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ORYN > SEC Filings for ORYN > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for ORYON TECHNOLOGIES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ORYON TECHNOLOGIES, INC.


8-Nov-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations of Oryon Technologies, Inc. and its subsidiaries for the three and nine month periods ended September 30, 2013 and 2012 and its financial condition as of September 30, 2013 and December 31, 2012, should be read in conjunction with the consolidated financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. 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 caption "Risk Factors" in the Company's Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission (the "SEC") on March 7, 2013. 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

Oryon Technologies, Inc. ("Oryon", the "Registrant" or the "Company" and "we," "us", "our" or similar terms) was organized under the laws of the State of Nevada on August 22, 2007 to explore mineral properties. On May 4, 2012 (the "Closing Date"), Oryon closed a merger transaction (the "Merger") with Oryon Merger Sub, LLC, a Texas limited liability company and wholly-owned subsidiary of the Company ("Merger Sub"), and OryonTechnologies, LLC ("OTLLC"), a Texas limited liability company, pursuant to an Agreement and Plan of Merger dated March 9, 2012 (the "Merger Agreement"). As a result of the Merger, the Company ceased to explore mineral properties and became a technology company with certain valuable products and intellectual property rights related to a three-dimensional, elastomeric, membranous, flexible electroluminescent lamp. The Company's principal executive offices are located at 4251 Kellway Circle, Addison, Texas 75001, and its phone number is (214) 267-1321.

Oryon Technologies, Inc. ("Oryon" or the "Company") has only one direct subsidiary, OryonTechnologies, LLC, a Texas limited liability company ("OTLLC"). The Company is a developer of a patented electroluminescent ("EL") lighting technology, trademarked as Elastolite® that 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. OTLLC is the parent of two wholly-owned companies:
OryonTechnologies Licensing, LLC ("OTLIC") and OryonTechnologiesDevelopment, LLC ("OTD"), both of which are also Texas limited liability companies.

OTLLC also previously owned OryonTechnologies International Pte. Ltd. ("OTI"), a Singapore-based corporation. Operations at OTI were suspended in May 2009 and OTI was liquidated in November 2012. The operations of OTI were not material to Oryon. OTI originally owned 51% of Oryon-Asia Pacific Safety, Limited ("OAPS"), which was formed in December 2006 as a Hong Kong limited company. During 2011, the 51% ownership was transferred to OTLLC. The other 49% of OAPS was owned by two non-affiliated individuals. Operations of OAPS were suspended in February 2011 and OAPS is in the final stage of liquidation. The operations of OAPS were not material to Oryon.

The following discussion should be read in conjunction with our most recent financial statements and notes appearing elsewhere in this quarterly report. In addition to the historical financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors.

Management's discussion and analysis of the Company's financial condition and results of operations are only based on the current business and operations of OTLLC and its subsidiaries, on a consolidated basis. Key factors affecting the Company's results of operations include revenues, cost of revenues, operating expenses and interest expense.

Operating results for the interim periods presented herein are not necessarily indicative of the results that can be expected for the entire fiscal year.

Comparison of the Quarter ended September 30, 2013 to the Quarter ended September 30, 2012

Gross Profit and Other Revenues


                                       For the Quarter Ended September 30,
                                          2013                   2012               Change from 2012 to 2013
Revenues                                   $                       $                   $                  %
Product sales                               46,576                    13,494            33,082             245.2 %
Cost of goods sold                         (38,882 )                  (3,370 )         (35,512 )          1053.8 %
Gross profit                                 7,694                    10,124            (2,430 )           -24.0 %
Royalty and license fees                         -                         -                 -
Other                                            -                         -                 -
Total revenues                               7,694                    10,124            (2,430 )           -24.0 %

Gross profit margin                           16.5 %                    75.0 %

Product sales for the quarter ended September 30, 2013, increased $33.1 thousand, or 245.2%, to $46.6 thousand for the quarter ended September 30, 2013 from $13.5 thousand for the quarter ended September 30, 2012. Gross profit and total revenues decreased $2.4 thousand to $7.7 thousand, or 24.0%, from $10.1 thousand in the quarter ended September 30, 2012, due to the increase in the cost of goods sold.

Cost of goods sold represented 83.5% of product sales revenues in the third quarter of 2013 as compared to 25.0% in the third quarter of 2012. Each of the Company's sales is separately negotiated with the specific customer. The Company endeavors to obtain the highest sales price for its products that can be negotiated with the customer and does not establish sales prices based on a "cost plus" analysis. Therefore, the cost of goods sold as a percentage of product sales revenue can be expected to vary significantly from period to period depending on the specific customers' product orders.

Operating Expenses-Overview



Total operating expenses for the quarter ended September 30, 2013, decreased
$128.5 thousand, or 29.0%, to $314.6 thousand, from $443.1 thousand in the
quarter ended September 30, 2012, as shown in the table below:


                                 For the quarter ended           For the quarter ended
                                  September 30, 2013              September 30, 2012                  Change
                                9/30/2013           %               $               %             $             %
Total applications
development exp.                     63,778          20.3 %          61,156          13.8 %        2,622          4.3 %
Total sales and marketing
exp.                                 31,029           9.9 %          46,939          10.6 %      (15,910 )      -33.9 %
Total general and
administrative exp.                 212,083          67.4 %         326,896          73.8 %     (114,813 )      -35.1 %
Depreciation and
amortization                          7,695           2.5 %           8,072           1.8 %         (377 )       -4.7 %
     Total operating
expenses                            314,585         100.0 %         443,063         100.0 %     (128,478 )      -29.0 %

The primary reasons for the decrease in total operating expenses are the 35.1% decrease in general and administrative expense and the 33.9% decrease in sales and marketing expense, as discussed below.

Applications Development Expense


                                       For the Quarter Ended September
                                                     30,
                                          2013                 2012            Change from 2012 to 2013
Applications Development Expense           $                    $                 $                  %
Wages                                       31,566               31,971              (405 )            -1.3 %
Payroll taxes and benefits                   5,170               12,025            (6,855 )           -57.0 %
Materials, equipment, services              25,017               14,492            10,525              72.6 %
Office and overhead                          2,025                2,668              (643 )           -24.1 %
Travel and entertainment                         -                    -                 -
Total applications development exp.         63,778               61,156             2,622               4.3 %

       NM = Not Meaningful

Total applications development expense increased by $2.6 thousand or 4.3% for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012, due to the $10.5 thousand increase in materials, equipment and services, partially offset by the $7.3 thousand decrease in wages and the related payroll taxes and benefits. Due to the low level of customer activity in the third quarter of 2012, the materials, equipment, services expenses were very low in that period. By comparison, in 2013, applications activities on behalf of prospective customers increased significantly, resulting in greater expenditures on applications development projects.

Sales and Marketing Expense


                                       For the Quarter Ended September
                                                     30,
                                          2013                 2012            Change from 2012 to 2013
Sales and Marketing Expense                $                    $                 $                  %
Wages                                       18,000               18,000                 -                NM
Payroll taxes and benefits                   1,389                3,253            (1,864 )           -57.3 %
Overhead                                     5,640                2,148             3,492             162.6 %
Outside services                             6,000               12,400            (6,400 )           -51.6 %
Travel and entertainment                         -               11,138           (11,138 )          -100.0 %
Total sales and marketing exp.              31,029               46,939           (15,910 )           -33.9 %

NM = Not Meaningful

Total sales and marketing expense decreased by $15.9 thousand, or 33.9%, to $31.0 thousand in the 2013 third quarter from $46.9 thousand in the 2012 third quarter, largely due to the reduction of outside public relations services below the level incurred in during 2012.

General and Administrative Expense


                                            For the Quarter Ended
                                                September 30,
                                           2013              2012             Change from 2012 to 2013
General and Administrative Expense           $                 $                 $                  %
Wages                                        39,540            70,001             (30,461 )          -43.5 %
Payroll taxes and benefits                   22,033            73,499             (51,466 )          -70.0 %
Overhead                                     35,993            31,206               4,787             15.3 %
Outside services                            106,208           149,201             (42,993 )          -28.8 %
Travel and entertainment                      8,309             2,989               5,320            178.0 %
Total general and administrative exp.       212,083           326,896            (114,813 )          -35.1 %

NM = Not Meaningful

General and administrative expense decreased by $114.8 thousand, or 35.1%, to $212.1 thousand from $326.9 thousand largely due to (a) the $43.0 thousand decrease in outside services expenses, as discussed below, and (b) the decrease in payroll taxes/benefits expense, which decreased $51.5 thousand to $22.0 thousand in the 2013 third quarter from $73.5 thousand in the 2012 third quarter. Most of the decrease in payroll taxes and benefits is attributable to the $48.1 thousand decrease in stock-based compensation expense that was $17.2 thousand in the three months ended September 30, 2013, as compared to $65.3 thousand in the three months ended September 30, 2012.

Outside services expenses decreased $43.0 thousand, or 28.8%, to $106.2 thousand in the quarter ended September 30, 2013 from $149.2 thousand in the quarter ended September 30, 2012, as shown in the table below.

                                 For the quarter ended           For the quarter ended
                                  September 30, 2013              September 30, 2012                  Change
                                    $               %               $               %             $            %

Legal expenses                       30,159          28.4 %          32,481          21.8 %      (2,322 )       -7.2 %
Accounting and audit
expenses                             21,048          19.8 %          26,892          18.0 %      (5,844 )      -21.7 %
Directors' fees and
expenses                             18,125          17.1 %               -           0.0 %      18,125           NM
Public relations expenses             3,115           2.9 %               -           0.0 %       3,115           NM
Consulting                           25,433          24.0 %          76,847          51.5 %     (51,414 )      -66.9 %
Payroll processing expenses             595           0.6 %             564           0.4 %          31          5.5 %
Banking Fees                            118           0.1 %             515           0.4 %        (397 )      -77.1 %
Stock transfer agent and
filing fees                           7,615           7.2 %          11,902           8.0 %      (4,287 )      -36.0 %
   Total G&A outside
services                            106,208         100.0 %         149,201         100.0 %     (42,993 )      -28.8 %
       NM = Not Meaningful

One large component of general and administrative outside services expense is the cost of being a public company, including legal, accounting, SEC filing related costs and stock transfer agent fees. For example, the Company paid no directors' fees prior to the Merger but initiated the incurrence of directors' compensation in the last quarter of 2012. In consequence, general and administrative outside services expense for the third quarter of 2013 included $18.1 thousand in directors' fees and expenses as compared to no such costs in the comparable quarter of the prior year. Since the Closing of the Merger on May 4, 2012, the legal expenses have increased over the pre-Merger period due to the regulatory filings that the Company has made in connection with its current operational and financing activities. In the third quarter of 2012, the Company incurred somewhat higher accounting costs as staff and management made the Company's initial public company filings. The accounting and audit expenses incurred in the third quarter of 2013 are more representative of the costs related to the regular quarterly review by independent public accountants.

An additional reason for the decrease in outside services in the third quarter of 2013 as compared to the third quarter of 2012 is the $51.4 thousand decrease in consulting costs. In connection with the Closing of the Merger, the Company paid an independent financial advisor $45.1 thousand for services in the third quarter of 2012. Excluding this cost, other consulting costs of $31.8 thousand for the three months ended September 30, 2012 were $6.3 thousand greater than in the comparable period in 2013. At the Closing Date, one former senior executive's status changed from being an employee to being an independent consultant to the Company, resulting in $13.3 thousand in expense for the consulting compensation to the individual during the three months ended September 30, 2013 (the contract expired August 31, 2013, so only there were only two months of expense), whereas his consulting compensation was $22.5 thousand for the three months included in the period ended September 30, 2012.

Other Income (Expense)

Interest Expense: Interest expense decreased $58.8 thousand, or 85.6%, to $9.9 thousand for the three months ended September 30, 2013, from $68.7 thousand in the three months ended September 30, 2012. The principal reason for the decrease in interest expense was the conversion of the convertible notes payable on August 31, 2012, so that in the third quarter of 2013 the Company incurred no interest expense or amortization of debt discount on the convertible notes as compared to two full months of such expenses incurred in the third quarter of 2012.

                                 For the quarter ended           For the quarter ended
                                  September 30, 2013              September 30, 2012                  Change
                                   $                %              $                %             $            %

Interest expense on
convertible notes payable               -                           21,962           32.0 %     (21,962 )         NM
Interest expense on
promissory notes and
short-term debt                     9,904           100.0 %          7,217           10.5 %       2,687         37.2 %
Amortization of debt
discount related to
warrants                                -                            3,294            4.8 %      (3,294 )         NM
Amortization of debt
discount-beneficial
conversion feature
   on the Series C-1
convertible notes payable               -                           36,249           52.8 %     (36,249 )         NM
     Total interest expense         9,904           100.0 %         68,722          100.0 %     (58,818 )      -85.6 %

NM = Not Meaningful

Taxes

Since the Company's operating subsidiary, OTLLC, is a limited liability company and, as such, does not accrue or pay income taxes, the Company has not reported income taxes for periods prior to the Closing Date. For the quarter ended September 30, 2013, the Company incurred substantial losses and subsequently has no tax obligation. Although the incurred losses can be carried forward to offset future taxable income, within certain limitations, the Company cannot reliably forecast when profitable operations will occur. Accordingly, the Company has not recorded any deferred tax assets related to the losses incurred subsequent to the Merger.

Comparison of the Nine months ended September 30, 2013 to the Nine months ended September 30, 2012

Gross Profit and Other Revenues



                                                  For the Nine Months Ended
                                                        September 30,
                                                  2013                2012            Change from 2012 to 2013
Revenues                                            $                   $                $                  %
Product sales                                       99,559              46,504             53,055           114.1 %
Cost of goods sold                                 (48,484 )           (26,498 )          (21,986 )          83.0 %
Gross profit                                        51,075              20,006             31,069           155.3 %
Royalty and license fees                                 -                   -                  -
Other                                                    -                   -                  -
Total revenues                                      51,075              20,006             31,069           155.3 %

Gross profit margin                                   51.3 %              43.0 %

Product sales increased $53.1 thousand, or 114.1%, to $99.6 thousand for the nine months ended September 30, 2013 from $46.5 thousand for the nine months ended September 30, 2012. Gross profit and total revenues increased $31.1 thousand to $51.1 thousand, or 155.3%, from $20.0 thousand in the nine months ended September 30, 2012, due to both the increase in product sales and the increase in gross profit on product sales resulting from a decrease in the cost of goods sold as a percentage of product sales.

Cost of goods sold represented 48.7% of product sales revenues in the first nine months of 2013 as compared to 57.0% in the first nine months of 2012. Each of the Company's sales is separately negotiated with the specific customer. The Company endeavors to obtain the highest sales price for its products that can be negotiated with the customer and does not establish sales prices based on a "cost plus" analysis. Therefore, the cost of goods sold as a percentage of product sales revenue can be expected to vary significantly from period to period depending on the specific customers' product orders.

Operating Expenses-Overview



Total operating expenses for the nine months ended September 30, 2013, decreased
$246.8 thousand, or 18.4%, to $1,095.6 thousand, from $1,342.4 thousand in the
nine months ended September 30, 2012, as shown in the table below:



                                 For the nine months ended           For the nine months ended
                                    September 30, 2013                  September 30, 2012                    Change
                                     $                  %                $                  %             $             %
Total applications
development exp.                       235,171           21.5 %            208,599           15.5 %       26,572         12.7 %
Total sales and marketing
exp.                                    86,816            7.9 %            122,564            9.1 %      (35,748 )      -29.2 %
Total general and
administrative exp.                    750,283           68.5 %            979,017           72.9 %     (228,734 )      -23.4 %
Depreciation and
amortization                            23,362            2.1 %             32,209            2.4 %       (8,847 )      -27.5 %
     Total operating
expenses                             1,095,632          100.0 %          1,342,389          100.0 %     (246,757 )      -18.4 %

The primary reason for the decrease in total operating expenses is the 23.4% decrease in general and administrative expense, as discussed below.

Applications Development Expense



                                          For the Nine Months Ended
                                                September 30,
                                          2013                 2012             Change from 2012 to 2013
Applications Development Expense           $                    $                 $                   %
Wages                                      100,278              130,651            (30,373 )           -23.2 %
Payroll taxes and benefits                  17,279               30,984            (13,705 )           -44.2 %
Materials, equipment, services             103,954               40,833             63,121             154.6 %
Office and overhead                         13,660                6,131              7,529             122.8 %
Travel and entertainment                         -                    -                  -
Total applications development exp.        235,171              208,599             26,572              12.7 %

Total applications development expense increased by $26.6 thousand or 12.7% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012, due to (a) the $63.1 thousand increase in materials, equipment, services expenses partially offset by (b) the $30.4 thousand decrease in wages along with the related $13.7 thousand decrease in payroll taxes and benefits. Due to the low level of customer activity in the first nine months of 2012, the materials, equipment, services expenses were very low in that period. By comparison, in 2013, applications activities on behalf of prospective customers increased significantly, resulting in greater expenditures on applications development projects.

Sales and Marketing Expense



                                          For the Nine Months Ended
                                                September 30,
                                          2013                 2012             Change from 2012 to 2013
Sales and Marketing Expense                $                    $                 $                   %
Wages                                       54,000               48,000              6,000              12.5 %
Payroll taxes and benefits                   4,185                5,548             (1,363 )           -24.6 %
Overhead                                    13,561               12,289              1,272              10.4 %
Outside services                             7,000               32,400            (25,400 )           -78.4 %
Travel and entertainment                     8,070               24,327            (16,257 )           -66.8 %
Total sales and marketing exp.              86,816              122,564            (35,748 )           -29.2 %

Total sales and marketing expense decreased to $86.8 thousand in the first nine months of 2013 from $122.6 thousand in the first nine months of 2012. The decrease of $35.7 thousand or 29.2% is largely due to the $25.4 thousand decrease in outside services expenses. The $6.0 increase in wages is the result of increased pay for sales personnel in the first nine months of 2013.

General and Administrative Expense



                                            For the Nine Months Ended
                                                  September 30,
                                            2013                 2012             Change from 2012 to 2013
General and Administrative Expense           $                    $                  $                  %
Wages                                        179,538              269,395             (89,857 )          -33.4 %
Payroll taxes and benefits                   128,885              160,492             (31,607 )          -19.7 %
Overhead                                     104,477              117,598             (13,121 )          -11.2 %
Outside services                             327,387              426,241             (98,854 )          -23.2 %
Travel and entertainment                       9,996                5,291               4,705             88.9 %
Total general and administrative exp.        750,283              979,017            (228,734 )          -23.4 %

General and administrative expense for the first nine months of the year decreased by $228.7 thousand, or 23.4%, to $750.3 thousand from $979.0 thousand largely due to (a) the $98.9 thousand decrease in outside services expenses, as discussed below, and (b) the $89.9 decrease in wages along with the related $31.6 decrease in payroll taxes and benefits.

Outside services expenses decreased $98.9 thousand, or 23.2%, to $327.4 thousand . . .

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