., Tujunga, CA 91042

 

(2) Upon the full exercise of the issued options, assuming that no other person exercised options or rights to acquire shares of the Company, each of Mr. Rosenzweig and Mr. Goorsky would hold a 2.9% interest in the Common Stock of the Company.

 

- 16 -

 

 

INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

 

In November 2018, the Company entered into three convertible notes with related parties. The first note was with Ahmad Yakub, who is related to the Company’s Chief Executive Officer, and has a principal balance of $166,000. The second note was with Andrew Yakub, the Company’s Chief Executive Officer, and has a principal balance of $185,800. The third note was with ReGen America, Inc., a company that is co-owned by Andrew Yakub, and has a principal balance of $70,000. These notes accrue interest at 10% per annum and mature in November 2021. The notes are automatically convertible upon a qualified financing of at least $1,000,000 or upon a liquidity event, at a conversion price equal to 75% of the purchase price of the same securities sold by the Company in a qualified financing or liquidity event. If there is no qualified financing or liquidity event prior to the maturity date, then the notes can be voluntarily converted at the fair market value of the Company’s common stock as determined by the Company’s Board of Directors. Interest expense related to these notes was $42,180 and $18,035 for the year ended December 31, 2019 and 2018, and accrued interest related to these notes was $60,125 and $18,035 as of December 31, 2019 and 2018, respectively.

 

OTHER INFORMATION

 

We have no information to disclose that was required to be in a report on Form 1-U.

 

FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019

 

The balance sheet of Rayton Solar Inc. as of December 31, 2020 and 2019, and the statements of operations, changes in stockholders' deficit, and cash flows for the year then ended have been included in this Annual Report with the Independent Auditor's Report of BF Borgers CPA PC, independent certified public accountants, and upon the authority of said firm as experts in accounting and auditing.

 

- 17 -

 

 

INDEX TO EXHIBITS

 

Exhibit No.   Exhibit Description
2.1   Certificate of Incorporation (Filed with the Form 1-A DOS of the Company and available here, https://www.sec.gov/Archives/edgar/data/1654124/000114420416128056/filename4.htm)
2.2   Amendment to Certificate of Incorporation (Filed with the Form 1-A DOS of the Company and available here, https://www.sec.gov/Archives/edgar/data/1654124/000114420416128056/filename5.htm)
2.3   Bylaws (Filed with the Form 1-A DOS of the Company and available here, https://www.sec.gov/Archives/edgar/data/1654124/000114420416128056/filename6.htm)
2.4   First Amendment to Amended and Restated Bylaws (Filed with the Form 1-A/A of the Company and available here, https://www.sec.gov/Archives/edgar/data/1654124/000114420416140373/v455218_ex2-4.htm)
6.1   Joint Development Agreement dated as of August 11, 2014 by and between Phoenix Nuclear Laboratories, LLC and the Company (Filed with the Form 1-A DOS of the Company and available here, https://www.sec.gov/Archives/edgar/data/1654124/000114420416128056/filename7.htm)
6.2   2014 Equity Incentive Plan (Filed with the Form 1-A DOS of the Company and available here, https://www.sec.gov/Archives/edgar/data/1654124/000114420416128056/filename8.htm)
6.3   Convertible Promissory Note with ReGen America Inc. (Filed with the Form 1-A DOS of the Company and available here, https://www.sec.gov/Archives/edgar/data/1654124/000114420416128056/filename9.htm)
6.4   First Amendment to Joint Development Agreement, Acknowledgement and Agreement as of March 10, 2017 by and between Phoenix Nuclear Laboratories, LLC and the Company (Filed with the Form 1-A POS of the Company and available here, https://www.sec.gov/Archives/edgar/data/1654124/000114420418016256/tv488367_ex6-3.htm)
6.5   Andrew Yakub Convertible Note Dated November 13, 2018 (Filed with the 2019 Form 1-K and available here, https://www.sec.gov/Archives/edgar/data/1654124/000110465920070934/tm2021766d1_ex6-5.htm)
6.6   ReGen America Convertible Note Dated November 13, 2018 (Filed with the 2019 Form 1-K and available here, https://www.sec.gov/Archives/edgar/data/1654124/000110465920070934/tm2021766d1_ex6-6.htm)
6.7   First Amendment to Quotation by and between Phoenix Nuclear Laboratories, LLC and the Company Dated October 21, 2020
6.8   Second Amendment to Quotation Dated by and between Phoenix Nuclear Laboratories, LLC and the Company October 21, 2020

 

- 18 -

 

 

SIGNATURES

 

Pursuant to the requirements of Regulation A, the issuer has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Rayton Solar Inc.  
   
By Andrew Yakub  
   
Signature: /s/ Andrew Yakub  
  Chief Executive Officer  
     
Date: April 30, 2021  

 

This Annual Report has been signed by the following persons in the capacities and on the dates indicated.

 

/s/ Andrew Yakub  
   
Anrew Yakub,  
Chief Executive Officer, Chief Financial Officer,
Chief Accounting Officer, and Director  
 
   
Date: April 30, 2021  
   
/s/ James Rozenzweig  
James Rosenzweig, Director  
Date: April 30, 2021  
   
/s/ Mark Goorsky  
Mark Goorsky, Director
Date: April 30, 2021  

 

- 19 -

 

 

RAYTON SOLAR, INC.

 

FINANCIAL STATEMENTS

 

AS OF DECEMBER 31, 2020 AND 2019 AND FOR THE YEARS THEN ENDED

 

Together With

 

Independent Auditor’s Report

 

 

 

Rayton Solar, Inc.

 

Index to Financial Statements

 

Pages
Independent Auditors’ Reports 1
Balance Sheets as of December 31, 2020 and 2019 2
Statements of Operations for the years ended December 31, 2020 and 2019 3
Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2020 and 2019 4
Statements of Cash Flows for the years ended December 31, 2020 and 2019 5
Notes to the Financial Statements 6

 

 

 

 Independent Auditor’s Report

 

Report of Independent Registered Public Accounting Firm

 

To the shareholders and the board of directors of Rayton Solar, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Rayton Solar, Inc. (the "Company") as of December 31, 2020 and 2019, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ BF Borgers CPA PC

 

BF Borgers CPA PC

 

We have served as the Company's auditor since 2020.

 

Lakewood, CO

 

April 26, 2021

 

1

 

 

RAYTON SOLAR, INC. 

BALANCE SHEETS 

DECEMBER 31, 2020 AND 2019

 

   2020   2019 
Assets          
Current assets:          
Cash  $10,109   $11,721 
Escrow receivable   41,748    27,185 
Deferred offering costs   15,000    - 
Total current assets   66,857    38,906 
           
Property and equipment, net   1,703,727    1,470,317 
Total assets  $1,770,584   $1,509,223 
           
Liabilities and Stockholders' Equity          
Current liabilities:          
Accounts payable  $138,813   $190,076 
Accrued liabilities   172,969    195,042 
Related party advances   10,000    19,500 
Loan payable with bank - current   25,152    1,990 
Convertible debt - current, net of discount   -    274,929 
Total current liabilities   346,934    681,537 
           
Long-term convertible debt - related parties   421,800    421,800 
Long-term convertible debt   125,000    125,000 
Loan payable with bank -  net of current portion   36,013    76,052 
Total liabilities   929,747    1,304,389 
           
Commitments and contingencies (Note 3)   -    - 
           
Stockholders' Equity          
Common stock, par value $0.0001; 200,000,000 shares authorized; 146,772,638 and 142,336,420 issued and outstanding as of December 31, 2020 and 2019, respectively   14,679    14,235 
Additional paid-in capital   14,167,023    12,457,976 
Accumulated deficit   (13,329,096)   (12,267,377)
Total stockholders' equity   840,837    204,834 
Total liabilities and stockholders' equity  $1,770,584   $1,509,223 

 

See accompanying notes to the financial statements

 

2

 

 

RAYTON SOLAR, INC. 

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

   2020   2019 
Revenues  $-   $- 
           
Operating Expenses:          
General and administrative   667,434    980,923 
Sales and marketing   137,508    75,136 
Research and development   -    39,795 
Total operating expenses   804,942    1,095,854 
           
Operating loss   (804,942)   (1,095,854)
           
Other (income) expense:          
Interest expense   255,977    79,732 
Total other (income) expense   255,977    79,732 
           
Loss before provision for income taxes   (1,060,919)   (1,175,586)
           
Provision for income taxes   800    800 
           
Net loss  $(1,061,719)  $(1,176,386)
           
Weighted average net loss per share - basic and diluted  $(0.01)  $(0.01)
Weighted average shares outstanding - basic and diluted   142,415,541    142,336,420 

 

See accompanying notes to the financial statements

 

3

 

 

RAYTON SOLAR, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 
   Common Stock   Subscription   Additional Paid-   Accumulated   Total Stockholders' 
   Shares   Amount   Receivable   in Capital   Deficit   Equity 
Balance at December 31, 2018   142,336,420   $14,235   $(10,726)  $11,750,992   $(11,090,991)  $663,510 
Proceeds from sale of common stock   -    -    10,726    (706)   -    10,020 
Stock option compensation   -    -    -    707,690    -    707,690 
Net loss   -    -    -    -    (1,176,386)   (1,176,386)
Balance at December 31, 2019   142,336,420   $14,235   $-   $12,457,976   $(12,267,377)  $204,834 
Proceeds from sale of common stock   858,114    86    (11,769)   237,288    -    225,605 
Common stock issued for conversion of notes and accrued interest   3,578,104    358    -    1,153,192    -    1,153,550 
Stock option compensation   -    -    -    318,567    -    318,567 
Net loss   -    -    -    -    (1,061,719)   (1,061,719)
Balance at December 31, 2020   146,772,638   $14,679   $(11,769)  $14,167,023   $(13,329,096)  $840,837 

 

See accompanying notes to the financial statements

 

4

 

 

RAYTON SOLAR, INC. 

STATEMENTS OF CASH FLOWS 

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

 

   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(1,061,719)  $(1,176,386)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   16,590    16,591 
Stock-based compensation   318,567    706,984 
Amortization of debt discount   96,755    - 
Changes in operating assets and liabilities:          
Inventory   -    (27,185)
Other current assets   -    1,435 
Accounts payable   (51,263)   116,519 
Accrued liabilities   71,577    42,501 
Net cash used in operating activities   (609,493)   (319,541)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Payment of deposits for property and equipment   (250,000)   - 
Net cash used in investing activities   (250,000)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from sale of common stock   225,605    10,726 
Offering costs   (15,000)   - 
Proceeds from convertible debt   673,653    329,929 
Proceeds from (repayment of) related party advances   (9,500)   19,500 
Repayment of loan payable with bank   (16,877)   (28,893)
Net cash provided by financing activities   857,881    331,262 
           
Increase (decrease) in cash and cash equivalents   (1,612)   11,721 
Cash and cash equivalents, beginning of year   11,721    - 
Cash and cash equivalents, end of year  $10,109   $11,721 
           
Supplemental disclosures of cash flow information:          
Cash paid for interest  $18,661   $12,914 
Cash paid for income taxes  $800   $800 
           
Non cash investing and financing activities:          
Escrow receivable from issuance of Regulation CF convertible  notes  $14,563   $- 
Conversion of convertible debt and accrued interest into common stock  $1,153,550   $- 

 

See accompanying notes to the financial statements

 

5

 

 

RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 1 –NATURE OF OPERATIONS

 

Rayton Solar, Inc., which does business as Rayton, was incorporated on October 17, 2013 (“Inception”) in the State of Delaware. The Company’s headquarters are located in Santa Monica, California.  The Company’s initial mission was to develop the most cost-efficient source of renewable energy through ion implanted, ultra-thin, float zone silicon photovoltaic modules. The Company has pivoted to use its same manufacturing processes to create lower cost gallium arsenide (“GaAs”) wafers for the semiconductor industry as a whole. GaAs wafers serve as the foundation for microchips that are used in automotive, aerospace, 5G, LED, and solar applications. The financial statements of Rayton Solar, Inc. (which may be referred to as "Rayton," the "Company," "we," "us," or "our") are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The Company’s activities have been, and will be, directed toward furthering the development of our technology and securing capital to purchase equipment that will allow us to put our technology into production. As a result of our stage of development, the Company has no revenue-producing assets. The Company operates in a rapidly changing technological market, and its activities are subject to significant risks and uncertainties, including failing to secure additional funding to further exploit the Company’s current development.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

To date, the Company has not generated revenues from principal operations and has sustained losses since Inception. Because losses will continue until such time that the Company can procure equipment and complete development of manufacturing technology, we are reliant on financing to support operations. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the financial statements are issued.

 

During the next 12 months, the Company intends to fund its operations through the issuance of convertible notes through private placements and issuances of equity securities through a Regulation Crowdfunding offering, as well as other means of financing as available. If we cannot raise additional short-term capital, we may consume all of our cash reserved for operations. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may be required to reduce the scope of our planned operations, which could harm our business, financial condition, and operating results. The financial statements do not include any adjustments that might result from these uncertainties.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Risks and Uncertainties

 

The Company has a limited operating history and has not generated revenue from intended operations. The Company's business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. A host of factors beyond the Company's control could cause fluctuations in these conditions. Adverse conditions may include but are not limited to: changes in technology, consumer demand, and COVID-19 issues more fully described below. These adverse conditions could affect the Company's financial condition and the results of its operations.

 

6

 

 

RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

On January 30, 2020, the World Health Organization declared the COVID-19 coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be, it is reasonably possible that resources normally available may not be, and capital markets for which the Company relies to fund its business will be severely impacted.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could materially differ from these estimates. Significant estimates include, but are not limited to, recoverability of property and equipment and long-lived assets, valuation of stock options, and the valuation allowance related to deferred tax assets. It is reasonably possible that changes in estimates will occur in the near term.

 

Fair Value of Financial Instruments

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

 

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. 

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace. 

Level 3 - Unobservable inputs which are supported by little or no market activity.

 

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2020 and 2019. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts payable, accrued liabilities, and notes payable. Fair values for these items were assumed to approximate carrying values because they are short term in nature, or they are payable on demand.

 

Cash and Cash Equivalents

 

For purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

 

Property and Equipment

 

Property and equipment are stated at cost. The Company’s fixed assets are depreciated using the straight-line method over the estimated useful life of five (5) years. Leasehold improvements are depreciated over shorter of the useful life or lease life. Construction-in-progress does not begin depreciating until it is placed into service. Maintenance and repairs are charged to operations as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations.

 

7

 

 

RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

Impairment of Long-Lived Assets

 

The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. There were no impairment losses during the years ended December 31, 2020 and 2019. There can be no assurance, however, that market conditions will not change or demand for the Company’s products and services will continue, which could result in impairment of long-lived assets in the future.

 

Deferred Rent

 

When a lease includes fixed escalations of the minimum lease payments, rental expense is recognized on a straight-line basis over the term of the lease. The difference between the straight-lined rental expense and amounts payable under the lease is included within deferred rent.

 

Offering Costs

 

The Company accounts for offering costs in accordance with Accounting Standards Codification (“ASC”) 340, “Other Assets and Deferred Costs”. Prior to the completion of an offering, offering costs will be capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be either charged to stockholders’ equity or netted against the debt offering proceeds upon the completion of an offering or to expense if the offering is not completed.

 

Revenue Recognition

 

Effective January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers”. ASC 606 introduces a new framework for analyzing potential revenue transactions by identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract, and recognizing revenue when (or as) the Company satisfies a performance obligation. There was no effect from the adoption of ASC 606 as the Company has not generated any revenue to date.

 

Advertising

 

The Company expenses the cost of advertising as incurred. During the years ended December 31, 2020 and 2019, advertising expense was $137,500 and $0, respectively.

 

Research and Development

 

We incur research and development costs during the process of researching and developing our technologies and future manufacturing processes. Our research and development costs consist primarily of materials and outside services. We expense these costs as incurred until the resulting product has been completed, tested, and made ready for commercial use.

 

Stock-Based Compensation

 

The Company accounts for stock options under ASC 718, “Share-Based Payments”. Under ASC 718, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the employee’s requisite vesting period or over the nonemployee’s period of providing goods or services. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model.

 

8

 

 

RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

Income Taxes

 

The Company applies ASC 740, “Income Taxes”.  Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. At December 31, 2020 and 2019, the Company has established a full reserve against all deferred tax assets.

  

ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions.  A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.

 

Loss per Common Share

 

The Company presents basic loss per share (“EPS”) and diluted EPS on the face of the statements of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. For periods in which we incur a net loss, the effects of potentially dilutive securities would be antidilutive and would be excluded from diluted EPS calculations. For the years ended December 31, 2020 and 2019, there were 11,835,000 and 11,835,000 options and 59,759 and 59,759 warrants excluded, respectively.

 

Concentration of Credit Risk

 

The Company maintains its cash with a major financial institution located in the United States of America which it believes to be credit worthy.  Balances are insured by the Federal Deposit Insurance Corporation up to $250,000.  At times, the Company maintains balances in excess of the federally insured limits.

 

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), specifying the accounting for leases, which supersedes the leases requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, Topic 842 expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes several practical expedients. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company has reviewed the provisions of the new standard, but it is not expected to have a significant impact on the Company.

 

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes by removing certain exceptions in existing guidance and improves consistency in application by clarifying and amending existing guidance. This guidance is effective for annual periods beginning after December 15, 2020, and interim periods within those annual periods, where the transition method varies depending upon the specific amendment. Early adoption is permitted, including adoption in any interim period. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period, and all amendments must be adopted in the same period. The Company has reviewed the provisions of the new standard, but it is not expected to have a significant impact on the Company.

 

The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our consolidated financial statements.

 

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RAYTON SOLAR, INC.

 

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

 

   December 31,
2020
   December 31,
2019
 
Furniture and fixtures  $82,950   $82,950 
Construction-in-progress   1,681,000    1,431,000 
Total property and equipment   1,763,950    1,513,950 
     Accumulated Depreciation   (60,223)   (43,633)
   $1,703,727   $1,470,317 

  

Construction-in-progress is comprised primarily of payments made toward the development and purchase of a particle accelerator, which is intended to facilitate revenue-producing activities, from Phoenix Nuclear Labs, LLC (“PNL”). Additional payments totaling $704,000 are due in order to complete and take possession of the particle accelerator. If we are unable to make the additional required payments, we will not be able to take possession of the particle accelerator to begin revenue-producing activities as intended. In such event, we may identify another buyer for the particle accelerator to recoup our investment to date. In the event that we cannot identify another buyer, we may be required to forfeit the payments made to date. In either case, PNL will retain sole ownership of the intellectual property related to the developed particle accelerator. To date, PNL has not held the Company in default of the purchase agreement, and the parties executed a new payment arrangement in October 2020. This payment arrangement requires payments totaling $470,000 in 2021 and the remaining balance of $234,000 to be paid 30 days from shipment of the final product.

 

Depreciation expense for the years ended December 31, 2020 and 2019 was $16,590 and $16,591, respectively.

 

NOTE 4 – DEBT

 

Equipment Loan

 

During the year ended December 31, 2017, the Company entered into an equipment financing loan for $120,000 with a commercial institution. The note bears interest at 6% per annum, requires monthly payments of $2,350 starting in April 2018, and matures in March 2023. The loan is secured by the construction-in-progress asset which it was used to purchase. Interest expense related to this loan was approximately $11,000 and $7,000 for the years ended December 31, 2020 and 2019, respectively.

 

Convertible Debt – Related Parties

 

In November 2018, the Company entered into three convertible notes with related parties. The first note was with a relative of the Company’s Chief Executive Officer (“CEO”), and has a principal balance of $166,000. The second note was with the Company’s CEO, and has a principal balance of $185,800. The third note was with a company that is co-owned by the Company’s CEO and has a principal balance of $70,000. These notes accrue interest at 10% per annum and mature in November 2021. The notes are automatically convertible upon a qualified equity financing of at least $1,000,000 or upon a liquidity event, at a conversion price equal to 75% of the purchase price of the same securities sold by the Company in a qualified equity financing or liquidity event. If there is no qualified equity financing or liquidity event prior to the maturity date, then the notes can be voluntarily converted at the fair market value of the Company’s common stock as determined by the Company’s Board of Directors. Interest expense related to these notes was $42,180 and $42,180 for the years ended December 31, 2020 and 2019, and accrued interest related to these notes was $102,395 and $60,215 as of December 31, 2020 and 2019, respectively.

 

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RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

2018 Convertible Debt – Third Parties

 

In October 2018, the Company entered into three additional convertible notes with an aggregate principal balance of $70,000. These notes each accrue interest at 10% per annum and mature in October 2021. These notes are automatically convertible upon a qualified equity financing of at least $3,000,000 or upon a liquidity event, at a conversion price equal to 75% of the purchase price of the same securities sold by the Company in a qualified equity financing or liquidity event. If there is no qualified equity financing or liquidity event prior to the maturity date, then the notes can be voluntarily converted at the fair market value of the Company’s common stock as determined by the Company’s Board of Directors. Interest expense related to these notes was $7,000 and $7,000 for the years ended December 31, 2020 and 2019, and accrued interest related to these notes was $15,433 and $8,433 as of December 31, 2020 and 2019, respectively.

 

2019 Convertible Notes    

 

In 2019, the Company entered into various convertible note units with third parties totaling $55,000. Each unit is for $5,000 and a $1,000 common stock warrant. These notes accrue interest at 10% per annum and matured on December 31, 2019. These notes are voluntarily convertible upon a qualified equity financing in a public offering of at least $5,000,000 or upon a liquidity event, at a conversion price equal to 70% of the purchase price of the same securities sold by the Company in a qualified equity financing. There are no conversion terms outside of a qualified equity offering as indicated in the notes. The warrants have a three-year term and only vest upon an qualified offering. Upon a qualified equity offering, the exercise price of the warrants will be the same value as the shares sold in the qualified equity financing. These warrants are not considered outstanding until there is a qualified equity financing as the number of warrants is indeterminable. Interest expense was $5,500 and $4,777 for the years ended December 31, 2020 and 2019, respectively, and accrued interest related to these notes was $10,277 and $4,777 as of December 31, 2020 and 2019, respectively.

 

Regulation Crowdfunding Convertible Notes

 

In 2019, the Company undertook a Regulation Crowdfunding campaign for convertible notes. Through December 31, 2020, the Company entered into various convertible note with third parties totaling $1,059,900. These notes accrued interest at 10% per annum and matured on December 31, 2020. These notes were voluntarily convertible upon a qualified equity financing in a public offering of at least $5,000,000 or upon a liquidity event, at a conversion price equal to 70% of the purchase price of the same securities sold by the Company in a qualified equity financing. If there is no qualified equity financing or liquidity event prior to the maturity date, then the notes will be automatically converted into common stock at a price per share equal to quotient of $50,000,000 divided by the aggregate number of outstanding common shares of the Company on a fully diluted basis immediately prior to conversion. This occurred on December 31, 2020, and the notes along with the accrued interest thereon automatically converted into 3,578,104 shares of common stock. Interest expense for the years ended December 31, 2020 and 2019 was $85,880 and $7,770, respectively, and accrued interest related to these notes was $0 and $7,770 as of December 31, 2020 and 2019, respectively. In connection with these notes, the Company paid fees to the intermediary totaling approximately $102,000 which was recorded as a discount. The discount was amortized up through the life of the notes. Discount amortization for the years ended December 31, 2020 and 2019 was $96,755 and $5,092, respectively. As of December 31, 2020, there was no remaining discount on the notes. As of December 31, 2020, $41,748 remained in escrow awaiting release.

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

Research and Development Agreement

 

In March 2017, the Company amended its research and development agreement with PNL to set the final prototype price at $2,385,000 and the related payment schedule. In conjunction with the amended agreement, the Company committed to purchase at least six particle accelerators from PNL over the next three years.

 

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RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

The Company made the first three milestone payments, totaling $1,431,000, related to the initial particle accelerator during the year ended December 31, 2017. Additional milestone payments totaling $250,000 were made during the year ended December 31, 2020. As the initial particle accelerator will be used in production after initial testing, these payments were capitalized as construction-in-progress within property and equipment.

 

Litigation

 

During the year ended December 31, 2019, the Company settled two outstanding payables for a total of approximately $58,000. Both agreements required installment payments over a period of time. The first settlement which totaled $30,000 was paid within the 2019 year. The second settlement which totaled approximately $28,000 was partially paid during 2019 with the remaining instalments totaling $14,266 still payable as of December 31, 2019. This was paid in full during the year ended December 31, 2020.

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

We have authorized the issuance of 200,000,000 shares of our common stock, each share having a par value of $0.0001.

 

During the year ended December 31, 2020, the Company sold 858,114 shares of common stock for gross proceeds of $263,378 through its Regulation Crowdfunding offering and received $237,374 in proceeds from amounts sold which were subject to hold back. As of December 31, 2020, the Company had a remaining subscription receivable of $11,769. The Company recognized offering costs of approximately $26,000, which reduced additional paid-in capital, in connection with the sale of these shares.

 

During the year ended December 31, 2020, the Company also issued 3,578,104 shares of common stock for the conversion of convertible debt and related accrued interest. See Note 4.

 

Stock Options

 

In 2014, our Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”).  The 2014 Plan provides for the grant of equity awards to our directors, employees, and certain key consultants, including stock options to purchase shares of our common stock, stock appreciation rights, stock awards, and performance shares.  Up to 15,000,000 shares of our common stock may be issued pursuant to awards granted under the 2014 Plan, subject to adjustment in the event of stock splits and other similar events. The 2014 Plan is administered by our Board of Directors, and expires ten years after adoption, unless terminated earlier by the Board.

 

During the years ended December 31, 2020 and 2019, the Company did not grant any options to employees and non-employees.

 

The risk-free interest rate assumption for options granted is based upon observed interest rates on the United States government securities appropriate for the expected term of the related options.

 

The expected term of employee stock options is calculated using the simplified method, which takes into consideration the contractual life and vesting terms of the options.

 

The Company determined the expected volatility assumption for options granted using the historical volatility of comparable public company's common stock. The Company will continue to monitor peer companies and other relevant factors used to measure expected volatility for future stock option grants, until such time that the Company’s common stock has enough market history to use historical volatility.

 

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RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

The dividend yield assumption for options granted is based on the Company's history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on its common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.

 

The Company recognizes stock option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeiture rates.

 

A summary of the Company’s stock options activity and related information is as follows:

 

 

       Weighted   Weighted Average 
   Number of   Average Exercise   Remaining 
   Shares   Price   Contractual Term 
Outstanding at December 31, 2018   12,835,000   $0.14    5.8 
Granted            
Exercised            
Expired/Cancelled   (1,000,000)   0.29     
Outstanding at December 31, 2019   11,835,000   $0.12    4.2 
Granted            
Exercised            
Expired/Cancelled            
Outstanding at December 31, 2020   11,835,000   $0.12    3.2 
                
Exercisable at December 31, 2019   11,811,563   $0.12    5.5 
Exercisable at December 31, 2020   11,835,000   $0.12    3.2 

 

As of December 31, 2020, there was no remaining unrecognized vesting expense.

 

During the years ended December 31, 2020 and 2019, stock-based compensation was $318,567 and $707,790, respectively, and was included within general and administrative expenses in the statement of operations.

 

Warrants

 

Based on funds raised through our Regulation A offering during the year ended December 31, 2018, the Company issued 9,759 warrants to purchase shares of our common stock to StartEngine Crowdfunding, Inc. The warrants have an exercise price of $1.52 and a term of ten years. The warrants allow for adjustments to the exercise price and number of shares based on future stock dividends, stock splits, and subsequent non-exempt equity sales. The Company accounts for these warrants in accordance with ASU 2017-11, which changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. Accordingly, the value of these warrants are contained within equity, both increasing and decreasing additional paid-in capital for a net zero effect.

 

As of December 31, 2020, the Company also has 50,000 warrants issued in 2018 for consulting services. The warrants have an exercise price of $3.00 and a term of three years.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

Refer to Note 4 for details of related party convertible notes.

 

During 2019, the Company’s Chief Executive Officer advanced the Company $19,500. These advances are non-interest bearing and due on demand. During the year ended December 31, 2020, the Company repaid $9,500 of these advances. As of December 31, 2020, a balance of $10,000 remains.

 

13

 

 

RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

NOTE 8 – INCOME TAXES

 

For the years ended December 31, 2020 and 2019, the Company did not record a current or deferred income tax expense or benefit due to current and historical losses incurred by the Company. The Company’s losses before income taxes consist solely of losses from domestic operations.

 

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The Cares Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act retroactively suspends the 80% income limitation on use of NOL carryovers for taxable years beginning before January 1, 2021, and allows 100% of any such taxable income to be offset by the amount of such NOL carryforward. This 80% income limitation is reinstated (with slight modifications) for tax years beginning after December 31, 2021.

 

The following table presents the current and deferred tax provision for federal and state income taxes for the years ended December 31:

 

   2020   2019 
Current tax provision          
Federal  $-   $- 
State   800    800 
Total  $800   $800 
Deferred tax provision (benefit)          
Federal  $(106,000)  $(86.000)
State   (35,000)   (28,000)
Valuation allowance   141,000    114,000 
Total   -    - 
Total provision for income taxes  $800   $800 

 

Reconciliations of the U.S. federal statutory rate to the actual tax rate are as follows for the years ended December 31:

 

   2020   2019 
Statutory US Federal tax rate   21.0%   21.0%
Permanent differences:          
State and local income taxes, net of Federa   7.0%   7.0%
Stock compensation   -8.4%   0.0%
Other   -2.6%   -0.4%
Temporary differences   -3.7%   -3.3%
Valuation allowance   -13.3%   -24.3%
Total   0.0%   0.0%

 

14

 

 

RAYTON SOLAR, INC. 

NOTES TO THE FINANCIAL STATEMENTS

 

The components of our deferred tax assets (liabilities) for federal and state income taxes consisted of the following as of December 31:

 

   2020   2019 
Other  $30,000   $30,000 
Net operating loss carryover   2,223,000    2,082.000 
Stock-based compensation   241,000    241.000 
Valuation allowance   (2,494,000)   (2:353,000)
Net deferred tax asset  $-   $- 

 

Based on federal tax returns filed, or to be filed, through December 31, 2020, we had available approximately $7,939,000 in U.S. tax net operating loss carryforwards, pursuant to the Tax Reform Act of 1986, which assesses the utilization of a Company’s net operating loss carryforwards resulting from retaining continuity of its business operations and changes within its ownership structure.  Net operating loss carryforwards after 2018 have no expiration.

 

The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and California state jurisdiction.  The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities for all periods after 2017.  The Company currently is not under examination by any tax authority.

 

NOTE 9 – SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events that occurred after December 31, 2020 through April 26, 2021, the issuance date of these financial statements. There have been no other events or transactions during this time which would have a material effect on these financial statements.

 

15