ORYON TECHNOLOGIES, INC.
FORM
10-Q
(Quarterly Report)
Filed 12/09/14 for the Period Ending 09/30/14
Address
Telephone
CIK
Symbol
SIC Code
Industry
Sector
Fiscal Year
4251 KELLWAY CIRCLE
ADDISON, TX 75001
(214) 267-1321
0001436164
ORYN
3640 - Electric Lighting And Wiring Equipment
Electronic Instr. & Controls
Technology
12/31
http://www.edgar-online.com
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2014
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File number:
001-34212
ORYON TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
26-2626737
(IRS Employer Identification No.)
4251 Kellway Circle, Addison, Texas 75001
(Address of principal executive offices)
(214) 267-1321
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes 
No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes 
No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
company)
Accelerated filer
(Do not check if a smaller reporting
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of December 8,
2014, there were 252,333,438 shares of common stock, par value $0.001 per share, outstanding.
INDEX
Page
Number
PART I.
FINANCIAL INFORMATION
ITEM 1.
Financial Statements (Unaudited)
3
Consolidated Balance Sheets at September 30, 2014 (Unaudited) and December 31, 2013
5
Consolidated Statements of Operations - for the quarters and nine month periods ended September 30, 2014 and
2013 (Unaudited)
6
Consolidated Statement of Changes in Shareholders’ Equity (Deficit) - for the nine month periods ended
September 30, 2014 and 2013 (Unaudited)
7
Consolidated Statements of Cash Flows - for the nine month periods ended September 30, 2014 and 2013
(Unaudited)
8
Notes to the Consolidated Financial Statements
9
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
ITEM 3.
Quantitative and Qualitative Disclosure about Market Risk
36
ITEM 4.
Controls and Procedures
36
PART II.
OTHER INFORMATION
ITEM 1.
Legal Proceedings
38
ITEM 1A.
Risk Factors
38
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
38
ITEM 5.
Other Matters
40
ITEM 6.
Exhibits
42
SIGNATURES .
43
PART 1 – FINANCIAL INFORMATION
ITEM I.
FINANCIAL STATEMENTS
Filing for Protection Under Chapter 11 of the U.S. Bankruptcy Code
Oryon Technologies, Inc. (“Oryon” or the “Company”) filed a petition for protection under Chapter 11 of the U.S. Bankruptcy Code on May 6,
2014. The following is information relating to such filing.
1.
The name of the proceeding is In Re: Oryon Technologies, Inc., F/D/B/A Oryon Holdings, Inc., F/D/B/A Eaglecrest Resources,
Debtor - EIN: 26-2623767 - 4251 Kellway Circle, Addison, Texas 75001.
2.
The identity of the court is The United States Bankruptcy Court for the Northern District of Texas, Dallas Division.
3.
The above Court assumed jurisdiction of the above proceeding on May 6, 2014.
4.
No receiver, fiscal agent or similar officer has been appointed in the proceeding. No order confirming a plan of reorganization,
arrangement or liquidation has been entered.
The filing was driven by a number of factors external to the Company’s on-going business, including the following:
a)
EFL Tech B.V., a Holland corporation (“EFL Holland”), which purchased a majority of Oryon's outstanding common stock under a
Subscription Agreement that had its initial closing on January 21, 2014 (the “EFL Holland Transaction”), breached that agreement by
failing to make a payment of $250,000 to Oryon on March 31, 2014 as required by such agreement.
b) The composition of the Board of EFL Holland legally authorized to make decisions on behalf of, and the identity of the person(s) or
entities legally authorized to vote the outstanding shares of, EFL Holland were misrepresented to Oryon, with different factions,
advancing different agendas, vying for control of that company.
c)
Certain persons interested in EFL Holland, including George Hatzimihail, a director of EFL Holland, and his son, Alex Hatzimihail,
Chief Executive Officer of EFL Tech Pty. Ltd. (an Australian corporation) but upon information and belief with no formal legal
position with or connection to EFL Holland (collectively, the “Interested Parties”), conspired with Tony Chahine (upon information
and belief a/k/a Antoine Chahine-Badr) the Chief Executive Officer of Myant Capital Partners, Inc., an Ontario, Canada garment
manufacturer (“Myant”), subsequent to the closing of the EFL Holland Transaction, to provide Myant with a significant equity interest
in, and to enable it to obtain substantial influence over or control of the operations and business of, Oryon. The Board of Directors of
Oryon (after prolonged negotiations, and after careful and deliberate consideration of Myant’s offers, its history of putting companies
which it acquired into bankruptcy, and Tony Chahine’s history of involvement in numerous court cases) had previously rejected bids
by Myant to purchase a controlling equity interest in Oryon as insufficient and not in the best interests of the creditors and
stockholders.
d) M. Richard Marcus, the former Chief Executive Officer and a current affiliate and significant stockholder of Oryon, brought a lawsuit
against Oryon and certain of its directors with respect to the EFL transaction seeking, inter alia , to unwind the EFL Holland
transaction so that he, together with certain other Oryon stockholders, could sell a majority interest in Oryon to a third party for a price
that reflects a control premium. Such lawsuit has consumed appreciable operating funds and management time, negatively impacting
Oryon’s business activities.
e)
The Interested Parties and Tony Chahine have also conspired with M. Richard Marcus to gain his support for their efforts as described
in paragraph (c) above.
f)
The Marcus lawsuit, as well as a lawsuit brought by Myant, created a business environment in which it was not possible for Oryon to
attract additional investment funds outside of the protection of the Bankruptcy Court.
Oryon believes that its extensive electroluminescent (EL) patent portfolio, production-ready Elastolite® flexible lighting products and
technology, wearable electronics market interest and customer support can create a healthy business under the reorganization protection of the
Bankruptcy Court.
3
Confirmation of Plan of Reorganization under Chapter 11 Bankruptcy
On November 7, 2014 (the “Confirmation Date”) the Court entered an order (the “Confirmation Order”) (Exhibit10.1), confirming the
Modified First Amended Chapter 11 Plan under Chapter 11 of the Bankruptcy Code (the “Plan”) (Exhibit10.2), proposed by the Company and
EFL Tech B.V., a Netherlands corporation and the majority shareholder of the Company (“EFL Tech”). The Plan is subject to certain
conditions (described in Note 17 to the Consolidated Financial Statements) that must be satisfied prior to the effective date of the Plan (the
“Effective Date”).
Financial Statements – General
The accompanying consolidated balance sheets of Oryon Technologies, Inc. (the “Company”, “Oryon” or the “Registrant”) at September 30,
2014 (with comparative figures at December 31, 2013), the consolidated statements of operations for the quarters and nine month periods
ended September 30, 2014 and 2013, the consolidated statements of cash flows for the nine month periods ended September 30, 2014 and
2013, and the consolidated statement of changes in shareholders’ equity (deficit) for the nine month periods ended September 30, 2014 and
2013, 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. These unaudited financial
statements should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended, filed with the Securities and
Exchange Commission (the “SEC”) on March 7, 2014, and in the Company’s other filings with the SEC since that date.
On October 24, 2011, the Company entered into a binding letter of intent (“LOI”) with OryonTechnologies, LLC (“OTLLC”) in connection
with a proposed reverse acquisition transaction (the “Merger”) between the Company and OTLLC whereby OTLLC agreed to merge with
Oryon Merger Sub, LLC, a Texas limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”) in exchange for the
issuance to the members of OTLLC of eight (8) shares of the Company’s common stock for each outstanding membership unit of OTLLC. In
accordance with the terms of the LOI, the terms and conditions of the Merger were to be set forth in a formal definitive agreement. To that end,
on March 9, 2012, the Company entered into an agreement and plan of merger by and between the Company, OTLLC and Merger Sub (the
“Merger Agreement”). Upon the closing of the Merger (the “Closing”) on May 4, 2012 (the “Closing Date”), OTLLC became a wholly-owned
subsidiary of the Company pursuant to the Merger Agreement, and the Company issued 16,502,121 shares of common stock to the members of
OTLLC in exchange for the then outstanding 2,062,765.12 membership units of OTLLC. In addition, OTLLC 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.
The Merger was accounted for as a reverse-merger and recapitalization in accordance with GAAP. In conjunction with the Merger, OTLLC
assumed no liabilities from the Company and all members of the Company’s executive management are from OTLLC. OTLLC is deemed to be
the acquirer for financial reporting purposes and the Company is the acquired company. Consequently, the assets and liabilities and the
operations that are reflected in the historical financial statements prior to the Merger are those of OTLLC and are recorded at the historical cost
basis of OTLLC, and the consolidated financial statements after completion of the Merger include the assets and liabilities of the Company and
OTLLC, historical operations of OTLLC and operations of the Company from the Closing Date. Membership units and the corresponding
capital amounts of OTLLC 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.
Operating results for the interim periods presented herein are not necessarily indicative of the results that can be expected for the entire fiscal
year.
4
ORYON TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2014 and December 31, 2013
ASSETS
CURRENT ASSETS
Cash
Accounts Receivable, net of allowance for
doubtful accounts of $0 and $0, respectivelyt
Inventory (see note 2)
Other current assets
Total current assets
September 30,
2014
December 31,
2013
$
$
23,590
44,741
30,049
133,860
187,499
21,182
100,931
8,716
175,570
9,481
13,736
INTANGIBLE ASSETS, NET (see note 4)
97,340
114,652
OTHER LONG-TERM ASSETS (see note 5)
17,132
16,697
PROPERTY AND EQUIPMENT, NET (see note 3)
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Deferred compensation (see note 6)
Current portion of promissory notes and other short-term debt (see note 7)
Other current liabilities (see note 8)
Total current liabilities
$
311,452
$
320,655
$
731,839
1,541
429,703
107,408
1,270,491
$
378,184
386,973
1,149,521
29,748
1,944,426
NOTES PAYABLE, NET (see note 9)
Total liabilities
SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value, 50,000,000 shares authorized, none
issued and outstanding (see note 13)
Common stock, $0.001 par value, 600,000,000 shares authorized, 252,333,438
and 62,660,778 shares issued and outstanding (see note 13)
Paid in capital
Accumulated deficit
Total equity (deficit)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
114,156
1,270,491
2,058,582
-
-
252,334
12,058,271
(13,269,644)
(959,039)
$
The accompanying notes are an integral part of these financial statements.
5
-
311,452
62,661
10,277,865
(12,078,453)
(1,737,927)
$
320,655
ORYON TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Quarters and Nine Month Periods Ended September 30, 2014 and 2013
(Unaudited)
For the Quarter Ended
September 30,
2014
2013
REVENUES
Product sales
Cost of goods sold
Gross profit
Other
Total revenues
OPERATING EXPENSES
Applications development
Wages
Payroll taxes and benefits
Materials, equipment, services
Office and overhead
Total applications development expense
Sales and Marketing
Wages
Payroll taxes and benefits
Overhead
Outside services
Travel and entertainment
Total sales and marketing expense
General and Administrative
Wages
Payroll taxes and benefits
Overhead
Outside services
Travel and entertainment
Total general and administrative expense
Depreciation and Amortization
$
37,290
(16,257)
21,033
21,033
Total loss from operations
OTHER INCOME (EXPENSE)
Interest income
Interest expense
Total other income (expense)
NET LOSS BEFORE TAX
INCOME TAXES (see note 12)
$
For the Nine Months Ended
September 30,
2014
2013
46,576
(38,882)
7,694
7,694
$
88,996
(26,469)
62,527
62,527
$
99,559
(48,484)
51,075
51,075
7,128
2,424
9,345
1,176
20,073
31,566
5,170
25,017
2,025
63,778
34,306
11,429
150,769
9,513
206,017
100,278
17,279
103,954
13,660
235,171
-
18,000
1,389
5,640
6,000
31,029
14,829
6,000
8,076
28,905
54,000
4,185
13,561
7,000
8,070
86,816
2,000
5,234
23,743
75,566
231
106,774
7,125
39,540
22,033
35,993
106,208
8,309
212,083
7,695
83,435
31,593
94,613
744,244
19,825
973,710
21,566
179,538
128,885
104,477
327,387
9,996
750,283
23,362
(112,939)
(306,891)
(1,167,671)
(1,044,557)
(7,884)
(7,884)
(9,904)
(9,904)
17
(23,537)
(23,520)
(28,461)
(28,461)
(120,823)
(316,795)
(1,191,191)
(1,073,018)
-
-
-
-
NET LOSS AFTER TAX
$
(120,823)
$
(316,795)
$
(1,191,191)
$
(1,073,018)
Loss per share: basic and diluted
Weighted average shares outstanding
$
(0.00)
252,333,438
$
(0.01)
62,660,778
$
(0.01)
225,893,097
$
(0.02)
62,660,778
The accompanying notes are an integral part of these financial statements.
6
ORYON TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
For the Quarters Ended September 30, 2014 and 2013
Common
Accumulated
Stock,
Other
$0.001 par
Paid in
Comprehensive Accumulated
Shares
value
Capital
Income (Loss)
Deficit
Total
62,660,778 $
62,661 $10,126,184 $
- $ (10,686,133) $ (497,288)
Balances at December 31, 2012
Operating Results for the quarter ended March
31, 2013
Stock-based compensation expense
Balances at March 31, 2013
(425,478)
77,418
62,660,778 $
62,661 $10,203,602 $
Operating Results for the quarter ended June 30,
2013
Stock-based compensation expense
Balances at June 30, 2013
- $ (11,111,611) $ (845,348)
(330,745)
36,120
62,660,778 $
62,661 $10,239,722 $
Operating Results for the quarter ended
September 30, 2013
Stock-based compensation expense
(425,478)
77,418
(330,745)
36,120
- $ (11,442,356) $ (1,139,973)
(316,795)
17,157
(316,795)
17,157
Balances at September 30, 2013
62,660,778 $
62,661 $10,256,879 $
- $ (11,759,151) $ (1,439,611)
Balances at December 31, 2013
62,660,778 $
62,661 $10,277,865 $
- $ (12,078,453) $ (1,737,927)
Operating Results for the quarter ended March
31, 2014
Issuance of common stock, financing
transactions
Issuance of common stock in settlement of
liabilities
Stock-based compensation expense
170,405,650
170,406
1,079,594
1,250,000
19,267,010
19,267
675,983
12,949
695,250
12,949
Balances at March 31, 2014
252,333,438 $
(648,055)
252,334 $12,046,391 $
Operating Results for the quarter ended June 30,
2014
Stock-based compensation expense
Balances at June 30, 2014
(422,313)
252,334 $12,054,774 $
Operating Results for the quarter ended
September 30, 2014
Stock-based compensation expense
Balances at September 30, 2014
- $ (12,726,508) $ (427,783)
8,383
252,333,438 $
252,333,438 $
252,334 $12,058,271 $
The accompanying notes are an integral part of these financial statements.
7
(422,313)
8,383
- $ (13,148,821) $ (841,713)
(120,823)
3,497
(648,055)
(120,823)
3,497
- $ (13,269,644) $ (959,039)
ORYON TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Month Periods Ended September 30, 2014 and 2013
For the Nine Months Ended
September 30,
2014
2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Noncash interest expense on short-term notes
Stock-based compensation expense
Depreciation and amortization
Changes in operating assets and liabilities:
Accounts receivable -decrease (increase)
Inventory - decrease (increase)
Other current assets - decrease (increase)
Other long-term assets - decrease (increase)
Accounts payable - increase (decrease)
Deferred revenues - increase (decrease)
Deferred compensation - increase (decrease)
Other current liabilities - increase (decrease)
Net cash used in operating activities
$
(1,191,191)
$
22,124
24,829
21,568
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term advances and increase in other short-term debt
Repayment of short-term debt and notes payable
Settlement of short-term debt by issuance of equity
Conversion of investor short-term advances into equity
Equity issued in conversion of investor short-term advances
Net cash proceeds from issuance of equity
Issuance of equity in settlement of short-term debt and other liabilities
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
(1,073,018)
21,470
130,695
23,361
(8,867)
(32,929)
8,716
(435)
353,654
(385,432)
77,660
(1,110,303)
(21,587)
(6,916)
1,252
455
220,130
(6,000)
170,964
(17,045)
(556,239)
49,716
(205,144)
(390,000)
(310,670)
310,670
939,330
695,250
1,089,152
418,168
(22,197)
395,971
(21,151)
(160,268)
44,741
169,678
Cash and cash equivalents, end of period
$
23,590
$
9,410
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest
Debt and accrued interest converted to equity
$
$
1,414
1,005,920
$
$
5,692
-
The accompanying notes are an integral part of these financial statements.
8
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
Organization and Basis of Presentation
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.
The accompanying unaudited financial statements of Oryon have been prepared in accordance with accounting principles generally accepted in
the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”). Because a precise determination of
many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of
estimates, which have been made using careful judgment. Actual results may vary from these estimates.
These financial statements have been prepared in accordance with GAAP applicable to a going concern, which assume that the Company will
be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from
carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and
classification of assets and liabilities should the Company be unable to continue as a going concern.
Oryon filed a petition for protection under Chapter 11 of the U.S. Bankruptcy Code on May 6, 2014. At September 30, 2014, the Company had
cash of $23,590 and had not yet achieved profitable operations. The Company has accumulated losses of $13,269,644 since its inception and
expects to incur further losses in the development of its business, all of which raises substantial doubt about the Company’s ability to continue
as a going concern. The Company’s ability to reorganize under the protection of the Bankruptcy Court is dependent upon its ability to generate
future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business
operations when they come due.
The Company expects to continue to incur substantial losses as it executes its business plan and does not expect to attain profitability in the
near future. Since its inception, the Company has funded operations through short-term borrowings and equity investments in order to meet its
strategic objectives. The Company's future operations are dependent upon external funding and its ability to execute its business plan, realize
sales and control expenses. Management cannot guarantee that sufficient funding will be available from additional borrowings and equity
placements to meet its business objectives, including anticipated cash needs for working capital, for a reasonable period of time. There can be
no assurance that the Company will be able to obtain sufficient funds to continue the development of its business operation, or if obtained,
upon terms acceptable to the Company.
These unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission (the “SEC”) on March 7, 2014, and
in the Company’s other filings with the SEC since that date including the Current Report on Form 8-K, filed on November 13, 2014. In the
opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and
the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year.
Corporate History and the Merger
The Company was incorporated under the laws of the State of Nevada on August 22, 2007 with the name “Eaglecrest Resources, Inc.” and
100,000,000 authorized common shares with a par value of $0.001. On August 6, 2010, the Company amended its Articles of Incorporation to
increase its number of authorized shares of common stock to 600,000,000 shares of common stock, par value of $0.006 per share. On
November 4, 2011, the Company amended its Articles of Incorporation to decrease the par value of its common stock from $0.006 to $0.001
per share. On November 25, 2011, the Company amended its Articles of Incorporation to change its name from “Eaglecrest Resources, Inc.” to
“Oryon Holdings, Inc.” On May 5, 2012, the Company amended its Articles of Incorporation to change its name from “Oryon Holdings, Inc.”
to “Oryon Technologies, Inc.”
The Company was organized for the purpose of acquiring and developing mineral properties. A mineral claim, with unknown reserves, was
acquired in August 2007, became impaired in January 2008 and was written off, and the Company had limited operations subsequently. The
Company never established the existence of a commercially minable ore deposit and therefore did not reach the exploration stage.
9
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
On October 24, 2011, the Company entered into a binding letter of intent (“LOI”) with OTLLC in connection with a proposed reverse
acquisition transaction (the “Merger”) between the Company and OTLLC whereby OTLLC agreed to merge with Oryon Merger Sub, LLC, a
Texas limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”), in exchange for the issuance to the members of
OTLLC of eight (8) shares of the Company’s common stock for each outstanding membership unit of OTLLC, which was equal to a total of
16,502,121 shares (assuming that none of OTLLC’s existing Series C Notes were converted before the closing of the Merger).
In accordance with the terms of the LOI, the terms and conditions of the Merger were thereafter set forth in a formal definitive agreement. To
that end, on March 9, 2012, the Company entered into an agreement and plan of merger by and between the Company, OTLLC and Merger
Sub (the “Merger Agreement”). Upon the closing of the Merger on May 4, 2012 (the “Closing Date”), OTLLC became a wholly-owned
subsidiary of the Company, the Company issued 16,502,121 shares of common stock to the members of OTLLC and the promissory notes
receivable from OTLLC became intercompany obligations within the corporate group (and have been cancelled).
In connection with the Merger, the Company received $2.0 million in proceeds from the private equity offering, issuing 4.0 million shares of
common stock, par value $0.001 (along with warrants for the purchase an additional 4.0 million shares of common stock at the current exercise
price of $0.50 per share and having a term of five (5) years).
As a result of the Merger, the OTLLC members acquired the majority of the Company’s issued and outstanding common stock, OTLLC
became a wholly-owned subsidiary, and the Company acquired the business and operations of OTLLC. In conjunction with the Merger,
OTLLC assumed no liabilities from the Company and all members of the Company’s executive management are from OTLLC. The Company
filed a Current Report on Form 8-K, as amended, dated May 4, 2012, describing the Merger and providing information concerning OTLLC.
The Merger was accounted for as a reverse-merger and recapitalization in accordance with GAAP. OTLLC is deemed to be the acquirer for
financial reporting purposes and the Company is the acquired company. Consequently, the assets and liabilities and the operations that are
reflected in the historical financial statements prior to the Merger are those of OTLLC and are recorded at the historical cost basis of OTLLC,
and the consolidated financial statements after completion of the Merger include the assets and liabilities of the Company and OTLLC,
historical operations of OTLLC and operations of the Company from the Closing Date. Membership units and the corresponding capital
amounts of OTLLC pre-Merger have been retroactively restated as shares of common stock reflecting the eight (8) to one exchange ratio of the
Merger. All references in the financial statements and notes thereto 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.
The EFL Transaction
On January 21, 2014, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with EFL Tech B.V., a Netherlands
corporation (“EFL Tech”). At the closing of the first tranche of issuances of shares of the Company’s common stock, par value $0.001 (the
“Common Stock”) pursuant to the Subscription Agreement, on January 21, 2014 (the “First Closing”), the Company issued to EFL Tech an
aggregate of 85,271,779 shares of Common Stock, and EFL Tech delivered $1,000,000 (of the net $1.5 million cash portion of the
consideration for all share issuances under the Subscription Agreement) to the Company. Subsequent to the First Closing, on January 21, 2014,
EFL Tech held 51.0% of the Company’s issued and outstanding Common Stock (46.0% on a fully diluted basis).
Other consideration provided to the Company at the First Closing for the sale of shares of Common Stock to EFL Tech consists of the
following agreements, each of which was entered into and delivered by the Company and EFL Holdings Tech B.V., a Netherlands corporation
(“EFL Holdings”), and an affiliate of EFL Tech, on January 21, 2014: (a) License Agreement (included herein as Exhibit 10.6) granting the
Company an exclusive, worldwide, perpetual, sub-licensable, royalty-free, paid-up license (the “License Agreement”) for all of EFL Holding’s
EL-related patents, trademarks and other intellectual property, both U.S. and international (the “EFL Holdings IP”); (b) Equipment Lease
Agreement for certain printing equipment used in the production of electroluminescent (“EL”) lamps, the Company’s principal product, which
EFL Holdings valued at $1.5 million, at no cost to Oryon (the “Equipment Lease”); and (c) Business Relationship Agreement pursuant to
which EFL Holdings covenants that it will not, directly or indirectly, provide services to or otherwise engage in the business of manufacturing,
designing, marketing, selling or distributing EL, or any products incorporating the EFL Holdings IP, other than through the ownership,
management and control of the Company by EFL Tech. The above-referenced agreements contemplate that the Company will license, and will
manufacture and market products incorporating, its EL-related intellectual property and the EFL Holdings IP as a combined intellectual
property portfolio. Collectively, the above referenced agreements and the Subscription Agreement are referred to herein as the “EFL
Transaction”.
10
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
At the closing of the second tranche under the Subscription Agreement, on or before February 28, 2014 (the “Second Closing”), EFL Tech
delivered to the Company additional funds in the amount of $250,000 and the Company issued to EFL Tech an additional 85,133,871 shares of
Common Stock, at which time EFL Tech’s cumulative ownership became 170,405,650 shares of Common Stock, constituting 63.0% of the
Common Stock on a fully diluted basis. . EFL Tech also obtained the right to nominate one additional director to the Company’s Board (but
has not yet done so), giving it the right to nominate two members of the seven-member Board.
EFL Tech failed to pay the third and final tranche of $250,000 that was required by the Subscription Agreement to be paid to the Company on
or before March 31, 2014 (the “Third Closing”). At the Third Closing, EFL Tech was required to deliver to the Company additional funds in
the amount of $250,000 (bringing the total amount of the cash component that would have been paid by EFL Tech to the Company in
consideration for the issuance by the Company of shares of Common Stock to EFL Tech under the Subscription Agreement to $1,500,000). At
the Third Closing, the Company would have been required to issue to EFL Tech an additional 129,832,877 shares of Common Stock, at which
time EFL Tech’s cumulative ownership would have been 300,238,527 shares of Common Stock, constituting 75.0% of the Common Stock on a
fully diluted basis.
As required by the Subscription Agreement, on January 21, 2014, the Company entered into certain exchange and release agreements (each an
“Exchange Agreement” and collectively, the “Exchange Agreements”) by and between the Company and each member of a group of unsecured
creditors of the Company (including current directors and executive officers). At the First Closing, pursuant to the Exchange Agreements the
Company issued an aggregate of 19,267,010 shares of Common Stock, constituting 10.39% of the Common Stock on a fully diluted basis, in
exchange for the settlement and release of $695,250 in unpaid and accrued debt to such creditors. Under the Exchange Agreements, the pershare exchange price for such debt was determined by the average of the closing prices of the Common Stock on the trading days commencing
on December 1, 2013, and ending on January 20, 2014 (the day prior to the First Closing), which resulted in an exchange price of $0.036085
per share of Common Stock. The Company also paid the sum of $122,125 in cash to such creditors under the Exchange Agreement for the
settlement and release of such amount of debt (for the settlement and release of a total of $817,375 of debt pursuant to the Exchange
Agreements).
The proceeds from the foregoing funding of $1,250,000 ($1,000,000 at the First Closing, consisting of $689,330 in cash plus the forgiveness of
the obligation to repay the $310,670 in temporary unsecured advances that EFL Tech provided to the Company in periods prior to the First
Closing, and the additional $250,000 payment by EFL Tech at the Second Closing) have been used for general corporate purposes and the
repayment of debt, including, but not limited to, the required cash payments of $122,125 made under the Exchange Agreements.
The Company’s common stock is quoted on the OTCQB tier of the U.S. OTC Markets under the symbol ORYNQ.
1 . Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Company uses the accrual method of accounting and all amounts are denominated in United States dollars.
All significant intercompany accounts and transactions have been eliminated in the consolidation. “Due to affiliates” represents amounts due to
entities that own equity or indebtedness of the Company or a subsidiary but that are not part of the consolidated company presented herein.
11
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
Revenue Recognition
The Company recognizes revenue from products when the goods are shipped pursuant to a customer’s purchase order. Revenue from royalties
is recorded in the period in which the sales of the underlying products are made. Revenue from license fees is recognized in the period in which
they are due and payable.
Cost of Goods Sold
The Company recognizes costs of goods sold as including only direct production costs such as direct materials, direct labor and freight and
does not include any allocation of production overhead.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates that affect the
amounts reported in the consolidated financial statements and the accompanying notes. Accounting estimates and assumptions are those that
management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve
significant judgments and uncertainties. All of these estimates reflect management’s judgment about current economic and market conditions
and their effects based on information available as of the date of these consolidated financial statements. If such conditions persist longer or
deteriorate further than expected, it is reasonably possible that the judgments and estimates could change, which may result in future
impairments of assets, among other effects.
Significant estimates include the carrying value of intangible assets and the value of equity instruments, including convertible notes, stock
options, warrants, and shares issued in lieu of cash.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash held in bank demand deposits. The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are accounted for at fair value, do not bear interest, and are short-term in nature. The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability to collect on accounts receivable. Based on management’s assessment, the
Company provides for estimated uncollectible amounts through a charge to earnings and a credit to the valuation allowance. Balances that
remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a
credit to accounts receivable. The Company does not require collateral.
Concentrations of Credit Risk
Certain balance sheet items that potentially subject the Company to concentrations of credit risk are primarily accounts receivable.
Concentrations of credit risk with accounts receivable are generally mitigated by the size of the Company’s customers. The Company performs
ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts based upon the expected collectability of all
accounts receivable.
Inventory
Inventory is carried at the lower of cost or market. A physical inventory count is taken at the end of each calendar quarter and the accounting
records are adjusted to match the physical inventory. Inventory cost does not include any allocation of production overhead.
Property and Equipment
Property, equipment, computer hardware and software, and leasehold improvements are carried at historical cost. Expenditures are capitalized
only if the cost of the individual asset exceeds $1,200 and the asset is expected to have a business use for greater than 12 months.
Depreciation is calculated on a straight line basis over the estimated useful life of the property acquired. Equipment and furniture is depreciated
over 60 months. Computer software and hardware is depreciated over 36 months. Leasehold improvements are amortized over the life of the
lease or the life of the improvement, whichever is shorter.
Inter-company transfers of assets are recorded at depreciated cost, with no change in estimated life or monthly depreciation.
12
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
Research and Development
The Company expenses all costs associated with the development of applications for the Company’s technology as the costs are incurred.
Intangible Assets
Amortization is computed based on the straight line method over the life of the patent, which is 180 months beginning with the month when the
patent is granted. The amortization is based on the historical cost of each individual patent. Costs incurred to renew or extend the terms of
patents are expensed as incurred.
The Company annually assesses whether the carrying value of its intangible assets exceeds their fair value and records an impairment loss
equal to any excess.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities for a change in tax rate is recognized in
income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the
amounts more likely than not to be realized.
The Company accounts for uncertain tax positions in accordance with ASC 740-10. ASC 740-10 provides several clarifications related to
uncertain tax positions. Most notably, a “more likely-than-not” standard for initial recognition of tax positions, a presumption of audit detection
and a measurement of recognized tax benefits based on the largest amount that has a greater than 50 percent likelihood of realization. ASC 74010 applies a two-step process to determine the amount of tax benefit to be recognized in the financial statements. First, the Company must
determine whether any amount of the tax benefit may be recognized. Second, the Company determines how much of the tax benefit should be
recognized (this would only apply to tax positions that qualify for recognition.) No additional liabilities have been recognized as a result of the
implementation. Accordingly, the Company has not recognized any penalty, interest or tax impact related to uncertain tax positions. Federal
returns for tax years ended December 31, 2010 and after remain open to examination as of December 31, 2013. The statute of limitations differ
from state to state; however, generally tax years ended December 31, 2010 and after remain open to state examination as of December 31,
2013.
Stock-Based Compensation
The Company utilizes equity based awards as a form of compensation for employees, officers and directors. The Company records
compensation expense for all awards granted. After assessing alternative valuation models and amortization methods, the Company uses the
Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period for each grant. The
Company will reconsider use of this model if additional information becomes available in the future that indicates another model would be
more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.
Leases
The Company leases office facilities under a non-cancelable operating lease. The Company recognizes rent on a straight-line basis over the
lease term.
13
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
2 . Inventory
Inventory consists of the following:
Raw materials
Work in process
Finished goods
Total Inventory
September 30,
2014
$
82,529
41,175
10,156
$
133,860
December 31,
2013
$
88,486
6,028
6,417
$
100,931
September 30,
2014
December 31,
2013
3. Property and Equipment
Property and equipment consist of the following:
Leasehold improvements
Furniture and equipment
Property and equipment, gross
Accumulated depreciation
Net property and equipment
$
$
7,279
195,927
203,206
(193,725)
9,481
$
$
7,279
195,927
203,206
(189,470)
13,736
Depreciation expense was $1,355 and $1,924 for the three month periods ended September 30, 2014 and 2013, respectively, and $4,255 and
$6,050 for the nine month periods ended September 30, 2014 and 2013, respectively.
4 . Intangible Assets
As of September 30, 2014 and December 31, 2013, the Company’s only intangible assets consisted of patents with a gross carrying cost of
$320,795 and accumulated amortization of $223,455 and $206,143, respectively. The remaining weighted average amortization period was 6.6
years at December 31, 2013. The estimated aggregate amortization expense in each of the years ending December 31, 2014 through December
31, 2017, is $23,084 per year.
The balances as of September 30, 2014, including intangible assets and accumulated amortization, are detailed as follows:
Finite-Lived Intangible Assets
Patents
As of September 30, 2014
Amortization
Gross Carrying
Period (Years)
Amount
15
$
320,795
Accumulated
Amortization
$
(223,455)
$
Net
97,340
$
Net
114,652
The balances as of December 31, 2013, including intangible assets and accumulated amortization, are detailed as follows:
Finite-Lived Intangible Assets
Patents
As of December 31, 2013
Amortization
Gross Carrying
Period (Years)
Amount
15
$
320,795
Accumulated
Amortization
$
(206,143)
Amortization expense was $5,771 for each of the three month periods ended September 30, 2014 and 2013 and $17,312 for each of the nine
month periods ended September 30, 2014 and 2013.
14
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
5 . Other Long Term Assets
Other long term assets consist of the following:
Investment in subsidiaries
Security deposits
Licenses
Total other assets
September 30,
2014
$
100
7,032
10,000
$
17,132
December 31,
2013
$
100
6,597
10,000
$
16,697
September 30,
2014
$
1,541
$
1,541
December 31,
2013
$
231,104
117,500
20,227
18,142
$
386,973
6 . Deferred Compensation
Deferred compensation consists of the following:
Deferred wages
Deferred directors' fees
Accrued unpaid wages (incl. accrued tax)
Accrued taxes on deferred wages
Total deferred compensation
Effective September 1, 2011, employment agreements with certain executives were revised to provide for the indefinite deferral of unpaid
wages until sufficient external funding was obtained. The aggregate deferred compensation as of December 31, 2013, was $231,104 and an
additional $3,125 was deferred during the first quarter of 2014 between January 1, 2014 and January 21, 2014. As required by the Subscription
Agreement, on January 21, 2014, the Company entered into Exchange Agreements by and between the Company and all persons who were
owed deferred compensation. At the First Closing, pursuant to such Exchange Agreements, the Company issued an aggregate of 5,192,832
shares of Common Stock in exchange for the settlement and release of $187,383 in deferred compensation. Under the Exchange Agreements,
the per-share exchange price for such debt was determined by the average of the closing prices of the Common Stock on the trading days
commencing on December 1, 2013, and ending on January 20, 2014 (the day prior to the First Closing), which resulted in an exchange price of
$0.036085 per share of Common Stock. The Company also paid the sum of $46,846 in cash to such creditors under the Exchange Agreement
for the settlement and release of such amount of deferred compensation (for the settlement and release of a total of $234,229 of deferred
compensation pursuant to such Exchange Agreements). The cash payment of $46,846 represented 20% of the total deferred compensation of
$234,229 and provided the recipients with some liquidity to pay Federal employment taxes on the compensation Subsequent to completion of
the Exchange Agreements, there were no deferred wages and the balance as of September 30, 2014, was $0.
An accrual equal to 7.85% of the deferred wages had been established for the employer’s Social Security and Medicare tax obligations that
would be required to be paid at the time the deferred wages are paid. Such taxes were paid in full due to the settlement of the deferred wages as
described above.
In November 2012, the Compensation Committee of the Board of Directors and the Board of Directors both approved a program of
compensation for independent directors to compensate non-management directors for their services. Management directors receive no
compensation for board service. Compensation for independent director services was established as $5,000 per calendar quarter, due at the end
of each calendar quarter for services rendered during such period. In addition, the chairman of the Audit Committee receives extra
compensation of $1,875 per calendar quarter and the chairman of the Compensation Committee receives extra compensation of $1,250 per
calendar quarter. However, payment of cash compensation for director services has been deferred by the Board of Directors indefinitely.
Directors are not paid for meetings attended. No directors’ fees were accrued in the third quarter of 2014 due to the bankruptcy proceedings.
15
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
The aggregate deferred directors’ fees as of December 31, 2013, were $117,500. As required by the Subscription Agreement, on January 21,
2014, the Company entered into Exchange Agreements by and between the Company and certain members of the board of directors who were
owed deferred compensation for past board service. At the First Closing, pursuant to such Exchange Agreements, the Company issued an
aggregate of 1,681,217 shares of Common Stock in exchange for the settlement and release of $60,667 in deferred directors’ fees. Under the
Exchange Agreements, the per-share exchange price for such debt was determined by the average of the closing prices of the Common Stock
on the trading days commencing on December 1, 2013, and ending on January 20, 2014 (the day prior to the First Closing), which resulted in
an exchange price of $0.036085 per share of Common Stock. The Company also paid the sum of $15,167 in cash to such directors under the
Exchange Agreement for the settlement and release of such amount of deferred directors’ fees (for the settlement and release of a total of
$75,833 of deferred directors’ fees pursuant to such Exchange Agreements). The cash payment of $15,167 represented 20% of the settled
deferred directors’ compensation of $75,833 and provided the recipients with some liquidity to pay Federal employment taxes on the
compensation. One former director agreed to waive payment of deferred directors’ compensation in the aggregate amount of $41,667, which
amount was applied to reduce directors’ expense in the first quarter of 2014.
As a result of the Company’s filing for bankruptcy protection on May 6, 2014, the Company terminated all employees. However, certain
individuals continued to work on behalf of the Company on a volunteer basis with the understanding that they might possibly receive
compensation in the event the Company was able to obtain additional financing and exit the bankruptcy process. Such individuals are aware
that their services may not be compensated if those conditions are not achieved.
7 . Current Portion of Promissory Notes and Other Short-Term Debt
Other short-term debt consists of the following:
September 30,
2014
$
307,145
29,716
92,842
$
429,703
Current portion, promissory notes payable
Other short-term debt
Short-term advances
Accrued interest
Total
December 31,
2013
$
53,738
318,395
706,670
70,718
$
1,149,521
“Current portion, promissory notes payable”
In December 2012, the Company executed a promissory note (the “Note”) payable to a former executive and current shareholder in order to
consolidate its various obligations to such individual into a single instrument. The Note had an original balance of $211,418 and would have
matured on September 16, 2016. Interest on the Note is incurred at WSJ Prime plus one percent per annum, which has resulted in a constant
interest rate of 4.25% through March 31, 2014. The Note required monthly principal and interest payments of (a) $3,000 through March 31,
2014, (b) $4,500 from October 1, 2013 through September 30, 2014, (c) $6,000 from October 1, 2014 through September 30, 2015, (d) $7,500
from October 1, 2015 through September 30, 2016 and (e) all remaining principal on September 30, 2016. The remaining Note principal
balance at December 31, 2013 of $167,894 was repaid in full during the first quarter of 2014 from a portion of the proceeds from the EFL
Transaction.
“Other short-term debt” and “Accrued interest”
During the year ended December 31, 2011, OTLLC was unable to complete a financing deal with a private equity firm that had been expected
to provide OTLLC with adequate capital. To fund continuing operations at a reduced level of expenditures, OTLLC received temporary
funding from several sources. The Company’s remaining obligation as of December 31, 2013, was $31,250, included in the table above as
other short-term debt. Such obligation was repaid in full during the first quarter of 2014.
16
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
In addition, a vendor previously required that the outstanding accounts payable balance of $287,145 be converted to a promissory note. Such
note accrues interest at 10% annually ($92,195 and $70,718 accrued through September 30, 2014, and December 31, 2013, respectively) and is
payable upon demand. This note matured on December 15, 2011 and management has engaged in negotiations with the vendor to extend the
note or replace it with a new promissory note.
During the second quarter of 2014, a customer advanced the Company $20,000, collateralized by certain of the Company’s equipment. It is
anticipated that the Company will produce goods for the customer that will be delivered in lieu of repayment. The advance was documented
with a promissory note and such note accrues interest at 10% annually ($647 accrued through September 30, 2014.
“Short-term advances”
In connection with the Merger, the Company received $2.0 million in proceeds from the private equity offering, issuing 4.0 million shares of
common stock, par value $0.001 (along with warrants for the purchase an additional 4.0 million shares of common stock at the current exercise
price of $0.50 per share and having a term of five (5) years). In the first nine months of 2013, investors holding certain of the warrants provided
the Company with $390,000 in financial support by providing short-term advances to the Company against the exercise of their warrants at a
future time of the investors’ choice. The balance of the short-term advances was $390,000 as of December 31, 2013. Since the Company’s
stock price in January 2014 was far below the exercise price of the warrants, EFL Tech required that the Company enter into an Exchange
Agreement with the investors who had provided the short-term advances in order to eliminate this obligation. At the First Closing, pursuant to
such Exchange Agreement the Company issued an aggregate of 10,807,815 shares of Common Stock, in exchange for the settlement and
release of $390,000 in short-term advances from such creditors. Under the Exchange Agreement, the per-share exchange price for such debt
was determined by the average of the closing prices of the Common Stock on the trading days commencing on December 1, 2013, and ending
on January 20, 2014 (the day prior to the First Closing), which resulted in an exchange price of $0.036085 per share of Common Stock.
At December 31, 2013, short-term advances consisted of (a) the $390,000 from investors as described above, (b) $310,670 in short term
advances from EFL Tech to be credited against the equity investment to be made at the First Closing, and (c) a loan to the Company of $6,000
from the Company’s Chief Executive Officer, which was repaid in cash after the First Closing.
At September 30, 2014, short-term advances consisted of $29,716 provided to the Company by EFL during the third quarter of 2014 to assist
the Company in funding its continuing operations. Such advance does not bear interest. It is anticipated that the advance will be repaid from
investment capital to be made available to the Company at the time it is able to exit bankruptcy.
8 . Other Current Liabilities
Other liabilities at September 30, 2014, and December 31, 2013, consist of accrued corporate operating expenses as estimated by management,
including accruals for legal, tax preparation and accounting expenses.
9 . Notes Payable, Net
At December 31, 2013, notes payable consisted entirely of the non-current portion of the promissory note (the “Note”) discussed above in Note
7, “Current Portion of Promissory Notes and Other Short-Term Debt”. The Note was repaid in full during the first quarter of 2014.
The Company, through its wholly-owned subsidiary OTLLC, had three outstanding series of convertible notes (the Series C-1 notes, the Series
C-2 notes, and the Series C-3 notes, collectively the “Notes”). Each series of Notes was convertible under certain circumstances into the
Company’s common stock at different conversion rates. On August 31, 2012, as a result of the completion of a “Qualified Financing” as
defined in the Notes and as modified by the Group Modification Agreement approved by the holders of the Notes in March 2012, the Notes and
accumulated accrued interest through August 31, 2012, were converted into 27,158,657 shares of the Company’s common stock (the
“Conversion”).
17
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
Following the Conversion on August 31, 2012, none of the principal and interest of the Notes remained outstanding, but the holders of the
Notes retained the detachable warrants to purchase common stock at $0.3125 per share that they had received in connection with their
investment in the Notes. The following table shows the number of shares of common stock that would have been issued if all the warrants
related to the Notes were exercised as of September 30, 2014 and as of December 31, 2013:
Convertible Debt
Series C-1 Notes
Series C-2 Notes
Series C-3 Notes
As of September 30, 2014 and December 31, 2013
Potential Shares
Principal and Interest
Issued if Notes
Conversion Price
Amounts
Converted
N/A
$
N/A
N/A
$
-
-
Shares Issued if Series
C Warrants Exercised
@ $0.3125
2,841,440
3,200,000
1,972,000
8,013,440
The Company has not included these share equivalents in earnings per share calculations as they are anti-dilutive due to the Company’s net
losses incurred for the periods presented.
10 . Leases
The Company’s only lease is for its office and production facility, consisting of approximately 9,957 square feet in a building located at 4251
Kellway Circle in Addison Texas. The Company is obligated to pay $6,597 per month through March 31, 2016. The Company began leasing
its current facilities in April 2010 under an operating lease that extends through March 2016.
Rent expense relating to the operating lease agreement was $19,791 for each of the three month periods ended September 30, 2014 and 2013
and $59,373 for each of the nine month periods ended September 30, 2014 and 2013.
As of September 30, 2014, the future minimum payments required under all operating leases with terms in excess of one year were as follows:
Contractual Obligations at September
30, 2014
Operating lease obligations
Long-term debt obligations
Capital expenditure obligations
Purchase obligations
Other long-term obligations
Less than One
Year
($)
79,164
-
Payments Due by Period
One to Three
Three to Five
More Than
years
Years
Five Years
($)
($)
($)
39,582
-
-
Total
($)
118,746
-
11 . Commitments and Contingencies
Marcus v. Oryon, et. al.
On February 6, 2014, M. Richard Marcus (the “Plaintiff”) filed a lawsuit against Oryon Technologies, Inc. (“Oryon”) and certain of its
subsidiaries and directors, and EFL Tech B.V. (“EFL”) and an affiliate (collectively, the “Defendants”), in the District Court for Dallas County,
Texas (the “Court”), alleging a breach of fiduciary duty, inducement of breach of fiduciary duty, minority shareholder oppression, breach of
promissory note, and tortious interference with contract, in connection with the transaction between Oryon and EFL that is described in
Oryon’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 27, 2014 (the “EFL Transaction”). The
Plaintiff is the former Chief Executive Officer, President and Chairman of the Board of OryonTechnologies, LLC, having relinquished those
positions upon the closing of the Merger (as that term is defined in Part II, Item 5, Initial Public Offering) on May 4, 2012.
18
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
In the lawsuit, the Plaintiff seeks monetary damages, and a temporary restraining order, temporary injunction and permanent injunction that
would, inter alia , restrain the Defendants from: (i) closing the second and third tranches (as required by the Subscription Agreement between
the parties) pursuant to which EFL would contribute $500,000 to Oryon in exchange for shares of common stock that would increase EFL’s
ownership stake in Oryon to 75% of Oryon’s fully diluted common stock, and allow EFL to nominate three additional directors to Oryon’s
Board of Directors; (ii) acting under the Subscription Agreement, License Agreement, Equipment Lease Agreement, or the Business
Relationship Agreement that are part of the EFL Transaction; and (iii) dissipating the assets of Oryon.
The Plaintiff also alleges that Oryon breached a promissory note held by Plaintiff which accelerates the full amount of principal and interest of
due thereunder, in the amount of approximately $68,000.
At a hearing held on February 6, 2014, the Court denied the Plaintiff’s motion for a temporary restraining order.
After a hearing before the Court held on February 14 and 19, 2014, the Court entered an Order on February 20, 2014:
1. Denying Plaintiff’s request for a Temporary Injunction; and
2. Ordering that Plaintiff shall not obstruct or interfere with the Defendants’ continuing operations and transactions.
Oryon intends to vigorously defend against the foregoing action.
Myant v. Oryon, et. al.
On January 3, 2014, Myant Capital Partners filed a lawsuit against Oryon Technologies, Inc. in the United States District Court for the
Northern District of Texas, Dallas Division, alleging that Oryon breached an exclusivity agreement and a non-disclosure/confidentiality
agreement, and seeking $1.25 million in damages. On January 28, 2014, Oryon filed its Answer to the Complaint denying the allegations and
asserting affirmative defenses.
Oryon intends to vigorously defend against the foregoing action.
Other Commitments and Contingencies
As of September 30, 2014, none of the Company’s employees was covered by an employment agreement.
12 . Income Taxes
The tax effects of significant items comprising the Company’s net deferred tax assets and liabilities at September 30, 2014 are as follows:
September 30, 2014
Net operating loss carryforwards
$
1,249,026
Depreciation
(2,184)
Amortization
16,778
Accrued miscellaneous
(19,772)
FMV warrants adjustment
182,025
Stock option compensation expense
123,482
Interest amortization
33,178
Total current deferred tax asset
1,582,533
Less: Valuation allowance
(1,582,533)
Net current deferred tax asset
$
-
19
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
The Company has net operating loss carry forwards of approximately $3,673,607 at September 30, 2014, which begin expiring in 2030. In
assessing the reliability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this assessment. Management has recorded a valuation allowance for all
deferred tax assets at September 30, 2014.
The Company is currently evaluating the tax impacts, if any, of the ownership change. The federal and state net operating loss carryovers of the
Company may be limited in the amount that can be recognized in any one year. The full impact of this evaluation has not been determined as of
the date of these financial statements.
13 . Capital
The Company was incorporated under the laws of the State of Nevada on August 22, 2007 with 100,000,000 authorized common shares with a
par value of $0.001. On August 6, 2010, the Company effected a forward split of its shares of common stock on the basis of six new shares for
one existing share, and amended its Articles of Incorporation to increase its number of authorized shares of common stock to 600,000,000
shares of common stock, with a par value of $0.006 per share. On October 31, 2011, certain shareholders, including two executive officers,
surrendered, in aggregate, 30,000,000 shares of the Company’s common stock for cancellation. On November 17, 2011, an additional
1,000,000 shares were surrendered for cancellation. On November 4, 2011, the Board of Directors reduced the par value of the common shares
from $0.006 to $0.001 per share. As of September 30, 2014 and December 31, 2013, respectively, there were 252,333,438 and 62,660,778
shares of common stock issued and outstanding. The post-split common shares are shown as split from the date of inception.
14 . Equity Options and Warrants
OTLLC adopted the 2004 Unit Option Plan under which officers, employees, advisors and managers could be awarded membership unit option
grants. Under the 2004 Unit Option Plan, OTLLC’s board could fix the term and vesting schedule of each option. Vested options generally
could remain exercisable for up to three months after a participant's termination of service or up to 12 months after a participant's death or
disability. Typically, the exercise price of a nonqualified option must not be less than the fair market value of the units on the grant date. The
exercise price of each unit option granted under the 2004 Plan must be paid in cash when the option is exercised. Generally, options are not
transferable except by will or the laws of descent and distribution.
In connection with the Merger, the Company’s Board of Directors adopted the 2012 Equity Incentive Plan, previously filed as Exhibit 99.1 to
the Company’s Current Report on Form 8-K filed on March 21, 2012. In connection with the Merger, each currently outstanding option to
purchase an OTLLC unit was converted into an option to purchase eight (8) shares of the Company’s common stock under the Company’s
2012 Equity Incentive Plan. Immediately prior to Closing, there were 345,388 options to purchase OTLLC units outstanding, which, if
exercised could result in the issuance of 2,763,104 shares of the Company’s common stock at prices ranging from $0.13 per share to $0.63 per
share.
On January 16, 2013, options for 423,796 shares were granted to employees and consultants for past services rendered, exercisable at $0.3425
per share and 100% vested on the grant date. The expense related to these option grants was $44,320 in 2013.
On May 2, 2013, non-executive directors were issued options for 300,000 shares, exercisable at $0.21 per share, 100% vested on the grant date,
as compensation for such independent directors’ past service. The $19,590 grant date fair market value of these option grants was expensed in
2013.
On May 6, 2013, a consultant was issued an option for 81,081 shares, exercisable at $0.185 per share, 100% vested on the grant date, as
compensation for such consultant’s past service. The $8,205 grant date fair market value of these option grants was expensed in 2013. Also, on
June 28, 2013, the consultant was issued an option for 53,922 shares, exercisable at $0.153 per share, 100% vested on the grant date, as
compensation for such consultant’s service in the second quarter. The $6,334 grant date fair market value of these option grants was expensed
in 2013. Also, on March 31, 2014, the consultant was issued an option for 181,500 shares, exercisable at $0.10 per share, 100% vested on the
grant date, as compensation for such consultant’s service in the first quarter of 2014. The $8,321 grant date fair market value of these option
grants was expensed in the first quarter of 2014.
20
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
In September 2013, an option for 500,000 shares, exercisable at $0.1096 per share, with 100% vested on the first anniversary of the grant date,
was granted to the Company’s chief executive officer under the 2012 Equity Incentive Plan. The grant date fair market value of this option
grant was $18,820 of which $6,016 was expensed in 2013.
In November 2013, non-executive directors were issued options for 300,000 shares, exercisable at $0.0418 per share, 100% vested on the grant
date, as compensation for such independent directors’ prior service. The grant date fair market value of these option grants was $3,687, all of
which was expensed in 2013.
At September 30, 2014, there were options exercisable for 6,358,774 shares outstanding at an average exercise price of $0.183 per share,
consisting of fully vested options for 6,358,774 shares at an average exercise price of $0.183 per share.
Stock Options
The Company uses the modified Black-Scholes model to estimate the fair value of employee options on the date of grant utilizing the
assumptions noted below. The risk-free rate is based on the U.S. Treasury bill yield curve in effect at the time of grant for the expected term of
the option. The expected term of options granted represents the period of time that the options are expected to be outstanding. Expected
volatilities are based on historical volatilities of selected technology stock mutual funds. The dividend yield was zero since the Company will
not be paying dividends for the foreseeable future. For stock option grants in 2012, the following assumptions were used:
Range of risk-free interest rates
Expected term of options in years
Range of expected volatility
0.669% - 2.812%
5.003 – 6.256
34.70% – 38.42%
A summary of option activity for the years ended December 31, 2013 and 2012 follows:
For the year ended December 31,
2013
Shares
Outstanding at the beginning of the year
Granted
Exercised
Forfeited and expired
Outstanding at the end of the year
Exercisable at the end of the year
3,529,771
2,607,503
(240,000)
5,897,274
5,397,274
2012
Weighted
Average
Exercise Price
$
$
$
$
$
$
0.275
0.125
0.311
0.183
0.183
Shares
2,363,104
1,166,667
3,529,771
2,879,771
Weighted
Average
Exercise Price
$
$
$
$
$
$
0.188
0.452
0.275
0.255
The Company recognized total compensation expense related to the stock options of $3,497 and $17,157 during the three month periods ended
September 30, 2014, and 2013, respectively, and $24,829 and $130,695 during the nine month periods ended September 30, 2014 and 2013,
respectively. Compensation expense related to stock options is included in selling, general and administrative expenses in the consolidated
statement of operations. Total unrecognized compensation expense related to unvested unit options was $-0- and $12,804 at September 30,
2014, and December 31, 2013, respectively.
21
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
Common stock options outstanding and exercisable at September 30, 2014 were as follows:
As of September 30, 2014
Options Outstanding
Exercise Prices
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.020
0.030
0.042
0.080
0.100
0.110
0.125
0.153
0.185
0.210
0.250
0.343
0.375
0.395
0.745
Total
Options Exercisable
Weighted Average Years of
Remaining Contractual Life
9.69
9.26
9.10
9.01
9.51
8.94
6.14
8.75
8.60
8.59
4.26
8.30
5.86
8.11
7.94
7.81
Number Outstanding
540,000
765,000
300,000
227,500
181,500
500,000
1,943,104
53,922
81,081
300,000
240,000
340,000
120,000
266,667
500,000
6,358,774
Number Outstanding
540,000
765,000
300,000
227,500
181,500
500,000
1,943,104
53,922
81,081
300,000
240,000
340,000
120,000
266,667
500,000
6,358,774
The stock options exercisable at December 31, 2013, had an aggregate intrinsic value of $354,314. No options were exercised during 2014 or
2013.
The Company has not included these common stock equivalents in earnings per share calculations as they are anti-dilutive due to the
Company’s net losses incurred for the periods presented.
Warrants
On March 12, 2012, as discussed in Note 13 above, the Company fulfilled subscriptions for the issuance of 800,000 shares along with warrants
having the right to purchase 800,000 shares of common stock at the current exercise price of $0.50 per share, expiring in 5 years from the date
of issuance. In June 2012, the Company fulfilled subscriptions for the issuance of 2,200,000 shares along with warrants having the right to
purchase 2,200,000 shares of common stock at the current exercise price of $0.50 per share, expiring in 5 years from the date of issuance. In
September 2012, the Company fulfilled subscriptions for the issuance of 1,000,000 shares along with warrants having the right to purchase
1,000,000 shares of common stock at the current exercise price of $0.50 per share, expiring in 5 years from the date of issuance. Also in
September 2012, the Company issued to a consultant warrants having the right to purchase 133,335 shares of common stock at the current
exercise price of $0.50 per share, expiring in 5 years from the date of issuance. Therefore, shares that may potentially be issued upon the
exercise of warrants as a result of subscriptions received by the Company and issued to consultants as of September 30, 2014 are as follows:
Number of shares Weighted average
potentially issuable
exercise price
Issued in fulfillment of subscriptions
Issued to consultant
Exercised
4,000,000
133,335
-
0.50
0.50
-
Total shares potentially issuable as of September 30, 2014
4,133,335
0.50
22
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
When subscriptions are fulfilled by the Company, the warrants related to each individual subscription are dated as of the date the subscription
funds were received by the Company, regardless of the date on which the obligation is ultimately fulfilled. Therefore, all warrants have a term
of five years from date the subscription funds were received.
At September 30, 2014, the remaining number of years to expiration and the weighted average term to expiration for the 4,133,335 outstanding
warrants related to subscriptions that had been fulfilled through that date were as follows:
Number of
shares
potentially
issuable
Expiration Date
October 26, 2016
November 1, 2016
December 4, 2016
December 27, 2016
February 13, 2017
February 27, 2017
March 12, 2017
April 4, 2017
April 22, 2017
May 9, 2017
May 14, 2017
July 22, 2017
August 30, 2017
August 30, 2017
200,000
50,000
200,000
200,000
50,000
100,000
250,000
150,000
250,000
500,000
1,050,000
500,000
500,000
133,335
4,133,335
Remaining
years to
expiration and
weighted
average
2.82
2.84
2.93
2.99
3.12
3.16
3.20
3.26
3.31
3.36
3.37
3.56
3.67
3.67
3.34
Fair Value of
Warrants (at
$0.50 exercise
price)
$
$
107,446
26,862
107,446
107,446
26,862
53,723
134,308
80,585
134,308
268,616
564,094
268,616
268,616
71,632
2,220,560
The following assumptions were used for the Black-Scholes valuation of the warrants issued:
Assumption
Dividend rate
Annualized volatility
Risk free interest rate
Expected life of warrants (years)
0%
39.00%
0.59%- 1.20%
5.00
At both September 30, 2014 and December 31, 2013, the Company had issued warrants for 8,013,440 shares of common stock to the holders of
the Notes (see note 9) and additional warrants for 107,672 shares of common stock to other individuals for a total of 8,121,112 warrants
outstanding. Of the warrants outstanding, 42,672 were issued in 2009, exercisable at $0.375 per share and had a weighted average grant date
fair value of $0.009. In 2010, 7,768,440 warrants were issued, exercisable at $0.3125 per share, having a weighted average grant date fair value
of $0.01. The remaining 310,000 warrants were issued in 2011, also exercisable at $0.3125 per share, having a weighted average grant date fair
value of $0.008. The Company uses the modified Black-Scholes model to estimate the fair value of warrants on the date of issuance.
The Company has not included these common stock equivalents in earnings per share calculations as they are anti-dilutive due to the
Company’s net losses incurred for the periods presented.
23
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
15 . Benefit Plans
The Company established a 401(k) Plan (the “Plan”) for eligible employees of the Company, but in December 2012, the Company announced
the termination of the Plan, primarily due to the high cost relative to the inadequate employee participation. Generally, all employees of the
Company who are at least twenty-one years of age and who have completed one-half year of service were eligible to participate in the Plan.
The Plan was a defined contribution plan that provides that participants may make voluntary salary deferral contributions, on a pretax basis,
between 1% and 15% of their compensation in the form of voluntary payroll deductions, up to a maximum amount as indexed for cost of living
adjustments. The Company was permitted to make discretionary contributions but no Company contributions had been made in 2014 or 2013.
16 . Going Concern
The Company has accumulated losses from inception through September 30, 2014 of $13,269,644, has minimal assets, and has negative
working capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These factors may have
potential adverse effects on the Company including the ceasing of operations.
The Company is currently seeking additional capital to fund its operations through the foreseeable future. If capital raising efforts are
unsuccessful, discontinuance of operations is likely. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
17. Subsequent Events
The Company has evaluated subsequent events that occurred after September 30, 2014 through December 8, 2014, the date this report was
available to be issued. Any material subsequent events that occurred during that time period have been properly recognized or disclosed in the
Company’s financial statements.
Confirmation of Plan of Reorganization under Chapter 11 Bankruptcy
As previously reported, on May 6, 2014, the Company filed a voluntary petition for relief (the “Bankruptcy Filing”) under Chapter 11 of
the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Texas, Dallas
Division (the “Court”), Case No. 14-32293.
On November 7, 2014 (the “Confirmation Date”) the Court entered an order (the “Confirmation Order”) (Exhibit10.1), confirming the
Modified First Amended Chapter 11 Plan under Chapter 11 of the Bankruptcy Code (the “Plan”) (Exhibit10.2), proposed by the Company and
EFL Tech B.V., a Netherlands corporation and the majority shareholder of the Company (“EFL Tech”). The Plan is subject to certain
conditions, including the execution and delivery of the license agreement described below under “Material Features of the Plan,” that must be
satisfied prior to the effective date of the Plan (the “Effective Date”).
The following is a summary of certain material features of the Plan as confirmed by the Bankruptcy Court pursuant to the Confirmation
Order. This summary is not intended to be a complete description of the Plan, and is qualified in its entirety by reference to the full text of the
Plan. Capitalized terms used but not defined herein shall have the meanings given to them in the Plan.
Material Features of the Plan
In General. The Plan provides for payment of the undisputed pre-petition claims listed in the Company’s Plan and all post-petition
payables from (A) the proceeds of a $1.37 million cash infusion made by EL Flexible Signs or its affiliates, in exchange for 80 million newlyissued shares of common stock, $0.001 par value (the “Common Stock”), of the Company and a $250,000 payment by EFL Tech, constituting
the final payment under the subscription agreement dated January 21, 2014 (the “Subscription Agreement”) pursuant to which EFL Tech was
issued 129,832,877 newly-issued shares of Common Stock as specified therein and (B) cash on hand. The Subscription Agreement is
incorporated herein by reference to Exhibit 2 to the Schedule 13D dated January 21, 2014 as filed with the Securities and Exchange
Commission by EFL Tech and its affiliates on January 31, 2014.
The Plan further provides for the waiver of claims held by insiders and the establishment of a disputed claims reserve in the approximate
amount of $106,000 for a single claim in dispute. EFL Tech will continue to be the majority shareholder of the Company and the Company will
be operated by a new board of directors. The Plan also provides for dismissal of all claims in the litigation pending before the Bankruptcy
Court and incorporates a settlement agreement dated September 24, 2014 between the Company, a former officer of the Company, and certain
shareholders and their respective affiliates settling various disputes and controversies between the parties, as amended by the Plan (the
“Settlement Agreement”) (Exhibit 10.3).
24
ORYON TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements (Continued)
September 30, 2014
(Unaudited)
Settlement Agreement. Pursuant to the Settlement Agreement the following actions will be effective as of the Effective Date:
1. The Company will pay M. Richard Marcus, the former Chief Executive Officer of the Company and certain of his affiliates, MRM
Acquisitions, LLC and Oryon Capital LLC (collectively, “Marcus”), and Myant Capital Partners, Inc., an Ontario, Canada garment
manufacturer, and Tony Chahine, the Chief Executive Officer of Myant (collectively, “Myant”) a combined total of $1.7 million, in
the form of $600,000 in cash and execute and deliver to Marcus and Myant a promissory note dated November 7, 2014 in the original
principal amount of $1.1 million (the “Promissory Note”). The Promissory Note will bear interest at six percent (6%) per annum,
mature two (2) years from the date of the Promissory Note, and be secured by the Company’s patents and other intellectual property
rights pursuant to a security agreement of even date (the “Security Agreement”). The Promissory Note will provide for principal
payments as follows: $500,000 on or before ninety (90) days following the date of the Promissory Note, followed by fifteen (15) equal
monthly payments each in the amount of $40,000 beginning ten (10) months after the date of the Promissory Note until maturity. The
Promissory Note and Security Agreement are attached as Exhibits 10.4 and 10.5.
2. The Company will execute and deliver to Myant an exclusive license agreement with respect to the Company’s patents covering the
geographic region of Canada (the “License Agreement”). The License Agreement is filed with the Commission as part of this
Quarterly Report on Form 10-Q as Exhibit 10.2.
3. Marcus will surrender for cancellation all of their shares of Common Stock in the Company, consisting of 6,205,227 shares of
Common Stock owned by Oryon Capital, LLC, 18,289,700 shares of Common Stock owned by MRM Acquisitions, LLC, and
1,300,310 shares of Common Stock owned by M. Richard Marcus, for a combined total of 25,795,237 shares of Common Stock.
4. All parties to the Settlement Agreement will fully release each other and dismiss all legal actions involving the Company.
Additional Agreements. Thomas P. Schaeffer, Larry L. Sears, Richard K. Hoesterey, and Clifton Shen (the members of the board of
directors of the Company), and Donald M. Crook (collectively, the “Surrendering Parties”), and the Company, the members of the new board
of directors of the Company, and EFL Tech and its affiliates will fully release each other from all legal actions involving the Company. In
addition, the Surrendering Parties will surrender all shares of Common Stock and related warrants and options held in their names and in the
names of their affiliates and family members. The total outstanding shares of Common Stock surrendered for cancellation by the Surrendering
Parties was 8,025,127 shares of Common Stock.
Executory Contracts and Unexpired Leases. All pre-petition executory contracts and unexpired leases will be assumed by the Company,
except for those executory contracts and/or unexpired leases rejected by the Company on or before the Confirmation Date or otherwise rejected
under the Plan.
Equity Securities of the Company as of the Effective Date. As of the Effective Date the total issued and outstanding shares of Common
Stock of the Company will be 428,345,951, after giving effect to the issuance of 209,832,877 shares of Common Stock to EFL Tech and EL
Flexible Signs or its assigns and the surrender of 33,820,364 shares of Common Stock by Marcus and the Surrendering Parties. The issuance of
such shares of Common Stock described above will be exempt from registration under the Securities Act pursuant to (i) Section 1145 of the
Bankruptcy Code, which generally exempts from such registration requirements the issuance of securities under a plan of reorganization,
and/or (ii) Section 4(a)(2) of the Securities Act because the issuance does not involve any public offering.
25
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, 2014 and 2013 and its financial condition as of September 30, 2014 and December 31, 2013, 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.
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.
26
Comparison of the Three months ended September 30, 2014 to the Three months ended September 30, 2013
Gross Profit and Other Revenues
Revenues
Product sales
Cost of goods sold
Gross profit
Royalty and license fees
Other
Total revenues
For the Quarter Ended
September 30,
2014
2013
$
$
37,290
46,576
(16,257)
(38,882)
21,033
7,694
21,033
7,694
Gross profit margin
56.4%
Change from 2013 to 2014
$
%
(9,286)
-19.9%
-58.2%
22,625
13,339
173.4%
173.4%
13,339
16.5%
Product sales decreased $9.3 thousand, or 19.9%, to $37.3 thousand for the three months ended September 30, 2014 from $46.6
thousand for the three months ended September 30, 2013. Gross profit and total revenues increased $13.3 thousand to $21.0 thousand, or
173.4%, from $7.7 thousand in the three months ended September 30, 2013, due to 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 43.6% of product sales revenues in the first three months of 2014 as compared to 83.5% in the first
three months of 2013. 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. In addition, product sales may include the cost of design and engineering services that
have little or no cost of goods sold.
Operating Expenses-Overview
Total operating expenses for the three months ended September 30, 2014, decreased $180.6 thousand, or 57.4%, to $134.0 thousand,
from $314.6 thousand in the three months ended September 30, 2013, as shown in the table below:
Total applications development exp.
Total sales and marketing exp.
Total general and administrative exp.
Depreciation and amortization
Total operating expenses
For the quarter ended
September 30, 2014
$
%
20,073
15.0%
0.0%
106,774
79.7%
7,125
5.3%
133,972
100.0%
For the quarter ended
September 30, 2013
$
%
63,778
20.3%
31,029
9.9%
212,083
67.4%
7,695
2.5%
314,585
100.0%
Change
$
(43,705)
(31,029)
(105,309)
(570)
(180,613)
%
-68.5%
-100.0%
-49.7%
-7.4%
-57.4%
The primary reason for the decrease in total operating expenses is the 49.7% decrease in general and administrative expense, as
discussed below. In general, operating expenses declined in all sectors due to the reduced level of corporate activity in the 2014 period as a
consequence of the bankruptcy status of the Company.
27
Applications Development Expense
For the Quarter Ended September 30,
2014
$
Applications Development Expense
Wages
Payroll taxes and benefits
Materials, equipment, services
Office and overhead
Total applications development exp.
7,128
2,424
9,345
1,176
20,073
2013
$
31,566
5,170
25,017
2,025
63,778
Change from 2013
to 2014
$
%
(24,438)
-77.4%
(2,746)
-53.1%
(15,672)
-62.6%
-41.9%
(849)
(43,705)
-68.5%
Total applications development expense decreased by $43.7 thousand or 68.5% for the three months ended September 30, 2014 as
compared to the three months ended September 30, 2013, largely due to the $24.4 thousand, or 77.4%, decrease in wages and the related $2.7
thousand or 53.1% decrease in payroll taxes and benefits, both resulting from the reduced number of development personnel in 2014 as
compared to the same period in 2013. Materials, equipment and services expense also decreased due to the reduced level of overall operational
activity resulting from the bankruptcy filing.
Sales and Marketing Expense
For the Quarter Ended September 30,
2014
$
Sales and Marketing Expense
Wages
Payroll taxes and benefits
Overhead
Outside services
Travel and entertainment
Total sales and marketing exp.
-
2013
$
18,000
1,389
5,640
6,000
31,029
Change from 2013
to 2014
$
%
(18,000) -100.0%
(1,389) -100.0%
(5,640) -100.0%
(6,000) -100.0%
NM
(31,029) -100.0%
NM = Not Meaningful
Total sales and marketing expense decreased to $-0- thousand in the first three months of 2014 from $31.0 thousand in the comparable quarter
of 2013. The decrease of $31.0 thousand was due to the absence of sales personnel in the 2014 period.
General and Administrative Expense
For the Quarter Ended September 30,
2014
$
General and Administrative Expense
Wages
Payroll taxes and benefits
Overhead
Outside services
Travel and entertainment
Total general and administrative exp.
2,000
5,234
23,743
75,566
231
106,774
Change from 2013
2013
to 2014
$
$
%
39,540 (37,540)
-94.9%
22,033 (16,799)
-76.2%
35,993 (12,250)
-34.0%
106,208 (30,642)
-28.9%
-97.2%
8,309
(8,078)
212,083 (105,309)
-49.7%
General and administrative expense for the third quarter of the year decreased by $105.3 thousand, or 49.7%, to $106.8 thousand from
$212.1 thousand in the prior year comparable period largely due to (a) the $30.6 thousand decrease in outside services expenses, as discussed
below, and (b) the $37.5 thousand decrease in wages along with the related $16.8 thousand decrease in payroll taxes and benefits. Payroll taxes
and benefits included stock option compensation expense for employees and consultants of $3.5 thousand in the quarter ended September 30,
2014, as compared to $17.2 thousand in the comparable quarter of 2013. Stock option compensation expense for directors is included in outside
services expense, discussed below.
28
Outside services expenses decreased $30.6 thousand, or 28.9%, to $75.6 thousand in the three months ended September 30, 2014 from
$106.2 thousand in the three months ended September 30, 2013, as shown in the table below.
For the quarter ended
September 30, 2014
$
%
Legal expenses
Accounting and audit expenses
Directors' fees and expenses
Public relations expenses
Consulting
Payroll processing expenses
Banking Fees
Stock transfer agent and filing fees
Total G&A outside services
18,820
12,650
11,875
5,894
17,567
254
8,506
75,566
24.9%
16.7%
15.7%
7.8%
23.3%
0.3%
0.0%
11.3%
100.0%
For the quarter ended
September 30, 2013
$
%
30,159
21,048
18,125
3,115
25,433
595
118
7,615
106,208
28.4%
19.8%
17.1%
2.9%
24.0%
0.6%
0.1%
7.2%
100.0%
Change
$
(11,339)
(8,398)
(6,250)
2,779
(7,866)
(341)
(118)
891
(30,642)
%
-37.6%
-39.9%
-34.5%
89.2%
-30.9%
-57.3%
-100.0%
11.7%
-28.9%
The primary reason for the decrease in outside services expense is the $11.3 thousand, or 37.6%, decrease in legal expenses in the
third quarter of 2014 as compared to the third quarter of 2013. As discussed in Note 11 to the financial statements, the Company has been
conducting vigorous legal defenses against two lawsuits. Although some of defense costs have been covered by insurance, the Company’s
directors’ and officers’ insurance policy carries substantial deductible requirements.
In connection with the EFL Transaction, one director voluntarily resigned from the Board of Directors effective January 21, 2014,
thereby eliminating the requirement for the quarterly accrual of fees for his service for the third quarter of 2014. Largely as a result of this
director’s resignation, directors’ fees and expenses for the three months ended September 30, 2014, decreased by $6.3 thousand as compared to
the three month period ended September 30, 2013. No stock option compensation expense for directors was incurred in the third quarters of
2014 and 2013.
Public relations expense increased by $2.8 thousand to $5.9 thousand in the three months ended September 30, 2014 as compared to
$3.1 thousand in the three months ended September 30, 2013. The expense in 2014 is for press releases and the cost of public relations
consultants in connection with the communications to the public about the status of the bankruptcy process.
Other expense categories such as consulting, payroll processing expenses and banking fees decreased from the comparable year period
due to the reduced level of corporate activity resulting from the Company’s bankruptcy.
Other Income (Expense)
Interest expense decreased $2.0 thousand, or 20.4%, to $7.9 thousand for the three months ended September 30, 2014, from $9.9
thousand in the three months ended September 30, 2013, due to the lower principal amount of debt outstanding as a result of the full payment
of the notes payable earlier in 2014, as reported in notes 7 and 9 to the financial statements. Interest expense for the reported periods consisted
only of interest on promissory notes payable and other short-term debt.
Taxes
For the three months ended September 30, 2014, the Company incurred substantial losses and subsequently has no tax obligation.
Although the incurred losses may 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.
29
Comparison of the Nine months ended September 30, 2014 to the Nine months ended September 30, 2013
Gross Profit and Other Revenues
For the Nine Months
Ended September 30,
2014
$
88,996
(26,469)
62,527
62,527
Revenues
Product sales
Cost of goods sold
Gross profit
Royalty and license fees
Other
Total revenues
Gross profit margin
70.3%
2013
$
99,559
(48,484)
51,075
51,075
Change from 2013 to
2014
$
%
(10,563)
-10.6%
-45.4%
22,015
11,452
22.4%
22.4%
11,452
51.3%
Product sales decreased $10.6 thousand, or 10.6%, to $89.0 thousand for the nine months ended September 30, 2014 from $99.6
thousand for the nine months ended September 30, 2013. Gross profit and total revenues increased $11.5 thousand to $62.5 thousand, or
22.4%, from $51.1 thousand in the nine months ended September 30, 2013, due to the increase in gross profit on product sales resulting from a
decrease in the cost of goods sold as a percentage of product sales that more than offset the decrease in product sales revenues.
Cost of goods sold represented 29.7% of product sales revenues in the first nine months of 2014 as compared to 48.7% in the first nine
months of 2013. 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. In addition, product sales may include the cost of design and engineering services that
have little or no cost of goods sold.
Operating Expenses-Overview
Total operating expenses for the nine months ended September 30, 2014, increased $134.6 thousand, or 12.3%, to $1,230.2 thousand,
from $1,095.6 thousand in the nine months ended September 30, 2013, as shown in the table below:
Total applications development exp.
Total sales and marketing exp.
Total general and administrative exp.
Depreciation and amortization
Total operating expenses
For the nine months
ended
September 30, 2014
$
%
206,017
16.8%
28,905
2.4%
973,710
79.2%
21,566
1.8%
1,230,198
100.0%
For the nine months
ended
September 30, 2013
$
%
235,171
21.5%
86,816
7.9%
750,283
68.5%
23,362
2.1%
1,095,632
100.0%
Change
$
(29,154)
(57,911)
223,427
(1,796)
134,566
%
-12.4%
-66.7%
29.8%
-7.7%
12.3%
The primary reason for the increase in total operating expenses is the 29.8% increase in general and administrative expense, as
discussed below.
30
Applications Development Expense
For the Nine Months Ended September 30,
Applications Development Expense
2014
$
Wages
Payroll taxes and benefits
Materials, equipment, services
34,306
100,278
11,429
150,769
17,279
103,954
9,513
13,660
206,017
235,171
Office and overhead
Total applications development exp.
2013
$
Change from
2013 to 2014
$
%
(65,972) 65.8%
(5,850) 33.9%
46,815 45.0%
(4,147) 30.4%
(29,154) 12.4%
Total applications development expense decreased by $29.2 thousand or 12.4% for the nine months ended September 30, 2014 as
compared to the nine months ended September 30, 2013, due to the $66.0 thousand, or 65.8%, decrease in wages and the related $5.9 thousand,
or 33.9%, decrease in payroll taxes and benefits as a result of the decrease in personnel associated with the bankruptcy process. This decrease
was substantially offset by the $46.8 thousand increase in the cost of materials that was largely due to $45.6 thousand in costs associated with
the production of products ordered by EFL Tech, for which no net revenue has been reported. The sales price for the materials that could have
been invoiced to EFL Tech was $54.1 thousand, but management has not invoiced for the product due to the possibility that EFL Tech will not
make payment as a consequence of the Company’s legal matters.
Sales and Marketing Expense
For the Nine Months Ended September 30,
Sales and Marketing Expense
Wages
Payroll taxes and benefits
Overhead
2014
$
Outside services
Travel and entertainment
Total sales and marketing exp.
2013
$
14,829
54,000
4,185
13,561
6,000
8,076
7,000
8,070
28,905
86,816
Change from
2013 to 2014
$
%
(54,000) NM
(4,185) NM
1,268
9.4%
(1,000) 14.3%
0.1%
6
(57,911) 66.7%
Total sales and marketing expense decreased to $28.9 thousand in the first nine months of 2014 from $86.8 thousand in the first nine
months of 2013. The decrease of $57.9 thousand or 66.7% is largely due to the to the $54.0 thousand decrease in wages along with the related
$4.2 thousand decrease in payroll taxes and benefits resulting from the absence of sales personnel in 2014.
General and Administrative Expense
For the Nine Months Ended September 30,
General and Administrative Expense
Wages
Payroll taxes and benefits
Overhead
Outside services
Travel and entertainment
Total general and administrative exp.
2014
$
83,435
31,593
94,613
744,244
19,825
973,710
2013
$
179,538
128,885
104,477
327,387
9,996
750,283
Change from
2013 to 2014
$
%
(96,103) -53.5%
(97,292) -75.5%
(9,864) -9.4%
416,857 127.3%
9,829 98.3%
223,427 29.8%
General and administrative expense for the first nine months of the year increased by $223.4 thousand, or 29.8%, to $973.7 thousand
from $750.3 thousand in the prior year comparable period largely due to (a) the $416.9 thousand increase in outside services expenses, as
discussed below, offset by (b) the $96.1 decrease in wages along with the related $97.3 decrease in payroll taxes and benefits. The decrease in
payroll taxes and benefits is largely due to a decrease in stock option compensation expense for employees and consultants to $24.9 thousand in
the nine months ended September 30, 2014, from $111.1 thousand in the comparable period of 2013, a decrease of $86.2 thousand. Stock
option compensation expense for directors is included in outside services expense, discussed below.
31
Outside services expenses increased $416.9 thousand, or 127.3%, to $744.2 thousand in the nine months ended September 30, 2014
from $327.4 thousand in the nine months ended September 30, 2013, as shown in the table below.
For the nine months
ended
September 30, 2014
$
%
Legal expenses
Accounting and audit expenses
Directors' fees and expenses
Public relations expenses
Consulting
Payroll processing expenses
Banking Fees
Stock transfer agent and filing fees
Total G&A outside services
566,925
48,442
(6,042)
27,924
88,792
1,002
470
16,731
744,244
76.2%
6.5%
-0.8%
3.8%
11.9%
0.1%
0.1%
2.3%
100.0%
For the nine months
ended
September 30, 2013
$
%
72,999
45,432
74,176
3,115
82,758
1,813
632
46,462
327,387
22.3%
13.9%
22.7%
1.0%
25.3%
0.6%
0.2%
14.2%
100.0%
Change
$
493,926
3,010
(80,218)
24,809
6,034
(811)
(162)
(29,731)
416,857
%
676.6%
6.6%
-108.2%
796.4%
7.3%
-44.7%
-25.6%
-64.0%
127.3%
The primary reason for the increase in outside services expense is the $493.9 thousand, or 676.6%, increase in legal expenses in the
first nine months of 2014 as compared to the first nine months of 2013. As discussed in Note 11, the Company has been conducting vigorous
legal defenses against two lawsuits, while also incurring legal costs associated with the bankruptcy process. Although some of the legal defense
costs have been covered by insurance, the Company’s directors’ and officers’ insurance policy carries substantial deductible requirements.
In connection with the EFL Transaction, the Company was required to eliminate much of its corporate debt obligations, including the
deferred directors’ fees that had been accrued. Two directors agreed to settle their balances through the Exchange Agreements whereby they
received a combination of cash and common stock in settlement. A third director voluntarily agreed to waive his deferred director’s fees in the
amount of $41.7 thousand, which amount was applied in the first quarter of 2014, offsetting the quarterly accrual for directors’ fees expense
and creating a negative balance for the first quarter that also resulted in a negative balance for the first nine months of 2014. The director also
resigned from the Board of Directors effective January 21, 2014, thereby eliminating the requirement for the accrual of fees for service for
2014. As a result of this director’s fee waiver and resignation, directors’ fees and expenses for the nine months ended September 30, 2014,
decreased by $80.2 thousand as compared to the nine month period ended September 30, 2013. Also, directors’ fees and expenses included
stock option compensation expense of $-0- in the nine months ended September 30, 2014, as compared to $19.6 thousand in the comparable
period in 2013.
Public relations expense increased by $24.8 thousand to $27.9 thousand in the nine months ended September 30, 2014, as compared to
$3.1 thousand in the nine months ended September 30, 2013. The expense in 2014 is for press releases and the cost of public relations
consultants in connection with the communications to the public about the EFL Transaction and the status of the bankruptcy process.
Other Income (Expense)
Interest expense decreased $4.9 thousand, or 17.3%, to $23.5 thousand for the nine months ended September 30, 2014, from $28.5
thousand in the nine months ended September 30, 2013, due to the lower principal amount of debt outstanding as a result of the full payment of
the notes payable earlier in 2014, as reported in notes 7 and 9 to the financial statements. Interest expense for the reported periods consisted
only of interest on promissory notes payable and other short-term debt.
32
Taxes
For the nine months ended September 30, 2014, 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.
Liquidity and Capital Resources
Oryon filed a petition for protection under Chapter 11 of the U.S. Bankruptcy Code on May 6, 2014. The Company does not have
sufficient cash on hand to meet its current obligations and anticipated cash requirements. See Notes 13, 16 and 17 of the Notes to the
Consolidated Financial Statements. Not including capital expenditures and costs directly related to revenue generating projects, operating
expenditures are expected to range between $100,000.00 and $150,000.00 per month. Management anticipates that an additional $1,500,000 to
$3,000,000 will be necessary to fund operations and provide adequate working capital for the next twelve to twenty-four month period
subsequent to the date of this report. The Company does not currently have any material commitments for capital expenditures as of the end of
the current period.
To meet management’s future objectives, the Company will need to sell additional equity and/or 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 the Company to agree to operating and financial covenants that would restrict its operations. The Company does not have any
lending arrangements in place with banking or financial institutions and management does not anticipate that it will be able to secure these
funding arrangements in the near future. Financing may not be available in amounts or on terms acceptable to the Company, if at all. Any
failure by the Company to raise additional funds on terms acceptable to it, or at all, could limit its ability to continue operations and terminate
its overall business prospects.
Our current cash requirements are significant due to planned applications development and marketing of our current technology, and
we anticipate generating additional operating monthly losses at least through the middle of 2015. 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 cannot guarantee that we will be able to raise sufficient amounts of working capital through debt or equity offerings,
as may be required to meet our short-term obligations. Moreover, 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 to twentyfour months, as we look to expand our asset base and fund marketing, development and production of our technology.
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 would limit our ability to continue as a going concern
and force us to modify our business strategy. 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 September 30, 2014, Oryon had cash and equivalents on hand of $23.6 thousand, and negative working capital of $1,083.0
thousand. Management of the Company recognizes that its cash on hand and working capital will not be sufficient to meet its anticipated cash
requirements in the near term and is actively seeking additional capital funding. Any failure to secure additional financing would limit the
Company’s ability to continue as a going concern and force management to modify the business strategy.
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 designers to cooperatively engineer 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.
33
Net cash provided by (used in) operating activities
Net cash used in operating activities for the nine months ended September 30, 2014 increased by $554.1 thousand to a use of $1,110.3
thousand, as compared to a use of $556.2 thousand for the nine months ended September 30, 2013. The primary reason, aside from the
significantly increased operating loss (see below), was the decreased aggregate change in the operating assets and liabilities that occurred in the
first nine months of 2014, largely as a result of the EFL Transaction. In the nine months ended September 30, 2014, the aggregate changes in
operating assets and liabilities resulted in a total source of cash of $12.4 thousand, as compared to cash provided of $362.8 thousand in the
comparable period in 2013, a net reduced source of cash of $350.5 thousand. Under the terms of the Subscription Agreement, the Company
was required to eliminate many of its obligations through settlement and release agreements (the “Exchange Agreements”). A significant
portion of the change to operating liabilities is offset by the issuance of equity as described below under “Net Cash Provided by Financing
Activities”.
In addition, the deterioration in operating results, with a net loss of $1,191.2 thousand in the first nine months of 2014 as compared to a
net loss of $1,073.0 thousand in the first nine months of 2013, resulted in an increased cash use of $118.3 thousand, or 11.0%. In addition,
stock-based compensation expense represented a smaller portion of the net loss in the first half of 2014 (an adjustment of $24.8 thousand) than
it did in the first half of 2013 (an adjustment of $130.7 thousand). In aggregate, the net cash used in operating activities before the changes in
operating assets and liabilities was $1,122.7 thousand in the nine months ended September 30, 2014, as compared to $897.5 thousand in the
2013 comparable period, an increased use of $225.2 thousand).
Net cash provided by (used in) investing activities
No net cash was provided by (used in) investing activities in the nine month periods ended September 30, 2014 and 2013.
34
Net cash provided by financing activities
Net cash provided by financing activities in the first nine months of 2014 was $1,089.2 thousand as compared to $396.0 thousand in the
first nine months of 2013. In connection with the EFL Transaction, the Company issued an aggregate of 170,405,650 shares of common stock,
par value $0.001, to EFL Tech for the First Closing and the Second Closing. Prior to December 31, 2013, EFL Tech had advanced the
Company a total of $310.7 thousand in investor short-term advances to fund the Company’s operations up to the date of the First Closing. Such
funds were recorded as short-term advances when they were received by the Company. As provided by the Subscription Agreement, the $310.7
thousand of short-term advances was settled by conversion into the Company’s common stock, par value $0.001, at the First Closing. In
addition, the Company received cash proceeds of $939.3 thousand ($689.3 at the First Closing and $250.0 at the Second Closing) from EFL
tech so that, in total, EFL Tech provided to the Company an aggregate of $1,250.0 thousand in cash, including $310.7 thousand that had been
advanced to the Company in 2013 and was settled by conversion to equity at the First Closing.
As required by the Subscription Agreement, on January 21, 2014, the Company entered into certain exchange and release agreements
(each an “Exchange Agreement” and collectively, the “Exchange Agreements”) by and between the Company and each member of a group of
unsecured creditors of the Company (including current directors and executive officers). At the First Closing, pursuant to the Exchange
Agreements the Company issued an aggregate of 19,267,010 shares of Common Stock in exchange for the settlement and release of $695.3
thousand in unpaid and accrued debt to such creditors. Of the $695.3 thousand, $390.0 thousand was for the settlement of short-term advances
and the remaining $305.3 thousand was for the settlement of operating liabilities including $187.4 thousand of deferred compensation, $60.7
thousand of deferred directors’ fees and $57.2 thousand of accounts payable.
The Company also paid the sum of $167.9 thousand in full payment of the promissory note payable to a former executive and current
shareholder. In addition, the Company paid $31.3 to an unsecured holder of short-term debt and $6.0 thousand to the Company’s chief
executive officer who had advanced such amount during the third quarter of 2013 to fund operations at a time when the Company’s cash was
inadequate. In the second quarter of 2014, the Company received short-term debt of $20.0 thousand from a vendor to finance the Company’s
operations during the bankruptcy filing, such debt secured by first liens on certain of the Company’s fixed assets.
Short-term advances in the nine months ended September 30, 2014, consisted of $20.0 thousand advanced to the Company by a
customer in return for a promissory note bearing interest at 10% per annum and collateralized by certain of the Company’s fixed assets. The
customer and the Company expect the advance to be repaid in whole or in part by the delivery of products to the customer from the Company
related to purchase orders the customer previously delivered to the Company. In addition, during the quarter ended September 30, 2014, EFL
advanced a total of $29.7 thousand to assist the Company in maintaining operational capabilities throughout the bankruptcy process. It is
anticipated that these advances will be repaid at the time the Company exits bankruptcy from additional equity proceeds provided by EFL or
other investors.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table outlines payments due under the Company’s significant contractual obligations over the periods shown, exclusive
of interest, as of September 30, 2014:
Contractual Obligations at September 30, 2014
Operating lease obligations
Long-term debt obligations
Capital expenditure obligations
Purchase obligations
Other long-term obligations
Less than
One Year
($)
79,164
-
Payments Due by Period
One to
Three to
More Than
Three years
Five Years
Five Years
($)
($)
($)
39,582
-
Total
($)
118,746
-
The above table outlines our obligations as of the date noted above and does not reflect any changes in obligations that have occurred
after that date.
35
Off-Balance Sheet Arrangements
The Company has not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any
third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are
not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit support to it or engages in leasing, hedging or research and
development services with it.
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates that affect the amounts reported in the consolidated financial statements and the accompanying
notes. Accounting estimates and assumptions are those that management considers to be the most critical to an understanding of the
consolidated financial statements because they inherently involve significant judgments and uncertainties. All of these estimates reflect
management’s judgment about current economic and market conditions and their effects based on information available as of the date of these
consolidated financial statements. If such conditions persist longer or deteriorate further than expected, it is reasonably possible that the
judgments and estimates could change, which may result in future impairments of assets, among other effects.
Significant estimates for Oryon include the carrying value of intangible assets and the value of equity instruments, including
convertible notes, stock options, warrants, and shares of equity issued in lieu of cash.
Recently Issued Accounting Pronouncements
There have been no new accounting rules or pronouncements introduced in 2014 or 2013 that have had an effect on our financial
condition or results of operations.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company does not have any market risk sensitive instruments.
ITEM 4.
CONTROLS AND PROCEDURES
Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls
and procedures (as defined under the Exchange Act and the Sarbanes-Oxley Act of 2002 (“SOX”) Section 404(a). Based on this evaluation, we
concluded that, as of September 30, 2014, our disclosure controls and procedures were not effective. This conclusion was based on the
existence of material weakness as discussed below. Our management is responsible for establishing and maintaining adequate internal control
over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles.
Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2013, the Company’s management assessed the effectiveness of the Company’s internal control over financial reporting
based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments and
concluded in our Annual Report on Form 10-K for the year ended December 31, 2013 that there is a material weakness in our internal control
over financial reporting. Management determined that there are deficiencies in the design or operation of the Company’s internal control that
adversely affected the Company’s internal controls that management considers being material weaknesses.
In the light of management’s review of internal control procedures as they relate to COSO and the SEC the following were identified:
●
The Company has limited segregation of duties, which is not consistent with good internal control procedures.
●
The Company does not have a written internal control procedures manual that outlines the duties and reporting requirements of the
Directors and any staff to be hired in the future. This lack of a written internal control procedures manual does not meet the
requirements of the SEC or for good internal control.
●
There are no effective controls instituted over financial disclosure and the reporting processes.
36
Management determined that the weaknesses identified above have not affected the financial results of the Company due to management’s
additional review and analysis.
The Company will endeavor to correct the above noted weaknesses in internal control once it has adequate funds to do so. With an increase in
administrative staff, the segregation of duties issue will be addressed in part and internal control will be significantly improved. The Audit
Committee has directed management to develop a written policy manual outlining the duties of each of the officers and staff of the Company to
facilitate better internal control procedures.
Management will continue to monitor and evaluate the effectiveness of the Company’s internal controls and procedures and its internal controls
over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or
improvements, as necessary and as funds allow.
Changes in Internal Control over Financial Reporting
No changes occurred during the quarter ended September 30, 2014 that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
37
PART II – OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
The information regarding the Company’s legal proceedings is provided in Notes 11 and 17 to the Consolidated Financial Statements provided
in Part I of this filing, which Notes are specifically incorporated into this Part II by reference.
ITEM 1A
RISK FACTORS
An investment in our securities involves a high degree of risk. In evaluating our business and its future expectations, one should consider
carefully the risk factors included the Company’s Annual Report on Form 10-K, as amended, filed with the Securities and Exchange
Commission (the “SEC”) on March 7, 2014. Any of such risk factors, if they occur, could seriously harm our business and our operations.
There may be risk factors we do not know exist, or that we have deemed to be immaterial, at this time. Even if they are deemed immaterial at
this time, they could develop whereby they could adversely affect our business. Our shares are speculative by nature and therefore the risk of
purchasing or holding our shares is high. Investors should consider whether they can assume a loss of their entire investment.
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Investment by EFL Tech B.V.
Issuance under Subscription Agreement . On January 21, 2014, Oryon Technologies, Inc., a Nevada corporation (the “Registrant,” “ORYN” or
the “Company”) entered into a Subscription Agreement (the “Subscription Agreement”) with EFL Tech B.V., a Netherlands corporation (“EFL
Tech”). At the closing of the first tranche of issuances of shares of the Company’s common stock, par value $0.001 (the “Common Stock”)
pursuant to the Subscription Agreement, on January 21, 2014 (the “First Closing”), the Registrant issued to EFL Tech an aggregate of
85,271,779 shares of Common Stock, and EFL Tech delivered $1,000,000 (of the net $1.5 million cash portion of the consideration for all
share issuances under the Subscription Agreement) to the Company. Subsequent to the First Closing, on January 21, 2014, EFL Tech held
51.0% of the Company’s issued and outstanding Common Stock (46.0% on a fully diluted basis). Based upon information from EFL Tech, the
source of such funds was the working capital of EFL Tech.
Other consideration provided to the Company at the First Closing for the sale of shares of Common Stock to EFL Tech consisted of the
following agreements, each of which was entered into and delivered by the Company and EFL Holdings Tech B.V., a Netherlands corporation
(“EFL Holdings”), and an affiliate of EFL Tech, on January 21, 2014: (a) License Agreement granting the Company an exclusive, worldwide,
perpetual, sub-licensable, royalty-free, paid-up license (the “License Agreement”) for all of EFL Holding’s EL-related patents, trademarks and
other intellectual property, both U.S. and international (the “EFL Holdings IP”); (b) Equipment Lease Agreement for certain printing
equipment used in the production of electroluminescent (“EL”) lamps, the Company’s principal product, which EFL Holdings valued at $1.5
million, at no cost to the Company (the “Equipment Lease”); and (c) Business Relationship Agreement pursuant to which EFL Holdings
covenants that it will not, directly or indirectly, provide services to or otherwise engage in the business of manufacturing, designing, marketing,
selling or distributing EL, or any products incorporating the EFL Holdings IP, other than through the ownership, management and control of
the Company by EFL Tech. The License Agreement has a term that continues until the expiration of the last of the patents licensed thereunder,
unless sooner terminated by EFL Holdings due to the Company’s bankruptcy or other specified, similar financial difficulties. The Business
Relationship Agreement has a term that continues until, and the Equipment Lease has a term of the earlier of 21 years or until, the License
Agreement expires or is terminated. The above-referenced agreements contemplate that the Company will license, and will manufacture and
market products incorporating, its own EL-related intellectual property, as well as the EFL Holdings IP, as a combined intellectual property
portfolio. The descriptions of the Subscription Agreement, the License Agreement, the Equipment Lease, and the Business Relationship
Agreement herein are qualified in their entirety by reference to the full text of such agreements, which are attached to the Company’s Annual
Report on Form 10-K, filed with the Commission on March 7, 2014, as Exhibits 10.1, 10.3, 10.4, and 10.5, respectively.
At the closing of the second tranche under the Subscription Agreement, on or before February 28, 2014 (the “Second Closing”), EFL Tech was
required to deliver to the Company additional funds in the amount of $250,000 on or before February 28, 2014. At the Second Closing, the
Company issued to EFL Tech an additional 85,133,871 shares of Common Stock, at which time EFL Tech’s cumulative ownership became
170,405,650 shares of Common Stock, constituting 63.0% of the Common Stock on a fully diluted basis.
EFL Tech failed to pay the third and final tranche of $250,000 that was required by the Subscription Agreement to be paid to the Company on
or before March 31, 2014 (the “Third Closing”). At the Third Closing, EFL Tech was required to deliver to the Company additional funds in
the amount of $250,000 (bringing the total amount of the cash component that would have been paid by EFL Tech to the Company in
consideration for the issuance by the Company of shares of Common Stock to EFL Tech under the Subscription Agreement to $1,500,000). At
the Third Closing, the Company would have been required to issue to EFL Tech an additional 129,832,877 shares of Common Stock, at which
time EFL Tech’s cumulative ownership would have been 300,238,527 shares of Common Stock, constituting 75.0% of the Common Stock on a
fully diluted basis.
38
The proceeds from the foregoing funding of $1,250,000 ($1,000,000 at the First Closing, consisting of $689,330 in cash plus the forgiveness of
the obligation to repay the $310,670 in temporary unsecured advances that EFL Tech provided to the Company in periods prior to the First
Closing, and the additional $250,000 payment by EFL Tech at the Second Closing) have been used for general corporate purposes and the
repayment of debt, including, but not limited to, the payments required to be made under the Exchange Agreements (as defined and described
below). At the First Closing, the Company paid the sum of $122,125 in cash, and issued an aggregate of 19,267,010 shares of Common
Stock, to certain creditors, including directors and executive officers, for the settlement and release of a total of $817,375 of the Company's
debt, pursuant to the Exchange Agreements.
In connection with the foregoing issuance of shares of Common Stock (and the Additional Shares (as defined below), if any) to EFL Tech
under the Subscription Agreement, the Company and EFL Tech entered into a Registration Rights Agreement - Subscription Securities,
effective on the First Closing, pursuant to which the Company agreed to provide EFL Tech with rights to request registration of such shares
under the Securities Act of 1933, as amended. The foregoing description of such Registration Rights Agreement is qualified in its entirety by
reference to the full text of such agreement, which is attached to the Company’s Annual Report on Form 10-K, filed with the Commission on
March 7, 2014, as Exhibit 10.2.
No underwriter was involved in the above sale of shares of Common Stock.
The foregoing shares were issued (and in the case of any Additional Shares (as defined below), will be issued) in reliance upon an exemption
from registration set forth in Regulation D and/or Section 4(2) of the Securities Act, which exempts transactions by an issuer not involving a
public offering.
Issuance under Exchange and Release Agreements . As required by the Subscription Agreement, on January 21, 2014, the Company entered
into exchange and release agreements (each an “Exchange Agreement” and collectively, the “Exchange Agreements”) by and between the
Company and each member of a group of unsecured creditors of the Company (including current directors and Executive Officers). At the First
Closing, pursuant to the Exchange Agreements the Company issued an aggregate of 19,267,010 shares of Common Stock, constituting 10.39%
of the Common Stock on a fully diluted basis, in exchange for the settlement and release of $695,250 in unpaid and accrued debt to such
creditors. Under the Exchange Agreements, the per-share exchange price for such debt was determined by the average of the closing prices of
the Common Stock on the trading days commencing on December 1, 2013, and ending on January 20, 2014 (the day prior to the First Closing),
which resulted in an exchange price of $0.036085 per share of Common Stock. The Company also paid the sum of $122,125 in cash to such
creditors under the Exchange Agreement for the settlement and release of such amount of debt (for the settlement and release of a total of
$817,375 of debt pursuant to the Exchange and Release Agreements).
Under the Subscription Agreement, the Company has the option of entering into additional Exchange Agreements with other holders of
outstanding debt of the Company for the purpose of exchanging shares of Common Stock for the settlement and release of additional amounts
of unpaid and accrued debt of the Company. The Company has not made a decision regarding whether to enter into any such additional
Exchange Agreements. If the Company were to enter into one or more Exchange Agreements in the future, the Company would issue to EFL
Tech that number of additional shares of Common Stock such that, after issuing shares of Common Stock in exchange for Company debt under
such Exchange Agreements, EFL Tech would continue to hold 75% of the fully diluted shares of Common Stock (the “Additional Shares”).
Under the Subscription Agreement, the cash and non-cash consideration described above for the issuance to EFL Tech of shares of Common
Stock at the First Closing, the Second Closing and the Third Closing will apply to and suffice in all respects for the issuance by the Company
of all Additional Shares, and EFL Tech will not provide the Company with any additional consideration in connection with the issuance by the
Company of any such Additional Shares to EFL Tech.
In connection with the foregoing issuance of shares of Common Stock to such creditors under the Exchange Agreements, the Company and
such creditors entered into a Registration Rights Agreement – Exchange Shares, effective on the First Closing, pursuant to which the Company
agreed to provide such creditors with rights to request registration of such shares under the Securities Act of 1933, as amended. The foregoing
description of such Registration Rights Agreement is qualified in its entirety by reference to the full text of the form of such agreement, which
is attached to the Company’s Annual Report on Form 10-K, filed with the Commission on March 7, 2014, as Exhibit 10.7.
The foregoing shares were issued (and in the case of any shares issued to Oryon creditors subsequent to the First Closing, will be issued) in
reliance upon an exemption from registration set forth in Regulation D and/or Section 4(2) of the Securities Act, which exempts transactions by
an issuer not involving a public offering.
No underwriter was involved in the sale of the above shares of Common Stock.
39
Cancellation of Shares in Connection with the Confirmation of Plan of Reorganization under Chapter 11 Bankruptcy . Information regarding
the surrender and cancellation of shares in connection with the Confirmation of the Company’s Plan of Reorganization is provided in Note 17
to the Consolidated Financial Statements provided in Part I of this filing, which Note 17 is specifically incorporated into this Part II by
reference.
Thomas P. Schaeffer, Larry L. Sears, Richard K. Hoesterey, and Clifton Shen (the members of the board of directors of the Company), and
Donald M. Crook (collectively, the “Surrendering Parties”), and the Company, the members of the new board of directors of the Company, and
EFL Tech and its affiliates will fully release each other from all legal actions involving the Company. In addition, the Surrendering Parties will
surrender all shares of Common Stock and related warrants and options held in their names and in the names of their affiliates and family
members. The total outstanding shares of Common Stock surrendered for cancellation by the Surrendering Parties was 8,025,127 shares of
Common Stock.
M. Richard Marcus, the former Chief Executive Officer of the Company and certain of his affiliates, MRM Acquisitions, LLC and Oryon
Capital LLC (collectively, “Marcus”), will surrender for cancellation all of their shares of Common Stock in the Company, consisting of
6,205,227 shares of Common Stock owned by Oryon Capital, LLC, 18,289,700 shares of Common Stock owned by MRM Acquisitions, LLC,
and 1,300,310 shares of Common Stock owned by M. Richard Marcus, for a combined total of 25,795,237 shares of Common Stock.
Issuance of Shares in Connection with the Confirmation of Plan of Reorganization under Chapter 11 Bankruptcy . Information regarding the
issuance of shares in connection with the Confirmation of the Company’s Plan of Reorganization is provided in Note 17 to the Consolidated
Financial Statements provided in Part I of this filing, which Note 17 is specifically incorporated into this Part II by reference. The Plan provides
for payment of the undisputed pre-petition claims listed in the Company’s Plan and all post-petition payables from (A) the proceeds of a
$1.37 million cash infusion made by EL Flexible Signs or its affiliates, in exchange for 80 million newly-issued shares of common stock,
$0.001 par value (the “Common Stock”), of the Company and a $250,000 payment by EFL Tech, constituting the final payment under the
subscription agreement dated January 21, 2014 pursuant to which EFL Tech will be issued 129,832,877 newly-issued shares of Common Stock
as specified therein and (B) cash on hand.
As of the Effective Date, the total issued and outstanding shares of Common Stock of the Company will be 428,345,951, after giving effect to
the issuance of 209,832,877 shares of Common Stock to EFL Tech and EL Flexible Signs or its assigns and the surrender of 33,820,364 shares
of Common Stock by Marcus and the Surrendering Parties.
The issuance of such shares of Common Stock will be exempt from registration under the Securities Act pursuant to (i) Section 1145 of the
Bankruptcy Code, which generally exempts from such registration requirements the issuance of securities under a plan of reorganization,
and/or (ii) Section 4(a)(2) of the Securities Act because the issuance does not involve any public offering.
Change in Control . Effective at the First Closing, on January 21, 2014, EFL Tech became the holder of 51.0% of the Company’s issued and
outstanding shares Common Stock under the terms of the Subscription Agreement, and, on February 28, 2014, became the holder of 63.0% of
the Company’s shares of Common Stock on a fully diluted basis (reflecting the occurrence of the Second Closing). After the Plan of
Reorganization is effective, EFL Tech will hold 70.1% and EL Flexible Signs will hold 18.7% of the shares of Common Stock issued and
outstanding.
ITEM 5
OTHER MATTERS
Departure and Election of Directors in Connection with the Subscription Agreement . On January 21, 2014, effective at the First Closing, the
following events occurred:
1. Jon S. Ross, an independent director and Chairman of the Compensation Committee of the Board, and Mark E. Pape, a director and
the Company’s Chief Financial Officer and Secretary, resigned from the Board, as provided in the Subscription Agreement.
2. Richard K. Hoesterey, an existing independent director, a Member of the Compensation Committee of the Board, and the Chairman
of the Nominating and Governance Committee of the Board, was appointed Chairman of the Compensation Committee of the Board,
replacing Mr. Ross as Chairman of such committee.
3. The Board appointed Larry L. Sears, an existing independent director and the Chairman of the Audit Committee of the Board, as a
member of the Compensation Committee of the Board.
40
4. The Board appointed Dr. Clifton Kwang-Fu Shen, the Chief Scientific Officer of EFL Tech International Group N.V, a Netherlands
corporation and an affiliate of EFL Tech, to fill one of the foregoing vacancies, in accordance with the provisions of the Company’s
Bylaws. Dr. Shen was appointed to serve until the Company’s next annual meeting of shareholders.
5. The Board increased the number of directors that may serve on the Board from five (5) to seven (7), pursuant to the authority
granted to the Board in the Company’s Bylaws. With the resignations of Messrs. Pape and Ross as directors, and the appointment of
Dr. Shen as a director, effective at the Closing, there were four (4) directors on the Board, leaving three (3) directorships unfilled.
Under the Subscription Agreement, EFL Tech had the right to nominate a total of four (4) directors to the Company’s Board, one (1) of whom
is Dr. Shen, who was appointed a director effective at the Closing, as described above. EFL Tech has the right to nominate one (1) additional
director at the Second Closing; however, EFL Tech has made no decision regarding whom it will nominate with respect to such right to
nominate. Accordingly, as of the date hereof, since the Second Closing occurred as scheduled on February 28, 2014, but the Third Closing has
not occurred, as reported in the Current Report on Form 8-K/A filed with the Commission on April 11, 2014, after the second EFL Technominated director has been appointed as a director by the Board, EFL Tech will have two (2) of its director-nominees on the Company’s five
(5) member Board. The description of the Subscription Agreement herein is qualified in its entirety by reference to the full text of such
agreement.
Effective at the First Closing, Thomas P. Schaeffer, retained his position as Chief Executive Officer of the Company, but he resigned the office
of President. That office has not been filled. The Board may appoint a replacement to the office of President, which may be a member of EFL
Tech’s management team, but no decision has been made, as of the date hereof, if or when such appointment will be made, or who will be
appointed.
Departure and Election of Directors in Connection with the Confirmation of the Plan of Reorganization under Chapter 11 Bankruptcy . As
reported in Item 5.02 of the Company’s Current Report on Form 8-K filed with the Commission on November 13, 2014, which is incorporated
herein by reference, pursuant to the Plan, the following directors will cease to be members of the board of directors of the Company as of the
Effective Date: Thomas P. Schaeffer, Larry L. Sears, Richard K. Hoesterey and Clifton Shen. In addition, Thomas P. Schaeffer will cease to
serve as Chief Executive Officer of the Company and Mark E. Pape will cease to serve as Chief Financial Officer. Pursuant to the Plan, as of
the Effective Date, three individuals associated with EFL Tech will be appointed members of the board of directors of the Company and the
new board of directors will appoint a Chief Executive Officer and a Chief Financial Officer.
Amendments to Bylaws . Prior to the First Closing, Section 3.3 of the Company’s Bylaws provided that the Board may not fill more than two
(2) newly created directorships during the period between any two successive annual meetings of stockholders. On January 21, 2014, effective
at the First Closing, the Board amended Section 3.3 of the Bylaws to delete the foregoing restriction on the Board’s authority to fill newly
created directorships.
41
ITEM 6
EXHIBITS
The following exhibits are included as part of this report and are filed herewith:
Exhibit No.
10.1
10.2
10.3
10.4
10.5
10.6
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Description
Order Confirming Debtors’ Chapter 11 Plan of Reorganization (incorporated by reference to the Registrant’s Current Report
on Form 8-K filed on November 13, 2014)
Plan Proponents’ Modified First Amended Chapter 11 Plan (incorporated by reference to the Registrant’s Current Report on
Form 8-K filed on November 13, 2014)
Settlement Agreement dated September 14, 2014 (incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on November 13, 2014)
Secured Promissory Note dated November 7, 2014 (incorporated by reference to the Registrant’s Current Report on Form 8-K
filed on November 13, 2014)
Intellectual Property Security Agreement dated November 7, 2014 (incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on November 13, 2014)
License Agreement*
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
Certification of Principal Financial and Principal Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
XBRL Instance Document*
XBRL Taxonomy Extension Schema*
XBRL Taxonomy Extension Calculation Linkbase*
XBRL Taxonomy Extension Definition Linkbase*
XBRL Taxonomy Extension Label Linkbase*
XBRL Taxonomy Extension Presentation Linkbase*
___________
∗
Filed herewith.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORYON TECHNOLOGIES, INC.
(Registrant)
Date: December 8, 2014
By: /s/ Thomas P. Schaeffer
Thomas P. Schaeffer
Chief Executive Officer and Director
Date: December 8, 2014
By: /s/ Mark E. Pape
Mark E. Pape
Chief Financial Officer, Chief Accounting
Officer, Secretary and Director
43
Exhibit 10.6
PATENT LICENSE AGREEMENT
THIS PATENT LICENSE AGREEMENT (“this Agreement”) is made the 28 th day of November, 2014 between ORYON
TECHNOLOGIES, INC., ORYON TECHNOLOGIES, LLC, ORYON TECHNOLOGIES DEVELOPMENT, LLC, and ORYON
TECHNOLOGIES LICENSING, LLC (collectively “ Oryon ” or “ Licensor ”), and MYANT CAPITAL PARTNERS INC. (the “ Licensee
”) .
RECITALS:
A.
Oryon/Licensor is the owner of all right, title, and interest in the Licensed Patents, as such term is defined below. Oryon/Licensor has
the right to grant the exclusive license granted in this Agreement as owner of the Licensed Patents;
B.
Licensor, Licensee, and other parties settled several litigation and arbitration matters pursuant to a Settlement Agreement dated
September 2014. Under that Settlement Agreement, Licensor agrees to grant an exclusive license to the Licensee in the Licensed Patents in the
Territory, as such terms are defined below, pursuant to the terms and conditions specified in this Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby mutually acknowledged by the Parties, the Parties agree as follows:
1.
Definitions
In this Agreement, unless the context dictates otherwise, the following terms shall have the following meanings:
(1)
“ Affiliate ” of any entity means another entity that directly or indirectly controls, is controlled by, or is under common
control with, such first entity. For the purposes of this definition, “control” means, as to any entity, the power to direct or
cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by
contract or otherwise. The term “ Affiliate ” shall also include any entity which is a result of an internal reorganization of an
Affiliate or otherwise results from a merger of an entity into, or with, an Affiliate after the Effective Date. For purposes of
clarification, however, except as otherwise provided in Section 3(3), no entity which is directly or indirectly first controlled
by an Affiliate after the Effective Date shall be an Affiliate under this Agreement and any entity which is an Affiliate shall be
considered an Affiliate only for the time during which such control exists . ;
(2)
“ Approved Affiliate” means any Affiliate of Licensee that Licensor has agreed in writing is entitled to the granted license
rights to the Licensed Patents, pursuant and subject to Section 3(3) below;
(3)
“ Agreement ” means this agreement, including all exhibits attached hereto which are hereby incorporated as an integral part
of this agreement, and all amendments hereto, as agreed by the Parties in writing;
2.
(4)
“ Business Day ” shall mean any day other than a Saturday, Sunday or a statutory holiday observed in the Province of
Ontario, Canada, or in New York, New York, Addison, Texas, and Toronto, Ontario;
(5)
“ Communication ” means any notice, demand, request, consent, approval or other communication which is required or
permitted by this Agreement to be given or made by a Party in writing;
(6)
" Cost of the Licensed Technology ” shall mean the direct costs attributable to the electroluminescent technology claimed in
the Licensed Patents (and the Patents on Exhibit B) in the final product (but not the cost of the entire product itself), sold by
Licensee or its Approved Affiliates, calculated according to the Parties’ mutually agreed accounting practices;
(7)
“ Covered Products and Services ” shall mean any device, system, method, or process that embodies or utilizes an
invention claimed in one or more claims of an unexpired patent included in the Licensed Patents or in the patents identified
by patent number and patent applications on Exhibit “B,” and which is sold, distributed, or otherwise provided by Licensee or
its Approved Affiliates;
(8)
“ Effective Date ” means the date first written above;
(9)
“ Licensed Patents ” means the patents identified as such by patent number and patent applications identified by patent
application number on Exhibit “A” and patents and patent applications that issue from applications which are parents,
divisionals, continuations, continuations-in-part, re-examinations or reissues of the applications which correspond to the
patents and applications identified by number in Exhibit “A” attached hereto, and any Canadian patents that will issue to
Licensor that claim the subject matter disclosed in the patents identified by patent number and patent applications on Exhibit
“B” and any divisionals, continuations, continuations-in-part, re-examinations or reissues thereof;;
(10)
“ Party ” means the Licensor, and its Affiliates, or Licensee, and its Approved Affiliates, and “ Parties ” means all of them,
as the context dictates; and
(11)
“ Territory ” means Canada .
Exhibits
The following is a list of exhibits attached to and incorporated into this Agreement by reference and deemed to be a part of this
Agreement:
Exhibit “A”
Exhibit "B”
Exhibit “C”
Canadian Patents
Oryon Patent Portfolio
Promissory Note
3.
Grant of License and Covenant of Exclusive Rights to Elastolite Technology
(1)
Licensed Patent Rights to Licensee. Subject to the terms and conditions of this Agreement, and the payment of the running
royalty after a six (6) month royalty free period pursuant to Section 4, Licensor hereby grants to Licensee under all Licensed
Patents, and Licensee hereby accepts, an exclusive, irrevocable (except as provided in Section 8 (“Term”) hereof), nontransferable, and non-assignable (except as provided in Section 22 (“Assignment”) hereof) right and license within the
Territory, starting from the Effective Date and ending on the last expiration date of the Licensed Patents, for Licensee and its
Approved Affiliates to:
(a) make, use, sell, offer for sale, and import the Covered Products and Services;
(b) have all or part of the Covered Products and Services or portions thereof made by a third party, approved in writing in
advance by Licensor, which approval shall not be unreasonably withheld, for the use, sale, offer for sale, or importation by or
for the benefit of Licensee or its Approved Affiliates;
(c) during the Term, Licensor, its Affiliates, and its licensees shall not make, use, sell, offer for sale, or import the Covered
Products and Services in or into the Territory;
(d) during the Term, Licensee shall have exclusive rights to make, use, sell, offer for sale, or import the Covered Products
and Services in the Territory; and
(e) in the event that Licensor elects to obtain patents in Canada over the technology subject to the patents listed on Exhibit B,
it will grant an exclusive license to Licensee with regard to such patents.
(2)
Right to Enforce. Licensee agrees to notify Licensor promptly in writing of any infringement or suspected infringement of
any of the Licensed Patents by any other person or entity that comes to Licensee’s attention. Licensor has the right, but not
the obligation, to institute and prosecute any action or proceeding against third parties for or by reason of any unlawful
infringing of the Licensed Patents in the territory, including of any of the rights granted to Licensee by this Agreement of
which Licensor becomes aware, and Licensee shall provide all reasonable assistance as Licensor shall request, at Licensor’s
expense with respect to any such action instituted by Licensor, at Licensor’s expense. Licensor shall provide copies to
Licensee of all material documents and correspondence relating to the settlement, consent judgment, voluntary disposition, or
other final resolution of any such action. Licensor will have control of the conduct of any such action that it brings. Licensee
will have the right to provide ongoing comments on documents and advice regarding its position and interests in such action,
which advice and comments will be considered in good faith by Licensor. Licensor will not enter into any settlement, consent
judgment or other voluntary disposition of any such action without the prior written consent of Licensee if the settlement
would admit the invalidity or unenforceability of or limit in any way any patent right licensed by Licensee. With Licensor’s
prior written approval, if Licensor declines to institute or prosecute any such action within sixty (60) days of receiving
written notice from Licensee requesting that it do so, Licensee shall have the right to institute and prosecute such action, at
Licensee’s expense, and Licensor will have the same rights and obligations as Licensee, and Licensee will have the same
rights and obligations as Licensor, set forth in Section 3(8) below, which would apply if Licensor had instead instituted and
prosecuted any action or proceeding..
(3)
Approved Affiliates. The foregoing rights to Approved Affiliates shall be permitted only with the written consent of
Licensor, which permission shall not be unreasonably withheld, conditioned, or delayed, and any such Approved Affiliates
must agree in writing to the same restrictions, obligations, terms and conditions imposed on Licensee pursuant to this
Agreement.
(4)
No Sublicense Rights. Licensee and its Approved Affiliates do not have the right to sublicense any rights granted under this
Agreement.
(5)
No Implied Rights. Except as expressly set forth in Sections 3(1) and 3(2) above, and 3(7) below, no other rights or licenses
under Licensor’s other patents or any other intellectual property rights are granted, implied, or otherwise consented to by
Licensor under this Agreement. Consequently, nothing contained in this Agreement shall be construed as conferring by
implication, estoppel, or otherwise any license or right in favor of Licensee or its Approved Affiliates in any patents or other
intellectual property rights of Licensor other than the license of the Licensed Patents in the Territory.
(6)
Right to Inspect/Approve Materials. Licensor has the right at any time during Licensee's regular business hours upon
reasonable notice during the term of this Agreement, to inspect and approve the materials used by Licensee to manufacture
the Covered Products and Services to ensure that they comply with the Parties’ mutually agreed upon quality control
standards.
(7)
Covenant of Exclusive Rights. Licensor hereby covenants that Licensor (or its Affiliates, licensees, or sub-licensees) will
not make, use, sell, offer for sale, and import any device, system, method, or process that embodies or utilizes an invention
described or claimed in one or more claims of the patents identified by patent number and patent applications on Exhibit “B”
in the Territory.
(8)
Except as otherwise provided by paragraph 3(2) above, including the requirement of Licensor’s prior written approval,
Licensee shall have no right to institute any action or suit against third parties for infringement of any portion of the Licensed
Patents.
4.
Royalty
The exclusive license granted in Section 3 shall be royalty free for the first six (6) months after the Effective Date of this Agreement.
Thereafter, until this Agreement is terminated, Licensee and its Approved Affiliates shall pay to Licensor a running royalty fee of 10%
of the Cost of the Licensed Technology , multiplied by 1.1, that is used in the Covered Products and Services sold by Licensee and its
Approved Affiliates in the Territory (to be converted into U.S. dollars at the rate of exchange applicable to the currency for the Cost of
the Licensed Technology, as established by Licensee’s regular commercial bank). Royalty payments shall be paid monthly the first
twelve (12) months of royalty payments, followed by quarterly payments thereafter with the prior written approval of Licensor, which
approval shall not be unreasonably withheld. Payment shall be made to Licensor fourteen (14) days after the end of each month or
quarter, as applicable.
This Section 4 shall survive termination of this Agreement so as to cover royalty payments for sales of Covered Products and Services
sold by Licensee and its Approved Affiliates prior to the termination. Survival of this Section shall not, however, be construed as
conferring any license, express or implied, or extension thereof with respect to the Licensed Patents. All royalty payments shall be
made in U.S. dollars by Licensee’s check on U.S. funds drawn to Licensor and sent by overnight courier to the address set forth in the
Notices section, Section 14, or wire transferred to Licensor’s bank according to wire instructions provided by Licensor.
5.
Representations, Warranties, Disclaimers
(1)
Licensor covenants, represents and warrants that it has all necessary corporate power, capacity and authority to enter into this
Agreement and to perform its respective obligations hereunder.
(2)
Licensor has obtained all due authorization and taken all necessary corporate action on the part of the each respective
company to validly execute and deliver this Agreement and, on the part of Licensor, to grant the rights and licenses
contemplated by this Agreement.
(3)
To the best of Licensor’s knowledge, the Licensed Patents are owned by Oryon Technologies, LLC.
(4)
Exhibit A sets out a complete and accurate list of all Canadian patents and patent applications issued to Licensor. Exhibit B
sets out a complete and accurate list of all patents and patent applications held by Licensor outside of the Territory.
(5)
Licensor will maintain, at its expense, the Licensed Patents set out in Exhibit A in good standing in the Canadian patent
office to the extent such Licensed Patents are registered as of the date of this Agreement and become registered thereafter.
Licensor can maintain the Licensed Patents using counsel of its choice.
6.
(6)
Nothing contained in this Section 5 or elsewhere in this Agreement, however, shall be construed as a warranty or
representation on the part of Licensor: (i) as to the validity, enforceability, or scope of any Licensed Patents; or (ii) that any
manufacture, offer for sale, sale, import, use or other disposition of Covered Products and Services hereunder will be free
from infringement of any patent rights or other intellectual property rights of any third party.
(7)
Licensee represents and warrants to Licensor that neither Licensee, nor any of its Approved Affiliates, will directly or
indirectly challenge the validity or enforceability of any of the Licensed Patents or participate in the creation or acquisition of
any Affiliate where a primary purpose of such creation or acquisition is to extend the benefits of this Agreement to a third
party that is not approved by Licensee pursuant to Section 3(3). Licensee agrees that any such attempt to extend such benefits
shall not extend the licenses, covenants and/or immunities granted under this License Agreement to such third party.
(8)
Licensor shall promptly notify Licensee in writing of the invalidation of any patent in the Licensed Patents. Licensor shall
promptly provide Licensee advance written notice before applicable bar dates as to Licensor’s ceasing to maintain any patent
in the Licensed Patents (each an “Abandoned Patent”), and Licensee shall thereafter have the exclusive right to pursue such
maintenance at its own expense and with Licensor’s commercially reasonable cooperation. Licensor shall promptly assign to
Licensee, without further consideration from Licensee, any Abandoned Patent for which Licensee wishes to pursue such
maintenance, and such Abandoned Patent shall thereafter no longer be included in the Licensed Patents.
(9)
OTHER THAN AS EXPRESSLY SET FORTH IN THIS SECTION 5, NEITHER PARTY MAKES ANY OTHER
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, NOR SHALL EITHER PARTY HAVE ANY
LIABILITY IN RESPECT OF ANY INFRINGEMENT OF PATENT RIGHTS OR OTHER RIGHTS OF THIRD PARTIES
DUE TO THE OTHER PARTY'S OPERATION UNDER THE LICENSE, RIGHTS, OR OTHER IMMUNITIES HEREIN
GRANTED. LICENSEE AND ITS APPROVED AFFILIATES EXPRESSLY DISCLAIM ANY WARRANTIES OF
VALIDITY, ENFORCEABILITY, SCOPE, PERFECTION OR DOMINANCE OF THE LICENSED PATENT RIGHTS.
Indemnification; Liability
(1)
Licensor hereby covenants and agrees to indemnify and hold harmless Licensee and its Approved Affiliates and each of their
respective directors, officers, employees, shareholders, attorneys and agents (collectively, the “ Licensee Indemnified
Parties ” and individually a “ Licensee Indemnified Party ”) on demand, from and against all damages, claims, actions,
complaints, losses (other than loss of profits), liabilities, costs and expenses (including reasonable legal fees and
disbursements) to which any Licensee Indemnified Party may be subject or which any Licensee Indemnified Party may suffer
or incur, caused by or arising from any suit, proceeding or dispute arising from Licensor breaching any of the terms or
conditions of this Agreement, including without limitation its representations, warranties and covenants under Section 5.
(2)
Licensee hereby covenants and agrees to indemnify and hold harmless Licensor and its Affiliates and each of their respective
directors, officers, employees, shareholders, attorneys and agents (collectively, the “ Licensor Indemnified Parties ” and
individually, a “ Licensor Indemnified Party ”) on demand, from and against all damages, claims, actions, complaints,
losses (other than loss of profits), liabilities, costs and expenses (including reasonable legal fees and disbursements) to which
the Licensor Indemnified Parties or any Licensor Indemnified Party may be subject or which any Licensor Indemnified Party
may suffer or incur, caused by or arising from any suit, proceeding or dispute arising from Licensee breaching any of the
terms or conditions of this Agreement, including without limitation its representations, warranties and covenants under
Section 5.
(3)
With regard to any claim for indemnification hereunder:
(i)
The indemnified party shall promptly notify the indemnifying party in writing of any claim with regard to which it
may seek indemnification hereunder. The indemnifying party shall have the sole right and authority to control and
direct the investigation, preparation, defense and settlement of such claim, including but not limited to the selection
of counsel, and the indemnified party shall give the indemnifying party full reasonable assistance and cooperation in
such defense and settlement. The indemnified party may, however, at its sole option and at its own expense engage
its own separate counsel to act as co-counsel on its behalf. Notwithstanding the foregoing, the indemnifying party:
(A)
shall not be entitled to have sole control over any claim that seeks an order, injunction or other equitable
relief against the indemnified party; and
(B)
shall obtain the prior written approval of the indemnified party, which shall not be unreasonably withheld,
conditioned or delayed, before ceasing to defend against any claim or entering into any settlement,
adjustment or compromise of such claim involving injunctive or similar equitable relief being asserted
against the indemnified party or any amount to be paid by the indemnified party.
7.
Confidentiality
Each Party agrees not to disclose this Agreement or the terms or conditions contained herein to any third party (other than Approved
Affiliates) without the prior written consent of the other Party; except that, on or after the Effective Date:
(i) Disclosure is permissible if required by court order, if required to enforce rights under this Agreement, or otherwise as
may be required by law; provided the Party required to disclose gives the other Party written notice prior to disclosure to
enable the other Party to seek a protective order, and reasonable steps are taken by the disclosing Party to maintain the
confidentiality of this License Agreement;
(ii) Each Party may disclose this License Agreement or its contents to the extent reasonably necessary, on a confidential
basis, to: (i) its accountants, attorneys, and financial advisors; (ii) its present or future providers of venture capital and/or
potential investors in or acquirers of such Party; (iii) any governmental body having jurisdiction and calling therefor; (iv)
legal counsel representing a Party or representing an Entity proposing to merge with or acquire the Party or one of its
Affiliates; (v) a Party’s insurer; or (vi) third parties in connection with financing or potential acquisition activities; provided
that, in the situations described in (ii) through (vi), such Party exercises reasonable efforts, consistent with industry norms, to
obligate such third parties to keep this License Agreement and its contents confidential; and
(iii) Each Party may disclose the existence (but not the terms) of this Agreement.
8.
Term
(1)
The term of this Agreement shall be the earlier of four (4) years from the date of execution of this Agreement, December 31,
2018, or the termination of this Agreement in accordance with Sections 8(2), 8(3), 8(4) or 8(5).
(2)
This Agreement may be terminated by the Licensee upon thirty (30) days prior written notice to Licensor.
(3)
Except as otherwise provided in Sections 8(4), if the Licensee shall be in default of any obligation on its part under this
Agreement, then the Licensor may issue a notice in writing of such default and on failure of the Licensee to remedy the same
or cause the same to be remedied within thirty (30) days after the issuance of the notice, the Licensor may at its option
terminate this Agreement by notifying the Licensee in writing of its election so to do.
(4)
This Agreement may be terminated by the Licensor immediately if Licensee or its Approved Affiliates challenge or contest
the validity of the Licensed Patents, or on and after any event of the bankruptcy or insolvency of the Licensee whether
voluntary or involuntary, or the winding up or liquidation of the Licensee, whether voluntary or involuntary.
(5)
9.
No Termination Due to Licensor Bankruptcy
(1)
(2)
10.
A default by Licensor of any of its obligations set forth in the Promissory Note, attached hereto as Exhibit “C,” shall
terminate all of Licensee’s obligations under this Agreement, including without limitation, the payment of running royalties
as set forth in Section 3(1) above.
The licenses granted to the Licensee hereunder shall not terminate, but shall continue, on and after any event of:
(i)
the bankruptcy or insolvency of the Licensor whether voluntary or involuntary; or
(ii)
the winding up or liquidation of the Licensor, whether voluntary or involuntary.
Without limiting the generality of the foregoing, all rights and licenses granted by Licensor under this Agreement are and
shall be deemed to be rights and licenses to “intellectual property” for purposes of, and as such terms are used in and
interpreted under, Section 365(n) of the United States Bankruptcy Code (the “ Bankruptcy Code ”). Without limiting the
generality of the foregoing, Licensor acknowledges and agrees that, if Licensor or its estate shall become subject to any
bankruptcy or similar proceeding subject to Licensee’s rights or election, all rights and licenses granted to Licensee
hereunder will continue subject to the terms and conditions of this Agreement, and will not be affected, even by Licensor’s
rejection of this Agreement.
Patent/Product Marking
Licensee shall affix any and all statutory patent notices with respect to all unexpired and valid Licensed Patents at any and all places
on and/or in connection with the Covered Products and Services as required by law or otherwise requested by Licensor. This includes,
where appropriate, the marking of all Covered Products and Services with at least the word "Patent" followed by the number(s) of the
applicable Licensed Patents. Licensee will also affix a Licensor approved hang tag to all Covered Products and Services which are
apparel and wearable products with the “Elastolite by Oryon” identification
11.
Royalty Records
Licensee shall keep true and accurate books of account and shall keep and maintain all records, documents and other instruments
relating to the Cost of the Licensed Technology used in the Covered Products and Services sold by Licensee and its Approved
Affiliates in the territory, in such detail as shall enable Licensor to ascertain the royalty due under this Agreement and compliance
with payment. Licensor shall have the right to designate a firm of certified public accountants, reasonably acceptable to Licensee, to
inspect Licensee's books of accounts, records, documents and instruments and to make copies thereof, at any time during Licensee's
regular business hours during the term of this Agreement and for a period of 180 days immediately after its termination, to ascertain
the accuracy of such report. The expense of such audit shall be Licensor's unless the audit shall demonstrate a discrepancy (in
Licensee's favor) greater than five percent (5%) between fees reported and paid and those which were actually due, in which event the
audit expenses shall be borne by Licensee.
12.
Effect of Termination
Any termination of this Agreement will be without prejudice to the following rights and obligations which will survive any
termination to the degree necessary to permit their complete fulfillment or discharge: any cause of action or claim of a Party accrued
or to accrue, because of any breach or default by any other Party prior to the termination date, or any obligation surviving the
termination date.
13.
Survival
Sections 4 (Royalty), 6 (Indemnification), 7 (Confidentiality), 11 (Royalty Records), 12 (Effect of Termination), 13 (Survival) and any
of the Parties’ other obligations hereunder which by their nature extend beyond termination will survive termination of this Agreement
and remain fully effective.
14.
Notices
Any Communication which is required or permitted to be given or made by one Party to the other hereunder shall be in writing and
shall be either personally delivered to such Party or sent by email to the following address:
(a)
to Licensor at:
c/o Oryon Technologies, Inc.
4251 Kellway Circle
Addison, Texas 75001
U.S.A.
Attention: TBD
Email: TBD
(b)
to the Licensee at:
Myant Capital Partners Inc.
100 Ronson Drive
Etobicoke, Ontario M9W 1B6
Canada
Attention: Mr. Tony Chahine
Email: tony@myant.com
or at such other address as any Party may from time to time advise the other by notice in writing. Any Communication given by
personal delivery shall be deemed to have been received on the date of delivery if received by 6:00 p.m. on a Business Day and
otherwise on the next following Business Day. Any Communication sent by email shall be deemed to have been received on the date
of transmission if transmission is confirmed by 6:00 p.m. on a Business Day and otherwise on the next following Business Day.
15.
Entire Agreement
This Agreement and the Settlement Agreement constitute the entire agreement between the Parties hereto pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written of the Parties
with respect thereto, and there are no warranties, representations or other agreements between the Parties in connection with the
subject matter hereof except as specifically set forth in this Agreement.
16.
Governing Law
This Agreement and the rights of Licensor and of Licensee hereunder will be interpreted, governed, construed, applied and enforced in
accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein, regardless of applicable
conflicts of laws principles. The United Nations Convention on Contracts for the International Sale of Goods will not apply to any
transactions under this Agreement.
17.
Agreement Interpretation
This Agreement has been negotiated by the Parties hereto and their respective counsel and shall be fairly interpreted in accordance
with its terms and without any rules of construction relating to which Party drafted the Agreement being applied in favor or against
either Party.
18.
Further Assurances
The Parties shall, with reasonable diligence, do all things and provide all reasonable assurances as may be required to give effect to
this Agreement and each Party shall provide such further documents or instruments required by any other Party as may be reasonably
necessary or desirable to give effect to this Agreement and carry out its provisions.
19.
Amendment and Waiver
No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by Licensor and
Licensee. No waiver of any of the provisions of this Agreement shall constitute a waiver of any other provision (regardless whether
similar) nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
20.
No Joint Venture.
Nothing herein shall be deemed to constitute the Parties or their Affiliates as joint venturers, partners or agents of each other. Neither
Party shall be liable for any debts, accounts, obligations or other liabilities of the other Party
21.
Severability
Any provision of this Agreement which is prohibited or unenforceable in the Province of Ontario or Canada shall not invalidate the
remaining provisions hereof and any such invalid or unenforceable provision shall be deemed to be severed.
22.
Assignment
Any assignment or grant of rights by Licensor to a third party in or to the Licensed Patents shall be made subject to the terms of this
License Agreement.
Neither Party hereto may assign this Agreement or any benefits or obligations hereunder without the prior written consent of the other,
except that this Agreement and any benefits or obligations hereunder may be assigned by Licensee to any Approved Affiliate or to a
successor of Licensee without the prior written consent of Licensor, or by Licensor to any Affiliate or successor of Licensor without
the prior written consent of Licensee. The terms and provisions of this Agreement shall be binding upon Licensor and Licensee and
their respective successors and assigns but shall inure to the benefit of and be enforceable by the successors and assigns of either
Licensor or Licensee only to the extent that they are permitted successors and assigns pursuant to the terms hereof.
23.
Counterparts
This Agreement may be executed in counterparts, each of which when so executed shall be deemed an original and all of which taken
together shall constitute one and the same instrument. For all purposes of this Agreement and all other documents contemplated
hereby, the signature of any Party, evidenced by a telecopy showing such signature or other electronically transmitted version of such
signature (including by way of PDF), shall constitute conclusive proof for all purposes of the signature of such Party to such
document, to the same extent and in all respects as a copy of such document showing the original signature of such Party. Delivery of
this Agreement by facsimile, e-mail or other functionally equivalent electronic means of transmission constitutes valid and effective
delivery.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF the parties have caused their duly authorized officers to set their hands and seals.
ORYON TECHNOLOGIES, INC.
Per:
Name: John Kapeleris
Title: Director
I have the authority to bind the corporation.
c/s
ORYON TECHNOLOGIES, LLC
Per:
Name: John Kapeleris
Title: Director
I have the authority to bind the corporation
c/s
ORYON TECHNOLOGIES LICENSING, LLC
Per:
Name: John Kapeleris
Title: Director
I have the authority to bind the corporation
c/s
ORYON TECHNOLOGIES DEVELOPMENT, LLC
Per:
Name: John Kapeleris
Title: Director
I have the authority to bind the corporation
c/s
MYANT CAPITAL PARTNERS INC.
Per:
Name: Tony Chahine
Title: President
I have the authority to bind the corporation.
[Signature page for Patent License Agreement.]
c/s
EXHIBIT A
LICENSED PATENTS
Title
Elastomeric Electroluminescent Lamp
Country
Patent No.
Owner
Canada
2,276,448
Oryon Technologies, LLC
EXHIBIT "B"
ORYON PATENT PORTFOLIO
Name
1 Addressable PTF Receptor for Irradiated
Images (Biometrics)
2 Addressable PTF Receptor for Irradiated
Images (Biometrics)
Country
US
patent No.
6936335
PCT/US2001/050573 EPO 2001/987,503.8
PCT
3 Alerting System Using Elastomeric EL
Lamp Structure
4 Alerting System Using Elastomeric EL
Lamp Structure
Application Number
10/450,708
US
6271631
09/482,389
Taiwan
NI-147212
90100634
5 Deployment of EL Structures on Porous or
Fibrous Substrates
US
6551726
09/870,184
6 Elastomeric EL Lamp on Apparel
US
6309764
09/523,434
US
South Korea
Brazil
Australia
Belgium
France
Great Britain
italy
Netherlands
5856030
0307474
P099467
727172
0958713
0958713
0958713
0958713
0958713
08/774,743
1999-7006007
7
8
9
10
11
12
13
14
15
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Main Patent
Main Patent
Main Patent
Main Patent
Main Patent
Main Patent
Main Patent
Main Patent
Main Patent
57243/98
97953511.9
97953511.9
97953511.9
97953511.9
97953511.9
16
17
18
19
20
Intentionally omitted
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
Elastomeric Electroluminescent Lamp
21 Electroluminescent Lamp Membrane Switch
(Continuation)
22 Electroluminescent Lamp Membrane Switch
(Continuation)
23 Electroluminescent Lamp Membrane Switch
(Continuation)
24 Electroluminescent Lamp Membrane Switch
(Continuation)
Main Patent
Main Patent
Main Patent
Main Patent
Germany
Spain
Hong Kong
Mexico
69739899.4
0958713
1023902
216800
97953511.9
97953511.9
00102904.1
996183
US
7,186,936
11/438,182
EPO
China
6749406.2
200680020154 200680020154
Japan
Patent applicat 2008-515691
25 Electroluminescent Lamp Membrane Switch
US
7,049,536
11/148,216
26 Electroluminescent Lamp Membrane Switch
(CIP)
27 Electroluminescent Lamp Membrane Switch
(CIP)
28 Electroluminescent Lamp Membrane Switch
(CIP)
29 Electroluminescent Lamp Membrane Switch
(CIP)
US
58068114.54
11/452,441
30 Electroluminescent System in Monolithic
Structure
31 Electroluminescent System in Monolithic
Structure
32 Electroluminescent System in Monolithic
Structure
33 Electroluminescent System in Monolithic
Structure
China
200780026715.2
Taiwan
096121099
EU
App No. 07835790.2
US
5,856,029
08/656,435
Spain
97928691.1
97928691.1
Great Britain
0906714
97928691.1
Germany
69729867.1
97928691.1
34 Electroluminescent System in Monolithic
Structure
Hong Kong
1019184
99104302.7
35 Irradiated Images Described by Electrical
Contact
36 Irradiated Images Described by Electrical
Contact
37 Irradiated Images Described by Electrical
Contact
38 Irradiated Images Described by Electrical
Contact
39 Irradiated Images Described by Electrical
Contact
40 Irradiated Images Described by Electrical
Contact
41 Irradiated Images Described by Electrical
Contact
US
6091838
09/093,549
Singapore
77972
200007177.9
Taiwan
NI-169617
88121056
42 Membranous EL System in UV-Cured
Urethane Envelope
43 Membranous EL System in UV-Cured
Urethane Envelope
44 Membranous EL System in UV-Cured
Urethane Envelope
45 Membranous EL System in UV-Cured
Urethane Envelope
46 Membranous EL System in UV-Cured
Urethane Envelope
47 Membranous Monolithic EL Structure
with Urethane Carrier Patent
48 Membranous Monolithic EL Structure
with Urethane Carrier Patent
49 Membranous Monolithic EL Structure
with Urethane Carrier Patent
50 Membranous Monolithic EL Structure
with Urethane Carrier Patent
51 Method of Construction of Elastomeric EL
Lamp
Canada
2334620
Japan
4508417
2000-553915
South Korea
0603917
2000-7013978
EPC
99927327.9
US
6717361
09/974,941
china
01817197.4
01817197.4
EU
Taiwan
01988130.9 PCT/US01/42660
NI-185118
Japan
90125110
2002-548747 is JP app. no. PCT/US01/42660
US
6696786
09/974,918
Japan
4190884
2000-5354006
Taiwan
NI-185542
90125106
China
01817193.1
01817193.1
US
6270834
09/173,404
52 Method of Construction of Elastomeric EL
Lamp
China
99125456.2
99125456.2
53 Method and Apparatus for Illuminating a Key
Pad
US
6824288
10/163,749
54 Method for Constructing EL System in
Monoithic Structure
US
5980976
09173104
55 PTF Touch Enabled Image Generator
US
6606399
09/924,436
56 UV-Curable Inks for PTF Laminates
(Including Flexible Circuitry)
57 UV-Curable Inks for PTF Laminates
(Including Flexible Circuitry)
58 UV-Curable Inks for PTF Laminates
(Including Flexible Circuitry)
US
10/476,494
Japan
2003-505946
China
02802649.7
02802649.7
59 Transparent EL Lamp Patent
60 Highly Transmissive Electroluminescent
Lamp
US
PCT
8,106,578
11/638,304
PCT/US2007/024820
61 Translucent Layer including Metal/Metal
Oxide
US
6,261,633
09/173,521
62 Elastomeric Electroluminescent Lamp
Japan
530275/98
63 Electroluminescent Lamp Graphic Overlay
US
11/148,215
64 Electroluminescent Lamp Membrane Switch
PCT
2006/012801
65 Electroluminescent Lamp Membrane Switch
US
8,110,765 B2
11/452,441
66 Hybrid Electroluminescent Assembly
US
8,727,550
12/402,648
67 Flexible Interconnect Circuitry System
US
68 Electroluminescent Lamp Membrane Switch Hong Kong
(CIP)
14/252,027
pending
Exhibit 31.1
THE CERTIFICATION REQUIRED BY RULE 13a-14(a)
or RULE 15d-14(a)
I, Thomas P. Schaeffer, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Oryon Technologies, Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
of financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting.
Date: December 8, 2014
/s/ Thomas P. Schaeffer
Thomas P. Schaeffer
Chief Executive Officer
and Director
Exhibit 31.2
THE CERTIFICATION REQUIRED BY RULE 13a-14(a)
or RULE 15d-14(a)
I, Mark Pape certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Oryon Technologies, Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
of financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting.
Date: December 8, 2014
/s/ Mark E. Pape
Mark E. Pape
Chief Accounting Officer and
Chief Financial Officer
Exhibit 32.1
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report (the “Report”) on Form 10-Q of Oryon Technologies, Inc. (the “Company”) for the quarter ended
September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof, I, Thomas P. Schaeffer, Chief Executive Officer
and Director, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of my knowledge and belief:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and
2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: December 8, 2014
/s/ Thomas P. Schaeffer
Thomas P. Schaeffer
Chief Executive Officer
and Director
Exhibit 32.2
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report (the “Report”) on Form 10-Q of Oryon Technologies, Inc. (the “Company”) for the quarter ended
September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof, I, Mark Pape, Chief Accounting Officer, Chief
Financial Officer and Director, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge and belief:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and
2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: December 8, 2014
/s/ Mark E. Pape
Mark E. Pape
Chief Accounting Officer and
Chief Financial Officer