The following discussion and analysis of the results of operations and financial condition of the Company and its subsidiaries for the fiscal years ended December 31, 2012 and 2011 should be read in conjunction with the Summary Selected Consolidated Financial Data and the consolidated financial statements and the notes to those financial statements that are included elsewhere in this Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Annual Report. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.

Overview

On May 4, 2012 (the "Closing Date"), Oryon Technologies, Inc., a Nevada corporation (the "Registrant," "ORYN" or the "Company"), closed a merger transaction with Oryon Merger Sub, LLC, a Texas limited liability company and wholly-owned subsidiary of the Company ("Merger Sub"), and OryonTechnologies, LLC, a Texas limited liability company ("Oryon") pursuant to an Agreement and Plan of Merger dated March 9, 2012 (the "Merger Agreement"). In accordance with the terms of Merger Agreement, on the Closing Date, Oryon merged into Merger Sub in exchange for the issuance to the members of Oryon ("Oryon Members") of eight
(8) shares of the Company's common stock for each outstanding membership unit of Oryon (the "Merger"). In addition, Oryon had outstanding equity equivalents, consisting of convertible notes payable, accrued interest on the notes payable, warrants and unit options, that by their terms required the Company to be prepared to issue common stock in an amount equal to the number of shares (at the 8 to 1 ratio) that would have been issuable at the Closing Date to holders of all of the equity equivalents if they had been converted to membership units before the Closing Date.

From and after the Closing Date, our primary operations consist of the business and operations of Oryon. In conjunction with the Merger, Oryon assumed no liabilities from the Company and all members of the Company's executive management are from Oryon. Accordingly, the Merger was accounted for as a reverse-merger and recapitalization in accordance with GAAP, whereby the Registrant is the accounting acquiree and Oryon is the accounting acquirer. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger are those of Oryon and are recorded at the historical cost basis of Oryon, and the consolidated financial statements after completion of the Merger include the assets and liabilities of the Company and Oryon, historical operations of Oryon and operations of the Company from the Closing Date. Membership units and the corresponding capital amounts of Oryon pre-Merger have been retroactively restated as shares of common stock reflecting the eight (8) to one exchange ratio in the Merger. All references in this document to equity securities and all equity related historical financial measurements, including weighted average shares outstanding, earnings per share, par value of common stock, additional paid in capital, option exercise prices and warrant exercise prices, have been retroactively restated to reflect the Merger exchange ratio.

Oryon is a research and development and applications engineering company that developed multiple patents relating to electroluminescent ("EL") lighting (trademarked as "Elastolite®"). Elastolite® enables thin, flexible, crushable, water-resistant lighting systems to be incorporated into multiple applications such as safety apparel, sporting goods, consumer goods and membrane switches, among others.

For the year ended December 31, 2012, Oryon had a net loss of $2.607 million as compared to a net loss of $1.648 million for the year ended December 31, 2011, an increased loss of 58.2%. There was no change in Oryon's business plan and operations were comparable in both years. However, in 2012, Oryon was more negatively impacted by the effects of capital transactions that had a negative but non-cash impact on the net loss. In July 2011, due to lack of capital, Oryon eliminated most of its work force, including all of its sales personnel, and began making only minimal payments on accounts payable in order to preserve capital.

In October 2011, Oryon signed the letter of intent (the "LOI") with the Company in connection with the Merger. In connection with the LOI, Oryon received funding of $325.0 thousand in exchange for promissory notes as of December 31, 2011 ($725.0 thousand as of the Closing) as advances against the proceeds to be received by Oryon from the sale of Company common stock at the Closing of the Merger. At Closing, Oryon became a wholly-owned subsidiary of the Company and, as a result, the amounts due under the promissory notes between the Company and Oryon became intercompany obligations within the corporate group that have been cancelled. These advances provided Oryon with working capital to continue its operations and to make some repayments on outstanding liabilities.

The accompanying consolidated balance sheets, statements of operations, statements of cash flows and statement of changes in stockholders' equity (deficit) have been prepared by the Company's management in conformity with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations, financial position and cash flows have been included and all such adjustments are of a normal recurring nature.

Key factors affecting our results of operations include revenues, cost of revenues, operating expenses and income and taxation.

Comparison of the Year Ended December 31, 2012 to the Year Ended December 31, 2011

Gross Profit and Other Revenues



                                              For the Year Ended December 31,
                                               2012                    2011              Change from 2011 to 2012
                                                 $                       $                   $                 %
Revenues
Product sales                                      68,428                  95,165            (26,737 )         -28.1 %
Cost of goods sold                                (40,184 )               (64,501 )           24,317           -37.7 %

Gross profit                                       28,244                  30,664             (2,420 )          -7.9 %
Royalty and license fees                               -                      303               (303 )        -100.0 %
Other                                                  -                   65,473            (65,473 )        -100.0 %

Total revenues                                     28,244                  96,440            (68,196 )         -70.7 %

Gross profit and other revenues for the year ended December 31, 2012 decreased $68.2 thousand, or 70.7%, to $28.4 thousand for the year ended December 31, 2012 from $96.4 thousand for the year ended December 31, 2011, largely because in 2012 the Company earned no service fees for design and application assignments for prospective customers, as compared to the $65.5 thousand earned in 2011.

In addition, our gross profit on product sales revenues decreased $2.4 thousand, or 7.9%, to $28.4 thousand in 2012 from $30.7 thousand in 2011, primarily due to a 28.1% decrease in product sales, partially offset by an improvement in the cost of goods sold as a percentage of product sales revenues. Cost of goods sold represented 58.9% of product sales revenues in 2012 as compared to 67.8% in 2011.

Operating Expense - Overview

Total operating expense for the year ended December 31, 2012, increased $273.5
thousand, or 17.7%, to $1,819.3 thousand in 2012 from $1,545.8 thousand in 2011,
as shown in the table below:



                                          For the year ended           For the year ended
                                           December 31, 2012            December 31, 2011                 Change
                                             $             %              $             %             $             %
Total applications development exp.     $   324,575        17.8 %    $   387,753        25.1 %    $ (63,178 )      -16.3 %
Total sales and marketing exp.              152,091         8.4 %         65,316         4.2 %       86,775        132.9 %
Total general and administrative exp.     1,302,429        71.6 %      1,033,857        66.9 %      268,572         26.0 %
Depreciation and amortization                40,163         2.2 %         58,855         3.8 %      (18,692 )      -31.8 %

Total operating expenses                $ 1,819,258       100.0 %    $ 1,545,781       100.0 %    $ 273,477         17.7 %

The primary reason for the increase in total operating expenses is the $268.6 thousand increase in total general and administrative expense, as discussed below.

Applications Development Expense



                                             For the Year Ended December 31,
                                               2012                   2011             Change from 2011 to 2012
                                                $                      $                   $                 %
Applications Development Expense
Wages                                             173,888                216,309           (42,421 )         -19.6 %
Payroll taxes and benefits                         26,455                 43,371           (16,916 )         -39.0 %
Materials, equipment, services                    117,008                109,283             7,725             7.1 %
Office and overhead                                 7,224                 14,236            (7,012 )         -49.3 %
Travel and entertainment                               -                   4,554            (4,554 )        -100.0 %

Total applications development expense            324,575                387,753           (63,178 )         -16.3 %

Total applications development expense decreased by $63.2 thousand, or 16.3%, primarily due to the $42.4 thousand, or 19.6%, decrease in wages. A secondary but related reason for the decrease is the $16.9 thousand, or 39.0% decrease in payroll taxes and employee benefits in 2012 as compared to 2011. In 2012, due to capital constraints, the Company reduced its applications development workforce and, in addition, reduced the overall level of employee benefits.

Sales and Marketing Expense



                                           For the Year Ended December 31,
                                              2012                  2011            Change from 2011 to 2012
                                               $                     $                 $                  %
Sales and Marketing Expense
Wages                                             66,000               35,643           30,357             85.2 %
Payroll taxes and benefits                         6,925               14,815           (7,890 )          -53.3 %
Overhead                                          14,357                  844           13,513           1601.1 %
Outside services                                  32,400               11,459           20,941            182.7 %
Travel and entertainment                          32,409                2,555           29,854           1168.5 %

Total sales and marketing expense                152,091               65,316           86,775            132.9 %

Total sales and marketing expense increased $86.8 thousand, or 132.9%, in 2012 as compared to 2011 due to the addition of a senior marketing individual in January 2012 (wages up $30.3 thousand, or 85.1%) and the costs incurred by the individual during 2012 such as travel expenses (up $29.9 thousand, or 1,168.5%) and conference attendance fees (overhead up $13.5 thousand, or 1,601.1%). By comparison, from July 2011 through the end of December 2011, Oryon had no sales/marketing employees and therefore incurred no wages, employee benefits or travel costs for a significant portion of the 2011 calendar year.

General and Administrative Expense



                                               For the Year Ended December 31,
                                                 2012                   2011             Change from 2011 to 2012
                                                  $                      $                   $                 %
General and Administrative Expense
Wages                                               339,378                350,642           (11,264 )          -3.2 %
Payroll taxes and benefits                          163,292                 51,343           111,949           218.0 %
Overhead                                            160,099                185,434           (25,335 )         -13.7 %
Outside services                                    633,244                424,920           208,324            49.0 %
Travel and entertainment                              6,416                 21,518           (15,102 )         -70.2 %

Total general and administrative expense          1,302,429              1,033,857           268,572            26.0 %

General and administrative expense increased $268.6 thousand, or 26.0%, to $1,302.4 thousand from $1,033.9 thousand, primarily due to (i) the increase in outside services of $208.3 thousand, or 49.0%, to $633.2 thousand in 2012 from $424.9 thousand in 2011, as detailed in the table below and (ii) the increase in employee benefits of $111.9 thousand, or 218.0%, to $163.3 thousand in 2012 from $51.3 thousand in 2011.

The primary reason for the increase in outside services expense was the closing of the Merger in May 2012, which made Oryon a public company for the first time. In 2012, as a public company, the Company incurred directors' fees and expenses (an increase from zero in 2011 to $78.8 thousand in 2012, including $33.8 thousand in directors' stock-based compensation expense), additional auditing fees (an increase of $19.8 thousand) and costs related to public stock ownership (SEC compliance costs and stock transfer agent expenses were $44.1 thousand in 2012).

Consulting expense increased $170.2 thousand in 2012 as compared to 2011 because
(i) in 2012 the Company incurred $82.6 thousand in non-recurring consulting fees for a financial advisor in connection with the Merger, (ii) the Company agreed to pay consulting fees to a former senior officer to retain his expertise at a cost of $56.7 thousand in 2012, and (iii) management outsourced secretarial and administrative services to reduce the fixed payroll overhead.

                                         For the year ended           For the year ended
                                          December 31, 2012            December 31, 2011                 Change
                                            $             %              $             %             $             %
Legal expenses                         $   219,514        34.7 %    $   309,680        72.9 %    $ (90,166 )       -29.1 %
Accounting and audit expenses              101,217        16.0 %         81,449        19.2 %       19,768          24.3 %
Directors fees and expenses                 78,800        12.4 %             -          0.0 %       78,800            NM
Public relations expenses                    5,000         0.8 %         15,897         3.7 %      (10,897 )       -68.6 %
Consulting                                 179,553        28.4 %          9,353         2.2 %      170,200        1819.7 %
Payroll processing expenses                  2,565         0.4 %          7,006         1.7 %       (4,441 )       -63.4 %
Banking Fees                                 2,491         0.4 %          1,535         0.4 %          956          62.3 %
Stock transfer agent and filing fees        44,103         7.0 %             -          0.0 %       44,103            NM

Total G&A outside services             $   633,243       100.0 %    $   424,920       100.0 %    $ 208,323          49.0 %

NM = Not Meaningful

The stock-based compensation expense included in general and administrative payroll taxes and benefits increased to $159.0 thousand in 2012, as compared to only $20.9 thousand in 2011.

Other Income (Expense)

Other income (expense) consists of: interest income, interest expense (discussed below), the change in the fair market value of the Series A warrants, and net other income/expense (discussed below). The largest single component of Other Income (Expense) in the year ended December 31, 2012, was the non-recurring expense for the change in the fair market value of the Series A warrants. In September 2012, the board of directors authorized the re-pricing of the Series A warrants' exercise price from the original $0.75 per share to the current $0.50 per share. This resulted in an increase of $535,367 in allocation of the proceeds to paid-in capital and a matching expense on the income statement. Interest income is negligible.

Interest Expense: Interest expense increased $9.2 thousand, or 3.5%, to $272.0 thousand from $262.8 thousand despite the decrease in accrued and unpaid interest on Oryon's convertible notes payable, which decreased $34.5 thousand, or 27.5%, to $91.3 thousand in 2012 from $125.8 thousand in 2011. The principal reason for the increase in interest expense was the increase in the amortization of the debt discount for the beneficial conversion feature. The amortization of the debt discount for the beneficial conversion feature related to Oryon's Series C-1 convertible notes payable was $136.1 thousand in 2012 as compared to $103.5 thousand in 2011, as shown in the table below.

                                          For the year ended           For the year ended
                                           December 31, 2012            December 31, 2011                 Change
                                             $             %              $             %             $             %
Interest expense on convertible notes
payable                                 $    91,284        33.6 %    $   125,816        47.9 %    $ (34,532 )      -27.5 %
Interest expense on short-term debt          31,741        11.7 %         15,109         5.8 %       16,632        110.1 %
Amortization of debt discount related
to warrants                                  12,893         4.7 %         18,353         7.0 %       (5,460 )      -29.8 %
Amortization of debt
discount-beneficial conversion
feature on the Series C-1 convertible
notes payable                               136,074        50.0 %        103,472        39.4 %       32,602         31.5 %

Total interest expense                  $   271,992       100.0 %    $   262,750       100.0 %    $   9,242          3.5 %

Net other income (expense): Net other income (expense) decreased $73.2 thousand, or 115.9%, to a net expense of $10.0 in 2012 from a net income of $63.2 thousand in 2011. In 2011, the other income of $63.2 thousand consisted of

income related to OryonTechnologies International Pte. Ltd. ("OTI"), Oryon's former wholly-owned Singapore-based subsidiary. In 2011, OTI received confirmation from the Singapore Economic Development Board ("EDB") that OTI would not be required to repay an economic development grant received in 2007 to encourage employment in Singapore. OTI had failed to meet its obligations under the EDB grant and had been carrying the obligation to repay the grant as a current liability. However, OTI appealed to the EDB and, in 2011, was granted a waiver of the repayment requirement. For the year ended December 31, 2012, the other expense of $10.0 thousand consisted primarily of local personal property taxes.

Taxes

Oryon is a limited liability company and, as such, does not accrue or pay income taxes. Regardless, due to the historical losses incurred no taxes would have been payable. However, OTI was a Singapore corporation that generated significant losses during its existence, became inactive in May 2009 and, in connection with the filing of the 2010 tax return, received a refund in 2011 for taxes paid in years prior to 2010.

Liquidity and Capital Resources

The Company does not have sufficient cash on hand and working capital to be able to meet its anticipated cash requirements through 2013. See Note 16 of the Notes to the Consolidated Financial Statements. Not including capital expenditures and costs directly related to revenues, monthly operating expenditures are expected to range between $125,000 and $150,000 per month. Management anticipates that an additional $1,000,000 to $3,000,000 will be necessary to fund operations over the next twelve to twenty-four month period subsequent to December 31, 2012. We do not currently have any material commitments for capital expenditures.

To meet our future objectives, we will need to meet our revenue objectives and sell additional equity and debt securities, which could result in dilution to current shareholders, or seek additional loans. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. We do not have any lending arrangements in place with banking or financial institutions and we do not anticipate that we will be able to secure these funding arrangements in the near future. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations, could harm our overall business prospects and could adversely affect our ability to continue as a going concern.

Our current cash requirements are significant due to planned development and marketing of our current products, and we anticipate generating additional operating monthly losses at least through the end of 2013. In order to execute on our business strategy, we will require additional working capital, commensurate with the operational needs of our planned marketing, development and production efforts. Our management anticipates that we should be able to raise sufficient amounts of working capital through debt or equity offerings, as may be required to meet our short-term obligations, although there is no assurance that we will be able to do so. However, changes in our operating plans, increased expenses, acquisitions, or other events, may cause us to seek additional equity or debt financing in the future. We anticipate continued and additional marketing, development and production expenses. Accordingly, we expect to continue to use debt and equity financing to fund operations for the next twelve months, as we look to expand our asset base and fund marketing, development and production of our products.

There are no assurances that we will be able to raise the required working capital on terms favorable to us, or that such working capital will be available on any terms when needed. Any failure to secure additional financing may force us to modify our business plan and adversely affect our ability to continue as a going concern. In addition, we cannot be assured of profitability in the future.

We are not aware of any unusual or infrequent events or transactions or any significant economic changes that materially affected or could materially affect the amount of our reported income from operations.

Sources and uses of funds

As of December 31, 2012, the Company had cash and equivalents on hand of $169.7 thousand, and negative working capital of $516.3 thousand. Management of the Company recognizes that its cash on hand and working capital will not be sufficient to meet its anticipated cash requirements through 2013.

Oryon's sales cycle timing varies depending on the type of customer being served. It can range from three months for certain specialty promotions to 12-18 months for certain branded products from first contact with a prospective customer until product sales revenues can be reported. During that period, Oryon works with the customer's designs and engineers an application of its patented technology into the customer's final product. This requires substantial co-development with the customer's personnel to meet the needs of the customer. Accordingly, Oryon must have sufficient capital to fund administrative overhead, sales and marketing efforts and staffing expenses for an extended period of time before cash is received from customers.

In 2010, Oryon completed an exchange of the then existing Series A and Series B convertible notes payable for the newly issued Series C-1 and Series C-2 convertible notes payable, respectively. Each holder of a Series A or Series B note also received detachable warrants in connection with the exchange. This exchange was necessary to obtain a modification of the terms of the notes payable to enable Oryon to secure additional funding. In 2010, after the completion of the exchange, Oryon began issuing Series C-3 convertible notes payable, with detachable warrants, obtaining additional funding of $418.0 thousand in 2010 and $75.0 thousand in 2011. In addition, during the second half of 2011, Oryon issued $69.6 thousand in Series C-3 convertible notes payable, but without attached warrants, to the lessor of Oryon's office space in lieu of cash rent payments for the period of July 1 through December 31. In January 2012, Oryon issued an additional $6.6 thousand in Series C-3 convertible notes payable, without attached warrants, to the same lessor in lieu of cash rent for the month of January 2012.

In early 2010, Oryon began negotiations with a private equity firm regarding an investment of $4.5 million into Oryon. In late summer 2010, Oryon and the private equity firm executed a term sheet. In November 2010, Oryon and the private equity firm executed an agreement titled "Draft Securities Purchase Agreement" based on the transaction proposed in the term sheet that would have provided Oryon with sufficient capital to fund its business plan for the foreseeable future. The letter of intent and the "Draft Securities Purchase Agreement" included a "no-shop" clause that effectively prevented Oryon from negotiating with any other potential source of funding until negotiations were terminated with the private equity firm. However, the private equity firm did not act in good faith, in management's opinion, changing certain terms of the proposed transaction, failing to respond to Oryon's communications and . . .