Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2016 | May. 10, 2016 | |
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2016 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | LUNA | |
Entity Registrant Name | LUNA INNOVATIONS INC | |
Entity Central Index Key | 1,239,819 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 27,644,832 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 15,201,456 | $ 17,464,040 |
Accounts receivable, net | 11,332,866 | 11,034,557 |
Inventory | 8,842,792 | 8,863,167 |
Prepaid expenses and other current assets | 1,765,081 | 1,388,439 |
Total current assets | 37,142,195 | 38,750,203 |
Property and equipment, net | 6,560,430 | 6,614,238 |
Intangible assets, net | 9,915,133 | 10,404,312 |
Goodwill | 2,274,112 | 2,274,112 |
Other assets | 88,948 | 88,948 |
Total assets | 55,980,818 | 58,131,813 |
Current liabilities: | ||
Current portion of long-term debt obligations | 1,833,333 | 1,833,333 |
Current portion of capital lease obligations | 49,175 | 31,459 |
Accounts payable | 4,222,445 | 4,054,425 |
Accrued liabilities | 7,459,549 | 8,304,686 |
Deferred revenue | 1,202,018 | 1,109,759 |
Total current liabilities | 14,766,520 | 15,333,662 |
Long-term deferred rent | 1,520,057 | 1,564,229 |
Long-term debt obligations | 3,833,333 | 4,291,667 |
Long-term capital lease obligations | 154,661 | 35,237 |
Total liabilities | $ 20,274,571 | $ 21,224,795 |
Commitments and contingencies | ||
Stockholders’ equity: | ||
Preferred stock, par value $ 0.001, 1,321,514 shares authorized, issued and outstanding at March 31, 2016 and December 31, 2015 | $ 1,322 | $ 1,322 |
Common stock, par value $ 0.001, 100,000,000 shares authorized, 27,644,832 shares issued, 27,477,181 shares outstanding at March 31, 2016 and December 31, 2015 | 28,198 | 28,178 |
Less treasury stock at cost, 167,652 shares at March 31, 2016 and December 31, 2015 | (184,934) | (184,934) |
Additional paid-in capital | 81,741,900 | 81,461,907 |
Accumulated deficit | (45,880,239) | (44,399,455) |
Total stockholders’ equity | 35,706,247 | 36,907,018 |
Total liabilities and stockholders’ equity | $ 55,980,818 | $ 58,131,813 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2016 | Dec. 31, 2015 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 1,321,514 | 1,321,514 |
Preferred stock, shares issued | 1,321,514 | 1,321,514 |
Preferred stock, shares outstanding | 1,321,514 | 1,321,514 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 27,644,832 | 27,644,832 |
Common stock, shares outstanding | 27,477,181 | 27,477,181 |
Treasury stock, shares | 167,652 | 167,652 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Revenues: | ||
Technology development | $ 3,723,262 | $ 2,875,515 |
Products and licensing | 10,263,753 | 2,463,587 |
Total revenues | 13,987,015 | 5,339,102 |
Cost of revenues: | ||
Technology development | 2,846,723 | 2,083,624 |
Products and licensing | 6,296,685 | 966,689 |
Total cost of revenues | 9,143,408 | 3,050,313 |
Gross profit | 4,843,607 | 2,288,789 |
Operating expense: | ||
Selling, general and administrative | 4,645,282 | 4,569,107 |
Research, development and engineering | 1,550,491 | 334,891 |
Total operating expense | 6,195,773 | 4,903,998 |
Operating loss | (1,352,166) | (2,615,209) |
Other income/(expense): | ||
Other income, net | 3,940 | 0 |
Interest expense | (86,173) | (9,137) |
Total other expense | (82,233) | (9,137) |
Loss before income taxes | (1,434,399) | (2,624,346) |
Income tax expense | 25,175 | 2,808 |
Net loss | (1,459,574) | (2,627,154) |
Preferred stock dividend | 21,210 | 26,560 |
Net loss attributable to common stockholders | $ (1,480,784) | $ (2,653,714) |
Net loss per share attributable to common stockholders: | ||
Basic and diluted (in dollars per share) | $ (0.05) | $ (0.18) |
Weighted average common shares and common equivalent shares outstanding: | ||
Basic and diluted (in shares) | 27,477,181 | 15,117,679 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Cash flows used in operating activities | ||
Net loss | $ (1,459,574) | $ (2,627,154) |
Adjustments to reconcile net loss to net cash used in operating activities | ||
Depreciation and amortization | 939,799 | 165,081 |
Share-based compensation | 258,803 | 271,077 |
Change in assets and liabilities | ||
Accounts receivable | (298,309) | 871,779 |
Inventory | 20,375 | (443,061) |
Other current assets | (376,642) | 68,758 |
Accounts payable and accrued expenses | (721,289) | 1,341,352 |
Deferred revenue | 92,259 | (49,163) |
Net cash used in operating activities | (1,544,578) | (401,331) |
Cash flows used in investing activities | ||
Acquisition of property and equipment | (138,099) | (18,321) |
Intangible property costs | (101,467) | (11,131) |
Net cash used in investing activities | (239,566) | (29,452) |
Cash flows used in financing activities | ||
Payments on capital lease obligations | (20,106) | (17,286) |
Payments of debt obligations | (458,334) | (375,000) |
Proceeds from the exercise of options | 0 | 2,515 |
Net cash used in financing activities | (478,440) | (389,771) |
Net decrease in cash and cash equivalents | (2,262,584) | (820,554) |
Cash and cash equivalents—beginning of period | 17,464,040 | 14,116,969 |
Cash and cash equivalents—end of period | 15,201,456 | 13,296,415 |
Supplemental disclosure of cash flow information | ||
Cash paid for interest | 79,220 | 7,583 |
Capital expenditures funded by capital lease borrowings | 197,425 | 2,808 |
Noncash investing and financing activities | ||
Dividend on preferred stock, 19,823 shares of common stock issuable for the three months ended March 31, 2016 and 2015, respectively | 21,210 | 26,560 |
Capital expenditures funded by capital lease borrowings | $ 157,246 | $ 0 |
Consolidated Statements of Cas6
Consolidated Statements of Cash Flows (Parenthetical) - shares | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Statement of Cash Flows [Abstract] | ||
Dividend on preferred stock, shares of common stock issuable | 19,823 | 19,823 |
Basis of Presentation and Signi
Basis of Presentation and Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Significant Accounting Policies | Basis of Presentation and Significant Accounting Policies Nature of Operations Luna Innovations Incorporated (“we,” “Luna Innovations” or the “Company”), headquartered in Roanoke, Virginia, was incorporated in the Commonwealth of Virginia in 1990 and reincorporated in the State of Delaware in April 2003. We develop, manufacture and market fiber optic sensing, test & measurement products and are focused on bringing new and innovative technology solutions to measure, monitor, protect and improve critical processes in the aerospace, automotive, energy, composite, telecommunications and defense industries. Following our merger with Advanced Photonix, Inc. ("API") in 2015 (See Note 2), we also package optoelectronic semiconductors into high speed optical receivers ("HSOR" products), custom optoelectronic subsystems and Terahertz instrumentation. We are organized into two business segments, which work closely together to turn ideas into products: our Technology Development segment and our Products and Licensing segment. Our business model is designed to accelerate the process of bringing new and innovative technologies to market. We have a history of net losses from operations beginning in 2005. We have historically managed our liquidity through cost reduction initiatives, debt financings, capital markets transactions and the sale of assets. Unaudited Interim Financial Information The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“U.S. GAAP”) for interim financial statements and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. The unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management reflect all adjustments, consisting of only normal recurring accruals considered necessary to present fairly our financial position at March 31, 2016 , and our results of operations and cash flows for the three months ended March 31, 2016 and 2015 . The results of operations for the three months ended March 31, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The consolidated interim financial statements, including our significant accounting policies, should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2015 , included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2016. Business Combinations We apply the provisions of Accounting Standards Codification 805, Business Combinations ("ASC 805"), in the accounting for acquisitions. ASC 805 requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our Consolidated Statements of Operations. Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingent consideration, where applicable. Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets we have acquired include: future expected cash flows from product sales; customer contracts and acquired technologies; expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed; and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results. Goodwill and Intangible Assets Goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis, as of October 1 of each year, or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Purchased intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives and reviewed for impairment as described above. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants. Various valuation approaches can be used to determine fair value, each requiring different valuation inputs. The following hierarchy classifies the inputs used to determine fair value into three levels: • Level 1—Quoted prices for identical instruments in active markets • Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets • Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. The carrying value of our debt approximates fair value, as we consider the floating interest rate on our credit facilities with Silicon Valley Bank ("SVB") to be at market for similar instruments. Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. This includes items such as nonfinancial assets and liabilities initially measured at fair value in a business combination and nonfinancial long-lived asset groups measured at fair value for an impairment assessment. In general, nonfinancial assets including intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. Net Loss Per Share Basic per share data is computed by dividing our net loss by the weighted average number of shares outstanding during the period. Diluted per share data is computed by dividing net income, if applicable, by the weighted average shares outstanding during the period increased to include, if dilutive, the number of additional common share equivalents that would have been outstanding if potential shares of common stock had been issued using the treasury stock method. Diluted per share data would also include the potential common share equivalents relating to convertible securities by application of the if-converted method. The effect of 6.1 million and 5.4 million common stock equivalents (which include outstanding warrants, preferred stock and stock options) are not included for the quarters ended March 31, 2016 and 2015 , respectively, as they are anti-dilutive to earnings per share due to our net loss. Recently Issued Accounting Pronouncements In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accountin g. The amendments apply to several aspects of accounting for share-based compensation including the recognition of excess tax benefits and deficiencies and their related presentation in the statement of cash flows as well as accounting for forfeitures. ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods and allows for prospective, retrospective or modified retrospective adoption, depending on the area covered in the update, with early adoption permitted. We are currently determining the transition method and assessing the impact the amendments may have on our financial condition, results of operations or cash flows as a result of adopting this standard. In February 2016, the FASB issued ASU No. 2016-02, Leases , which requires a lessee to recognize in its statement of financial position an asset and liability for most leases with a term greater than 12 months. Lessees should recognize a liability to make lease payments and a right-of-use asset representing the lessee's right to use the underlying asset for the lease term. The amendment is effective for fiscal years ending after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements. In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes , which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be classified as noncurrent in any classified balance sheet rather than being separated into current and non-current amounts. The amendment is effective for reporting periods beginning after December 15, 2016. We do not expect the adoption of this standard to have a significant impact on our consolidated financial statements. In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement Period Adjustments , which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendment is effective for fiscal years beginning after December 15, 2015 and requires acquirer to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Additionally, an entity is to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. We do not currently expect the adoption of this standard to have a significant impact on our consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Interest- Imputation of Interest, which requires debt issuance costs to be presented on the balance sheet as a direct deduction from the associated debt liability. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015. Early adoption is permitted. We do not expect the adoption of this standard to have a significant impact on our consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) . ASU No. 2014-09, as amended, supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) . ASU No. 2014-09 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU No. 2014-09 is currently scheduled to be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. ASU No. 2014-09 provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements. |
Merger with API
Merger with API | 3 Months Ended |
Mar. 31, 2016 | |
Business Combinations [Abstract] | |
Merger with API | Merger with API On May 8, 2015, we completed our merger with API (the "Merger") pursuant to the Agreement and Plan of Merger (the "Merger Agreement") for a total purchase consideration of $ 15.9 million . In accordance with the terms of the Merger Agreement, API shareholders received 0 .31782 shares of our common stock for each share of API common stock they owned. The Merger has been accounted for under the acquisition method of accounting in accordance with ASC 805, with Luna treated as the accounting acquirer. We incurred $1.8 million in Merger-related costs for the three months ended March 31, 2015 . Merger-related costs are included within selling, general and administrative expenses in the Consolidated Statement of Operations. We did not incur Merger-related costs for the period ending March 31, 2016. The total purchase consideration of $ 15.9 million consisted of the following: Purchase Consideration Fair value of Luna common stock issued to API shareholders $ 15,671,775 Fair value of vested API options assumed by Luna 187,879 Total purchase consideration $ 15,859,654 Under the acquisition method of accounting, the total estimated purchase consideration is allocated to the acquired tangible and intangible assets and assumed liabilities based on their estimated fair values as of the acquisition date. Any excess of the fair value of assets acquired and liabilities assumed over the fair value of the acquisition consideration is recognized as a gain by the acquirer. We have completed a preliminary allocation of the purchase consideration with the assistance of a third-party valuation expert. The following allocation of the purchase consideration is subject to revision as additional information becomes known in the future. Preliminary Allocation of Purchase Consideration Cash $ 374,517 Accounts receivable 3,314,994 Inventory 5,246,000 Other current assets 541,726 Property and equipment 3,601,850 Identifiable intangible assets 11,100,000 Goodwill 2,274,112 Other assets 86,953 Accounts payable and accrued expenses (5,434,570 ) Debt (5,212,355 ) Other liabilities (33,573 ) Total purchase consideration $ 15,859,654 The preliminary identifiable intangible assets acquired and their estimated lives were as follows: Estimated Fair Value Estimated Useful Life Developed technology $ 4,500,000 2-10 years In-process research and development 3,900,000 Indefinite Customer base 1,300,000 9-11 years Trade names 1,000,000 10 years Backlog 400,000 1 year $ 11,100,000 Developed technologies acquired primarily consist of API's existing technologies related to HSOR products, Optoelectronic systems, modules and components, and Terahertz solutions. The developed technologies of API were valued using both the "relief-from-royalty" method and the "multi-period excess earnings" method, under the income approach. This multi-period excess earnings method reflects the present value of the projected cash flows that are expected to be generated by the developed technologies less charges representing the contribution of other assets to those cash flows. A discount rate of 32.5% was used to discount the cash flows to the present value. In-process research and development represents the estimated fair values of incomplete API research and development projects that had not reached technological feasibility as of the closing date of the Merger. On September 1, 2015, technologies associated with $1.6 million of in-process research and development were placed into service. In the future, the fair value of each project at the date of the closing of the Merger will be either amortized or impaired depending on whether the projects are completed or abandoned. The fair value of in-process research and development was determined using the multi-period excess earnings method. A discount rate of 37.5% was used to discount the cash flows to the present value. Customer relationships represent the fair value of projected cash flows that will be derived from the sale of products to API's existing customers as of the closing date of the Merger. Customer relationships were valued utilizing both a multi-period excess earnings method and the "distributor" method, under the income approach. Under this premise, the margin of a distributor within the industry is deemed to be the margin attributable to customer relationships. This isolates the cash flows attributable to the customer relationships that a market participant would be willing to pay for. A discount rate of 32.5% was used to discount the cash flows to the present value. Trade names and trademarks are considered a type of guarantee of a certain level of quality or performance represented by the Picometrix brand. Trade names and trademarks were valued using the "relief-from-royalty" method of income approach. This method is based on the assumption that in lieu of ownership, a market participant would be willing to pay a royalty in order to exploit the related benefits of this asset. A discount rate of 24.5% was used to discount the cash flows to the present value. Customer backlog represents the fair value of projected cash flows that will be derived from the sale of products under existing contracts and customer orders as of the closing date of the Merger. The fair value of the customer backlog was determined using the multi-period excess earnings method. A discount rate of 21.5% was used to discount the cash flows to the present value. Pro forma consolidated results of operations The following unaudited pro forma financial information presents combined results of operations for each of the periods presented as if the Merger had been completed on January 1, 2015. The pro forma information includes adjustments to depreciation expense for property and equipment acquired, to amortization expense for the intangible assets acquired, to interest expense for the new debt facility, and to eliminate the Merger transaction expenses recognized in each period. The pro forma data are for informational purposes only and are not necessarily indicative of the consolidated results of operations of the combined business had the Merger actually occurred on January 1, 2015 or of the results of future operations of the combined business. For instance, planned or expected operational synergies following the Merger are not reflected in the pro forma information. Consequently, actual results will differ from the unaudited pro forma information presented below. Three Months Ended March 31, 2016 2015 (unaudited) Revenue 13,987,015 11,788,116 Net loss (1,401,371 ) (1,866,684 ) |
Inventory
Inventory | 3 Months Ended |
Mar. 31, 2016 | |
Inventory Disclosure [Abstract] | |
Inventory | Inventory Inventory consists of finished goods, work-in-process and raw materials valued at the lower of cost (determined on the first-in, first-out basis) or market. We write down inventory for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. Components of inventory were as follows: March 31, December 31, (unaudited) Finished goods $ 1,803,706 $ 1,938,466 Work-in-process 1,653,633 1,227,270 Raw materials 5,385,453 5,697,431 Total inventory $ 8,842,792 $ 8,863,167 |
Accrued Liabilities
Accrued Liabilities | 3 Months Ended |
Mar. 31, 2016 | |
Payables and Accruals [Abstract] | |
Accrued Liabilities | Accrued Liabilities Accrued liabilities at March 31, 2016 and December 31, 2015 consisted of the following: March 31, 2016 December 31, 2015 (unaudited) Accrued compensation $ 4,456,246 $ 4,719,533 Claims reserve 1,502,904 1,752,904 Accrued sub-contracts 462,259 351,847 Accrued professional fees 134,532 133,847 Accrued income tax — 160,438 Deferred rent 145,660 137,889 Royalties 86,329 351,003 Warranty reserve 175,788 173,687 Accrued liabilities - other 495,831 523,538 Total accrued liabilities $ 7,459,549 $ 8,304,686 |
Debt
Debt | 3 Months Ended |
Mar. 31, 2016 | |
Debt Disclosure [Abstract] | |
Debt | Debt Silicon Valley Bank Facility We currently have a Loan and Security Agreement with SVB under which we have a term loan with an original borrowing amount of $6.0 million (the “Term Loan” or “Credit Facility”). Prior to the amendment to the Credit Facility in connection with our Merger with API as described below, the Term Loan was to be repaid by us in 48 monthly installments, plus accrued interest payable monthly in arrears, and unless earlier terminated, was scheduled to mature on May 1, 2015. The Term Loan carried a floating annual interest rate equal to SVB’s prime rate then in effect plus 2% . On May 8, 2015, we entered into the Sixth Loan Modification Agreement with SVB, under which we executed a new term loan in the principal amount of $6.0 million and used the proceeds principally to repay the previously outstanding indebtedness of API and other transaction related costs. The Term Loan bears interest at a floating rate of prime plus 2% and is to be repaid in 48 monthly installments of $125,000 plus accrued interest. In September 2015, we entered into the Waiver and Seventh Loan Modification Agreement, which provides an additional $1 million of available financing for purchases of equipment through December 31, 2015, provides a waiver of any breach of the minimum liquidity covenant in periods prior to the amendment, and requires us to maintain at each month end a ratio of cash plus 60% of accounts receivable greater than or equal to 1.5 times the outstanding principal balance of the Term Loan. In addition, the Waiver and Seventh Loan Modification requires us to achieve a minimum Adjusted EBITDA, as defined therein, on a quarterly basis. The Credit Facility also requires us to observe a number of additional operational covenants, including protection and registration of intellectual property rights, and certain customary negative covenants. As of March 31, 2016 , we were in compliance with all covenants under the Credit Facility. Amounts due under the Credit Facility are secured by substantially all of our assets, including intellectual property, personal property and bank accounts. In addition, the Credit Facility contains customary events of default, including nonpayment of principal, interest or other amounts, violation of covenants, material adverse change, an event of default under any subordinated debt documents, incorrectness of representations and warranties in any material respect, bankruptcy, judgments in excess of a threshold amount, and violations of other agreements in excess of a threshold amount. If any event of default occurs SVB may declare due immediately all borrowings under the Credit Facility and foreclose on the collateral. Furthermore, an event of default under the Credit Facility would result in an increase in the interest rate on any amounts outstanding. As of March 31, 2016 , there were no events of default on the Credit Facility. As of March 31, 2016 , we have drawn all of the additional $1.0 million of available financing. The balance under the Term Loan at March 31, 2016 and December 31, 2015 , was $5.7 million and $6.1 million , respectively. The effective rate of our Term Loan at March 31, 2016 was 5.5% . The following table presents a summary of debt outstanding as of March 31, 2016 and December 31, 2015 : March 31, 2016 December 31, 2015 (unaudited) Silicon Valley Bank Term Loan $ 5,666,666 $ 6,125,000 Less: current portion 1,833,333 1,833,333 Total long-term debt $ 3,833,333 $ 4,291,667 The schedule of remaining principal payments under our term loan is as follows: 2016 1,374,994 2017 1,833,336 2018 1,833,336 2019 625,000 $ 5,666,666 |
Capital Stock and Share-Based C
Capital Stock and Share-Based Compensation | 3 Months Ended |
Mar. 31, 2016 | |
Equity [Abstract] | |
Capital Stock and Share-Based Compensation | Capital Stock and Share-Based Compensation We recognize share-based compensation expense based upon the fair value of the underlying equity award on the date of the grant. For restricted stock awards and restricted stock units, we recognize expense based upon the price of our underlying stock at the date of the grant. We have elected to use the Black-Scholes-Merton option pricing model to value any option or warrant awards granted. We recognize share-based compensation for such awards on a straight-line basis over the related service period of the awards taking into account the effects of the employees’ expected exercise and post-vesting employment termination behavior. To compute the volatility used in this model we use the historical volatility of our common stock over the expected life of options granted. The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the stock options. The expected life and estimated post-employment termination behavior is based upon historical experience of homogeneous groups within our company. We also assume an expected dividend yield of zero for all periods, as we have never paid a dividend on our common stock and do not have any plans to do so in the future. We did not issue any stock options during the three months ended March 31, 2016. The fair value of each option granted during the three months ended March 31, 2015 was estimated as of the grant date using the Black-Scholes-Merton option pricing model with the following assumptions: Three Months Ended March 31, 2015 Risk-free interest rate 1.88% Expected life of options (in years) 7.5 Expected stock price volatility 103% Executive turnover rates —% Non-executive turnover rates 40% Expected dividend yield —% A summary of the activity for our 2003 Stock Plan and 2006 Equity Incentive Plan is presented below for the three months ended March 31, 2016 : Options Outstanding Options Exercisable Number of Shares Price per Share Weighted Average Exercise Price Aggregate Intrinsic Value (1) Number of Shares Weighted Average Exercise Price Aggregate Intrinsic Value (1) Balance, January 1, 2016 3,800,728 $0.61 - $8.43 $ 2.17 $ 111,314 3,045,150 $ 2.39 $ 103,603 Granted — — $ — Exercised — — $ — Canceled (133,353 ) $1.18 - $2.46 $ 1.74 Balance, March 31, 2016 3,667,375 $0.61 - $8.43 $ 2.19 $ 46,324 3,186,718 $ 2.31 $ 45,777 (1) The intrinsic value of an option represents the amount by which the market value of the stock exceeds the exercise price of the option of in-the-money options only. The aggregate intrinsic value is based on the closing price of our common stock on the NASDAQ Capital Market, as applicable, on the respective dates. At March 31, 2016 , the outstanding stock options to purchase an aggregate of 3.7 million shares had a weighted-average remaining contractual term of 5.5 years , and the exercisable stock options to purchase an aggregate of 3.2 million shares had a weighted-average remaining contractual term of 5.1 years. For each of the three months ended March 31, 2016 and 2015 we recognized $0.3 million in share-based compensation expense, which is included in our selling, general and administrative expense in the accompanying consolidated financial statements. We expect to recognize $0.6 million in share-based compensation expense over the weighted-average remaining service period of 0.8 years for stock options outstanding as of March 31, 2016 . The following table summarizes the unvested value of our restricted stock awards: Number of Unvested Shares Weighted Average Grant Date Fair Value Aggregate Value of Unvested Shares Balance at January 1, 2016 669,625 $ 1.23 $ 825,159 Granted — $ — — Vested (67,125 ) $ 1.26 (84,578 ) Repurchased — $ — — Forfeitures — $ — — Balance at March 31, 2016 602,500 $ 1.23 $ 740,581 The following details our equity transactions during the three months ended March 31, 2016 : Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Shares $ Shares $ Shares $ $ Balance at January 1, 2016 1,321,514 1,322 27,477,181 28,178 167,652 (184,934 ) 81,461,907 Share-based compensation — — — — — — 258,803 Stock dividends to Carilion Clinic (1) — — — 20 — — 21,190 Balance at March 31, 2016 1,321,514 1,322 27,477,181 28,198 167,652 (184,934 ) 81,741,900 (1) The stock dividends payable in connection with Carilion Clinic’s Series A Preferred Stock will be issued subsequent to March 31, 2016 . For the period from January 12, 2010, the original issue date of the Series A Preferred Stock, through March 31, 2016 , the Series A Preferred Stock issued to Carilion has accrued $979,374 in dividends. The accrued and unpaid dividends as of March 31, 2016 will be paid by the issuance of 492,932 shares of our common stock upon Carilion’s written request. |
Operating Segments
Operating Segments | 3 Months Ended |
Mar. 31, 2016 | |
Segment Reporting [Abstract] | |
Operating Segments | Operating Segments Our operations are divided into two operating segments—“Technology Development” and “Products and Licensing”. The Technology Development segment provides applied research to customers in our areas of focus. Our engineers and scientists collaborate with our network of government, academic and industry experts to identify technologies and ideas with promising market potential. We then compete to win fee-for-service contracts from government agencies and industrial customers who seek innovative solutions to practical problems that require new technology. The Technology Development segment derives its revenues primarily from services. The Products and Licensing segment derives its revenues from product sales, funded product development and technology licenses. Through March 31, 2016 , our Chief Executive Officer and his direct reports collectively represented our chief operating decision makers, and they evaluated segment performance based primarily on revenues and operating income or loss. The accounting policies of our segments are the same as those described in the summary of significant accounting policies (see Note 1 to our Financial Statements, “Organization and Summary of Significant Accounting Policies,” presented in our Annual Report on Form 10-K as filed with the SEC on March 29, 2016). The table below presents revenues and operating loss for reportable segments: Three Months Ended 2016 2015 (unaudited) Revenues: Technology development $ 3,723,262 $ 2,875,515 Products and licensing 10,263,753 2,463,587 Total revenues $ 13,987,015 $ 5,339,102 Technology development operating loss $ (490,315 ) $ (259,486 ) Products and licensing operating loss (861,851 ) (2,355,723 ) Total operating loss $ (1,352,166 ) $ (2,615,209 ) Depreciation, technology development $ 85,500 $ 73,335 Depreciation, products and licensing $ 253,496 $ 62,829 Amortization, technology development $ 73,337 $ 15,573 Amortization, products and licensing $ 517,309 $ 13,343 The table below presents assets for reportable segments: March 31, December 31, (unaudited) Total segment assets: Technology development $ 19,131,725 $ 21,203,211 Products and licensing 36,849,093 36,928,602 Total assets $ 55,980,818 $ 58,131,813 Property plant and equipment, and intangible assets, technology development $ 2,818,808 $ 2,917,448 Property plant and equipment, and intangible assets, products and licensing $ 15,930,867 $ 16,375,215 There are no material inter-segment revenues for any period presented. The U.S. government accounted for 28% and 58% of total consolidated revenues for the three months ended March 31, 2016 and 2015 , respectively. International revenues (customers outside the United States) accounted for approximately 35% and 14% of total consolidated revenues for the three months ended March 31, 2016 and 2015 , respectively. |
Contingencies and Guarantees
Contingencies and Guarantees | 3 Months Ended |
Mar. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contingencies and Guarantees | Contingencies and Guarantees We are from time to time involved in certain legal proceedings in the ordinary course of conducting our business. While the ultimate liability pursuant to these actions cannot currently be determined, we believe it is not reasonably possible that these legal proceedings will have a material adverse effect on our financial position or results of operations. In September 2014, we received a preliminary audit report from the Defense Contract Audit Agency (the "DCAA"), with respect to our 2007 incurred cost submission and questioning $0.8 million of claimed costs that the DCAA believes are expressly unallowable under the Federal Acquisition Regulations and, therefore, subject to potential penalty. In June 2015, we received from the Defense Contract Management Agency (the "DCMA") a final determination and demand for payment of penalties, interest, and over billing in the aggregate amount of $1.1 million . In July 2015, we filed an appeal with the Armed Services Board of Contract Appeals. Because of the early stage of the appeal process, we are unable to estimate the amount of loss, if any, that may be realized. In the second quarter of 2015 we executed two non-cancelable purchase orders totaling $1.4 million for multiple shipments of tunable lasers to be delivered over an 18 -month period. At March 31, 2016 , approximately $0.4 million of this commitment remained. During the first quarter of 2016, we executed non-cancelable purchase orders related to our HSOR product line in the amount of $1.9 million . As of March 31, 2016, approximately $0.9 million remained outstanding under these purchase orders. We have entered into indemnification agreements with our officers and directors, to the extent permitted by law, pursuant to which we have agreed to reimburse the officers and directors for legal expenses in the event of litigation and regulatory matters. The terms of these indemnification agreements provide for no limitation to the maximum potential future payments. We have a directors and officers insurance policy that may, in certain instances, mitigate the potential liability and payments. |
Basis of Presentation and Sig15
Basis of Presentation and Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2016 | |
Accounting Policies [Abstract] | |
Nature of Operations | Nature of Operations Luna Innovations Incorporated (“we,” “Luna Innovations” or the “Company”), headquartered in Roanoke, Virginia, was incorporated in the Commonwealth of Virginia in 1990 and reincorporated in the State of Delaware in April 2003. We develop, manufacture and market fiber optic sensing, test & measurement products and are focused on bringing new and innovative technology solutions to measure, monitor, protect and improve critical processes in the aerospace, automotive, energy, composite, telecommunications and defense industries. Following our merger with Advanced Photonix, Inc. ("API") in 2015 (See Note 2), we also package optoelectronic semiconductors into high speed optical receivers ("HSOR" products), custom optoelectronic subsystems and Terahertz instrumentation. We are organized into two business segments, which work closely together to turn ideas into products: our Technology Development segment and our Products and Licensing segment. Our business model is designed to accelerate the process of bringing new and innovative technologies to market. We have a history of net losses from operations beginning in 2005. We have historically managed our liquidity through cost reduction initiatives, debt financings, capital markets transactions and the sale of assets. |
Unaudited Interim Financial Information | Unaudited Interim Financial Information The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“U.S. GAAP”) for interim financial statements and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. The unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management reflect all adjustments, consisting of only normal recurring accruals considered necessary to present fairly our financial position at March 31, 2016 , and our results of operations and cash flows for the three months ended March 31, 2016 and 2015 . The results of operations for the three months ended March 31, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The consolidated interim financial statements, including our significant accounting policies, should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2015 , included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2016. |
Business Combinations | Business Combinations We apply the provisions of Accounting Standards Codification 805, Business Combinations ("ASC 805"), in the accounting for acquisitions. ASC 805 requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in our Consolidated Statements of Operations. Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingent consideration, where applicable. Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets we have acquired include: future expected cash flows from product sales; customer contracts and acquired technologies; expected costs to develop in-process research and development into commercially viable products and estimated cash flows from the projects when completed; and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis, as of October 1 of each year, or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Purchased intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives and reviewed for impairment as described above. |
Fair Value Measurements | Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants. Various valuation approaches can be used to determine fair value, each requiring different valuation inputs. The following hierarchy classifies the inputs used to determine fair value into three levels: • Level 1—Quoted prices for identical instruments in active markets • Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets • Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. The carrying value of our debt approximates fair value, as we consider the floating interest rate on our credit facilities with Silicon Valley Bank ("SVB") to be at market for similar instruments. Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. This includes items such as nonfinancial assets and liabilities initially measured at fair value in a business combination and nonfinancial long-lived asset groups measured at fair value for an impairment assessment. In general, nonfinancial assets including intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. |
Net Loss Per Share | Net Loss Per Share Basic per share data is computed by dividing our net loss by the weighted average number of shares outstanding during the period. Diluted per share data is computed by dividing net income, if applicable, by the weighted average shares outstanding during the period increased to include, if dilutive, the number of additional common share equivalents that would have been outstanding if potential shares of common stock had been issued using the treasury stock method. Diluted per share data would also include the potential common share equivalents relating to convertible securities by application of the if-converted method. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accountin g. The amendments apply to several aspects of accounting for share-based compensation including the recognition of excess tax benefits and deficiencies and their related presentation in the statement of cash flows as well as accounting for forfeitures. ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods and allows for prospective, retrospective or modified retrospective adoption, depending on the area covered in the update, with early adoption permitted. We are currently determining the transition method and assessing the impact the amendments may have on our financial condition, results of operations or cash flows as a result of adopting this standard. In February 2016, the FASB issued ASU No. 2016-02, Leases , which requires a lessee to recognize in its statement of financial position an asset and liability for most leases with a term greater than 12 months. Lessees should recognize a liability to make lease payments and a right-of-use asset representing the lessee's right to use the underlying asset for the lease term. The amendment is effective for fiscal years ending after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements. In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes , which simplifies the presentation of deferred taxes by requiring that deferred tax assets and liabilities be classified as noncurrent in any classified balance sheet rather than being separated into current and non-current amounts. The amendment is effective for reporting periods beginning after December 15, 2016. We do not expect the adoption of this standard to have a significant impact on our consolidated financial statements. In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement Period Adjustments , which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendment is effective for fiscal years beginning after December 15, 2015 and requires acquirer to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Additionally, an entity is to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. We do not currently expect the adoption of this standard to have a significant impact on our consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Interest- Imputation of Interest, which requires debt issuance costs to be presented on the balance sheet as a direct deduction from the associated debt liability. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2015. Early adoption is permitted. We do not expect the adoption of this standard to have a significant impact on our consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) . ASU No. 2014-09, as amended, supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) . ASU No. 2014-09 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU No. 2014-09 is currently scheduled to be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. ASU No. 2014-09 provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. We are currently evaluating the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements. |
Merger with API (Tables)
Merger with API (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Business Combinations [Abstract] | |
Schedule of Total Purchase Consideration | The total purchase consideration of $ 15.9 million consisted of the following: Purchase Consideration Fair value of Luna common stock issued to API shareholders $ 15,671,775 Fair value of vested API options assumed by Luna 187,879 Total purchase consideration $ 15,859,654 |
Schedule of Preliminary Allocation of the Purchase Consideration | The following allocation of the purchase consideration is subject to revision as additional information becomes known in the future. Preliminary Allocation of Purchase Consideration Cash $ 374,517 Accounts receivable 3,314,994 Inventory 5,246,000 Other current assets 541,726 Property and equipment 3,601,850 Identifiable intangible assets 11,100,000 Goodwill 2,274,112 Other assets 86,953 Accounts payable and accrued expenses (5,434,570 ) Debt (5,212,355 ) Other liabilities (33,573 ) Total purchase consideration $ 15,859,654 |
Schedule of Preliminary Identifiable Intangible Assets Acquired and their Estimated Lives | The preliminary identifiable intangible assets acquired and their estimated lives were as follows: Estimated Fair Value Estimated Useful Life Developed technology $ 4,500,000 2-10 years In-process research and development 3,900,000 Indefinite Customer base 1,300,000 9-11 years Trade names 1,000,000 10 years Backlog 400,000 1 year $ 11,100,000 |
Schedule of Business Acquisition, Pro Forma Information | The pro forma data are for informational purposes only and are not necessarily indicative of the consolidated results of operations of the combined business had the Merger actually occurred on January 1, 2015 or of the results of future operations of the combined business. For instance, planned or expected operational synergies following the Merger are not reflected in the pro forma information. Consequently, actual results will differ from the unaudited pro forma information presented below. Three Months Ended March 31, 2016 2015 (unaudited) Revenue 13,987,015 11,788,116 Net loss (1,401,371 ) (1,866,684 ) |
Inventory (Tables)
Inventory (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Inventory Disclosure [Abstract] | |
Components of Inventory | Components of inventory were as follows: March 31, December 31, (unaudited) Finished goods $ 1,803,706 $ 1,938,466 Work-in-process 1,653,633 1,227,270 Raw materials 5,385,453 5,697,431 Total inventory $ 8,842,792 $ 8,863,167 |
Accrued Liabilities (Tables)
Accrued Liabilities (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Payables and Accruals [Abstract] | |
Schedule of Accrued Liabilities | Accrued liabilities at March 31, 2016 and December 31, 2015 consisted of the following: March 31, 2016 December 31, 2015 (unaudited) Accrued compensation $ 4,456,246 $ 4,719,533 Claims reserve 1,502,904 1,752,904 Accrued sub-contracts 462,259 351,847 Accrued professional fees 134,532 133,847 Accrued income tax — 160,438 Deferred rent 145,660 137,889 Royalties 86,329 351,003 Warranty reserve 175,788 173,687 Accrued liabilities - other 495,831 523,538 Total accrued liabilities $ 7,459,549 $ 8,304,686 |
Debt (Tables)
Debt (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Debt Disclosure [Abstract] | |
Summary of Debt Outstanding | The following table presents a summary of debt outstanding as of March 31, 2016 and December 31, 2015 : March 31, 2016 December 31, 2015 (unaudited) Silicon Valley Bank Term Loan $ 5,666,666 $ 6,125,000 Less: current portion 1,833,333 1,833,333 Total long-term debt $ 3,833,333 $ 4,291,667 |
Schedule of Remaining Principal Payments Under the Term Loan | The schedule of remaining principal payments under our term loan is as follows: 2016 1,374,994 2017 1,833,336 2018 1,833,336 2019 625,000 $ 5,666,666 |
Capital Stock and Share-Based20
Capital Stock and Share-Based Compensation (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Equity [Abstract] | |
Assumptions Used to Estimate Fair Value of Option Granted | The fair value of each option granted during the three months ended March 31, 2015 was estimated as of the grant date using the Black-Scholes-Merton option pricing model with the following assumptions: Three Months Ended March 31, 2015 Risk-free interest rate 1.88% Expected life of options (in years) 7.5 Expected stock price volatility 103% Executive turnover rates —% Non-executive turnover rates 40% Expected dividend yield —% |
Summary of Activity of 2003 Stock Plan and 2006 Equity Incentive Plan | A summary of the activity for our 2003 Stock Plan and 2006 Equity Incentive Plan is presented below for the three months ended March 31, 2016 : Options Outstanding Options Exercisable Number of Shares Price per Share Weighted Average Exercise Price Aggregate Intrinsic Value (1) Number of Shares Weighted Average Exercise Price Aggregate Intrinsic Value (1) Balance, January 1, 2016 3,800,728 $0.61 - $8.43 $ 2.17 $ 111,314 3,045,150 $ 2.39 $ 103,603 Granted — — $ — Exercised — — $ — Canceled (133,353 ) $1.18 - $2.46 $ 1.74 Balance, March 31, 2016 3,667,375 $0.61 - $8.43 $ 2.19 $ 46,324 3,186,718 $ 2.31 $ 45,777 (1) The intrinsic value of an option represents the amount by which the market value of the stock exceeds the exercise price of the option of in-the-money options only. The aggregate intrinsic value is based on the closing price of our common stock on the NASDAQ Capital Market, as applicable, on the respective dates. |
Summary of Restricted Stock Awards | The following table summarizes the unvested value of our restricted stock awards: Number of Unvested Shares Weighted Average Grant Date Fair Value Aggregate Value of Unvested Shares Balance at January 1, 2016 669,625 $ 1.23 $ 825,159 Granted — $ — — Vested (67,125 ) $ 1.26 (84,578 ) Repurchased — $ — — Forfeitures — $ — — Balance at March 31, 2016 602,500 $ 1.23 $ 740,581 |
Equity Transactions | The following details our equity transactions during the three months ended March 31, 2016 : Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Shares $ Shares $ Shares $ $ Balance at January 1, 2016 1,321,514 1,322 27,477,181 28,178 167,652 (184,934 ) 81,461,907 Share-based compensation — — — — — — 258,803 Stock dividends to Carilion Clinic (1) — — — 20 — — 21,190 Balance at March 31, 2016 1,321,514 1,322 27,477,181 28,198 167,652 (184,934 ) 81,741,900 (1) The stock dividends payable in connection with Carilion Clinic’s Series A Preferred Stock will be issued subsequent to March 31, 2016 . For the period from January 12, 2010, the original issue date of the Series A Preferred Stock, through March 31, 2016 , the Series A Preferred Stock issued to Carilion has accrued $979,374 in dividends. The accrued and unpaid dividends as of March 31, 2016 will be paid by the issuance of 492,932 shares of our common stock upon Carilion’s written request. |
Operating Segments (Tables)
Operating Segments (Tables) | 3 Months Ended |
Mar. 31, 2016 | |
Segment Reporting [Abstract] | |
Schedule of Revenues, Operating Loss and Assets for Reportable Segments | The table below presents revenues and operating loss for reportable segments: Three Months Ended 2016 2015 (unaudited) Revenues: Technology development $ 3,723,262 $ 2,875,515 Products and licensing 10,263,753 2,463,587 Total revenues $ 13,987,015 $ 5,339,102 Technology development operating loss $ (490,315 ) $ (259,486 ) Products and licensing operating loss (861,851 ) (2,355,723 ) Total operating loss $ (1,352,166 ) $ (2,615,209 ) Depreciation, technology development $ 85,500 $ 73,335 Depreciation, products and licensing $ 253,496 $ 62,829 Amortization, technology development $ 73,337 $ 15,573 Amortization, products and licensing $ 517,309 $ 13,343 The table below presents assets for reportable segments: March 31, December 31, (unaudited) Total segment assets: Technology development $ 19,131,725 $ 21,203,211 Products and licensing 36,849,093 36,928,602 Total assets $ 55,980,818 $ 58,131,813 Property plant and equipment, and intangible assets, technology development $ 2,818,808 $ 2,917,448 Property plant and equipment, and intangible assets, products and licensing $ 15,930,867 $ 16,375,215 |
Basis of Presentation and Sig22
Basis of Presentation and Significant Accounting Policies - Additional Information (Details) shares in Millions | 3 Months Ended | |
Mar. 31, 2016segmentshares | Mar. 31, 2015shares | |
Accounting Policies [Abstract] | ||
Number of operating segments | segment | 2 | |
Antidilutive securities excluded from computation of net loss per share (shares) | shares | 6.1 | 5.4 |
Merger with API - Narrative (De
Merger with API - Narrative (Details) - API | May. 08, 2015USD ($) | Mar. 31, 2015USD ($) | Sep. 01, 2015USD ($) |
Business Acquisition [Line Items] | |||
Total purchase consideration | $ 15,859,654 | ||
Number of company shares received by API stockholders for every API stock owned | 0.31782 | ||
Merger-related costs | $ 1,800,000 | ||
In-process research and development | |||
Business Acquisition [Line Items] | |||
In-process research and development technologies placed in service | $ 1,600,000 | ||
Discount rate used to estimate fair value of acquired indefinite-lived intangible assets | 37.50% | ||
Trade names | |||
Business Acquisition [Line Items] | |||
Discount rate used to estimate fair value of acquired finite-lived intangible assets | 24.50% | ||
Developed technology | |||
Business Acquisition [Line Items] | |||
Discount rate used to estimate fair value of acquired finite-lived intangible assets | 32.50% | ||
Backlog | |||
Business Acquisition [Line Items] | |||
Discount rate used to estimate fair value of acquired finite-lived intangible assets | 21.50% | ||
Customer base | |||
Business Acquisition [Line Items] | |||
Discount rate used to estimate fair value of acquired finite-lived intangible assets | 32.50% |
Merger with API - Schedule of T
Merger with API - Schedule of Total Purchase Consideration (Details) - API | May. 08, 2015USD ($) |
Purchase Consideration | |
Fair value of Luna common stock issued to API shareholders | $ 15,671,775 |
Fair value of vested API options assumed by Luna | 187,879 |
Total purchase consideration | $ 15,859,654 |
Merger with API - Allocation of
Merger with API - Allocation of Purchase Consideration (Details) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 | May. 08, 2015 |
Preliminary Allocation of Purchase Consideration | |||
Goodwill | $ 2,274,112 | $ 2,274,112 | |
API | |||
Preliminary Allocation of Purchase Consideration | |||
Cash | $ 374,517 | ||
Accounts receivable | 3,314,994 | ||
Inventory | 5,246,000 | ||
Other current assets | 541,726 | ||
Property and equipment | 3,601,850 | ||
Identifiable intangible assets | 11,100,000 | ||
Goodwill | 2,274,112 | ||
Other assets | 86,953 | ||
Accounts payable and accrued expenses | (5,434,570) | ||
Debt | (5,212,355) | ||
Other liabilities | (33,573) | ||
Total purchase consideration | $ 15,859,654 |
Merger with API - Preliminary I
Merger with API - Preliminary Identifiable Intangible Assets Acquired and their Estimated Lives (Details) - API | May. 08, 2015USD ($) |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Identifiable intangible assets | $ 11,100,000 |
In-process research and development | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Identifiable indefinite-lived intangible assets acquired | 3,900,000 |
Developed technology | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Identifiable finite-lived intangible assets acquired | $ 4,500,000 |
Developed technology | Minimum | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 2 years |
Developed technology | Maximum | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 10 years |
Customer base | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Identifiable finite-lived intangible assets acquired | $ 1,300,000 |
Customer base | Minimum | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 9 years |
Customer base | Maximum | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Estimated Useful Life | 11 years |
Trade names | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Identifiable finite-lived intangible assets acquired | $ 1,000,000 |
Estimated Useful Life | 10 years |
Backlog | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Identifiable finite-lived intangible assets acquired | $ 400,000 |
Estimated Useful Life | 1 year |
Merger with API - Pro Forma Con
Merger with API - Pro Forma Consolidated Results of Operations (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Business Combinations [Abstract] | ||
Revenue | $ 13,987,015 | $ 11,788,116 |
Net loss | $ (1,401,371) | $ (1,866,684) |
Inventory (Detail)
Inventory (Detail) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Inventory Disclosure [Abstract] | ||
Finished goods | $ 1,803,706 | $ 1,938,466 |
Work-in-process | 1,653,633 | 1,227,270 |
Raw materials | 5,385,453 | 5,697,431 |
Total inventory | $ 8,842,792 | $ 8,863,167 |
Accrued Liabilities (Details)
Accrued Liabilities (Details) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Payables and Accruals [Abstract] | ||
Accrued compensation | $ 4,456,246 | $ 4,719,533 |
Claims reserve | 1,502,904 | 1,752,904 |
Accrued sub-contracts | 462,259 | 351,847 |
Accrued professional fees | 134,532 | 133,847 |
Accrued income tax | 0 | 160,438 |
Deferred rent | 145,660 | 137,889 |
Royalties | 86,329 | 351,003 |
Warranty reserve | 175,788 | 173,687 |
Accrued liabilities - other | 495,831 | 523,538 |
Total accrued liabilities | $ 7,459,549 | $ 8,304,686 |
Debt - Additional Information (
Debt - Additional Information (Detail) | May. 08, 2015USD ($)installment | Mar. 31, 2016USD ($)installment | Dec. 31, 2015USD ($) | Sep. 30, 2015USD ($) |
Debt Instrument [Line Items] | ||||
Long-term debt | $ 5,666,666 | $ 6,125,000 | ||
Term Loan | ||||
Debt Instrument [Line Items] | ||||
Effective interest rate | 5.50% | |||
Term Loan | Silicon Valley Bank | ||||
Debt Instrument [Line Items] | ||||
Debt, face amount | $ 6,000,000 | |||
Debt, number of monthly payment | installment | 48 | |||
Term Loan | Silicon Valley Bank | Sixth Loan Modification Agreement | ||||
Debt Instrument [Line Items] | ||||
Debt, face amount | $ 6,000,000 | |||
Debt, number of monthly payment | installment | 48 | |||
Debt, monthly principal payments | $ 125,000 | |||
Term Loan | Silicon Valley Bank | Seventh Loan Modification Agreement | ||||
Debt Instrument [Line Items] | ||||
Debt, face amount | $ 1,000,000 | $ 1,000,000 | ||
Liquidity covenant component, accounts receivable percentage | 60.00% | |||
Liquidity covenant component, outstanding principal loan balance multiplier | 1.5 | |||
Term Loan | Silicon Valley Bank | Prime Rate | ||||
Debt Instrument [Line Items] | ||||
Debt, additional interest above prime rate | 2.00% | |||
Term Loan | Silicon Valley Bank | Prime Rate | Sixth Loan Modification Agreement | ||||
Debt Instrument [Line Items] | ||||
Debt, additional interest above prime rate | 2.00% |
Debt - Summary of Debt Outstand
Debt - Summary of Debt Outstanding (Details) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Debt Disclosure [Abstract] | ||
Silicon Valley Bank Term Loan | $ 5,666,666 | $ 6,125,000 |
Less: current portion | 1,833,333 | 1,833,333 |
Total long-term debt | $ 3,833,333 | $ 4,291,667 |
Debt - Remaining Principal Paym
Debt - Remaining Principal Payments Under the Term Loan (Details) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Debt Disclosure [Abstract] | ||
2,016 | $ 1,374,994 | |
2,017 | 1,833,336 | |
2,018 | 1,833,336 | |
2,019 | 625,000 | |
Silicon Valley Bank Term Loan | $ 5,666,666 | $ 6,125,000 |
Capital Stock and Share-Based33
Capital Stock and Share-Based Compensation - Additional Information (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2016 | Mar. 31, 2015 | Dec. 31, 2015 | |
Class of Stock [Line Items] | |||
Expected dividend yield | 0.00% | 0.00% | |
Aggregate outstanding stock options (in shares) | 3,667,375 | 3,800,728 | |
Outstanding stock options, weighted average remaining contractual term | 5 years 6 months 13 days | ||
Exercisable stock options (in shares) | 3,186,718 | 3,045,150 | |
Exercisable stock options, weighted average remaining contractual term | 5 years 1 month 5 days | ||
Share-based compensation | $ 258,803 | $ 271,077 | |
Stock-based compensation expense not yet recognized | $ 600,000 | ||
Weighted average remaining service period | 10 months | ||
Selling, General and Administrative Expenses | |||
Class of Stock [Line Items] | |||
Share-based compensation | $ 300,000 | $ 300,000 |
Capital Stock and Share-Based34
Capital Stock and Share-Based Compensation - Assumptions Used to Estimate Fair Values of Options Granted (Details) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Equity [Abstract] | ||
Risk-free interest rate | 1.88% | |
Expected life of options (in years) | 7 years 6 months | |
Expected stock price volatility | 103.00% | |
Executive turnover rates | 0.00% | |
Non-executive turnover rates | 40.00% | |
Expected dividend yield | 0.00% | 0.00% |
Capital Stock and Share-Based35
Capital Stock and Share-Based Compensation - Summary of Activity of 2003 Stock Plan and 2006 Equity Incentive Plan (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Dec. 31, 2015 | |
Options Outstanding, Number of Shares | ||
Beginning Balance (shares) | 3,800,728 | |
Granted (in shares) | 0 | |
Exercised (in shares) | 0 | |
Canceled (in shares) | (133,353) | |
Ending Balance (shares) | 3,667,375 | |
Options Outstanding, Price per Share Range | ||
Beginning balance, lower limit (in usd per share) | $ 0.61 | |
Beginning balance, upper limit (in usd per share) | 8.43 | |
Canceled lower limit (in usd per share) | 1.18 | |
Canceled upper limit (in usd per share) | 2.46 | |
Ending balance, lower limit (in usd per share) | 0.61 | |
Ending balance, upper limit (in usd per share) | 8.43 | |
Options Outstanding, Weighted Average Exercise Price | ||
Beginning Balance (in usd per share) | 2.17 | |
Granted (in usd per share) | 0 | |
Exercised (in usd per share) | 0 | |
Canceled (in usd per share) | 1.74 | |
Ending Balance (in usd per share) | $ 2.19 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract] | ||
Options Outstanding, Aggregate Intrinsic Value | $ 46,324 | $ 111,314 |
Options Exercisable (in shares) | 3,186,718 | 3,045,150 |
Options Exercisable, Weighted Average Exercise Price (in usd per share) | $ 2.31 | $ 2.39 |
Options Exercisable, Aggregate Intrinsic Value | $ 45,777 | $ 103,603 |
Capital Stock and Share-Based36
Capital Stock and Share-Based Compensation - Summary of Restricted Stock Awards (Details) | 3 Months Ended |
Mar. 31, 2016USD ($)$ / sharesshares | |
Number of Unvested Shares | |
Beginning balance (in shares) | shares | 669,625 |
Granted (in shares) | shares | 0 |
Vested (in shares) | shares | (67,125) |
Repurchased (in shares) | shares | 0 |
Forfeitures (in shares) | shares | 0 |
Ending balance (in shares) | shares | 602,500 |
Weighted Average Grant Date Fair Value | |
Beginning balance (in usd per share) | $ / shares | $ 1.23 |
Granted (in usd per share) | $ / shares | 0 |
Vested (in usd per share) | $ / shares | 1.26 |
Repurchased (in usd per share) | $ / shares | 0 |
Forfeitures (in usd per share) | $ / shares | 0 |
Ending balance (in usd per share) | $ / shares | $ 1.23 |
Aggregate Value of Unvested Shares | |
Beginning balance | $ | $ 825,159 |
Granted | $ | 0 |
Vested | $ | (84,578) |
Repurchased | $ | 0 |
Forfeitures | $ | 0 |
Ending balance | $ | $ 740,581 |
Capital Stock and Share-Based37
Capital Stock and Share-Based Compensation - Equity Transactions (Detail) | 3 Months Ended |
Mar. 31, 2016USD ($)shares | |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |
Preferred stock beginning balance (in shares) | shares | 1,321,514 |
Common stock beginning balance (in shares) | shares | 27,477,181 |
Preferred stock beginning balance | $ 36,907,018 |
Treasury stock beginning balance (in shares) | shares | 167,652 |
Preferred stock ending balance (in shares) | shares | 1,321,514 |
Common stock ending balance (in shares) | shares | 27,477,181 |
Treasury stock ending balance (in shares) | shares | 167,652 |
Preferred stock ending balance | $ 35,706,247 |
Preferred Stock | |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |
Preferred stock beginning balance (in shares) | shares | 1,321,514 |
Preferred stock beginning balance | $ 1,322 |
Preferred stock ending balance (in shares) | shares | 1,321,514 |
Preferred stock ending balance | $ 1,322 |
Common Stock | |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |
Common stock beginning balance (in shares) | shares | 27,477,181 |
Preferred stock beginning balance | $ 28,178 |
Share-based compensation (in shares) | shares | 0 |
Share-based compensation | $ 0 |
Stock dividends to Carilion Clinic | $ 20 |
Common stock ending balance (in shares) | shares | 27,477,181 |
Preferred stock ending balance | $ 28,198 |
Treasury Stock | |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |
Preferred stock beginning balance | $ (184,934) |
Treasury stock beginning balance (in shares) | shares | 167,652 |
Treasury stock ending balance (in shares) | shares | 167,652 |
Preferred stock ending balance | $ (184,934) |
Additional Paid-in Capital | |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |
Preferred stock beginning balance | 81,461,907 |
Share-based compensation | 258,803 |
Stock dividends to Carilion Clinic | 21,190 |
Preferred stock ending balance | $ 81,741,900 |
Capital Stock and Share-Based38
Capital Stock and Share-Based Compensation - Equity Transactions (Additional Information) (Detail) | 3 Months Ended |
Mar. 31, 2016USD ($)shares | |
Stockholders Equity Note [Line Items] | |
Accrued dividends | $ | $ 979,374 |
Carilion Clinic | Series A Preferred Stock | |
Stockholders Equity Note [Line Items] | |
Stock dividends for preferred shareholders (shares) | shares | 492,932 |
Operating Segments - Additional
Operating Segments - Additional Information (Detail) - segment | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Segment Reporting Information [Line Items] | ||
Number of operating segments | 2 | |
Sales | Non-US | ||
Segment Reporting Information [Line Items] | ||
Percentage of total consolidated revenues by customer | 35.00% | 14.00% |
Sales | United States Government | ||
Segment Reporting Information [Line Items] | ||
Percentage of total consolidated revenues by customer | 28.00% | 58.00% |
Operating Segments - Revenues a
Operating Segments - Revenues and Operating Loss for Reportable Segments Not Including Discontinued Operations (Detail) - USD ($) | 3 Months Ended | |
Mar. 31, 2016 | Mar. 31, 2015 | |
Revenues: | ||
Technology development | $ 3,723,262 | $ 2,875,515 |
Products and licensing | 10,263,753 | 2,463,587 |
Total revenues | 13,987,015 | 5,339,102 |
Segment Reporting Information [Line Items] | ||
Total operating loss | (1,352,166) | (2,615,209) |
Technology Development | ||
Segment Reporting Information [Line Items] | ||
Total operating loss | (490,315) | (259,486) |
Depreciation | 85,500 | 73,335 |
Amortization | 73,337 | 15,573 |
Products and Licensing | ||
Segment Reporting Information [Line Items] | ||
Total operating loss | (861,851) | (2,355,723) |
Depreciation | 253,496 | 62,829 |
Amortization | $ 517,309 | $ 13,343 |
Operating Segments - Assets for
Operating Segments - Assets for Reportable Segments (Detail) - USD ($) | Mar. 31, 2016 | Dec. 31, 2015 |
Total segment assets: | ||
Assets | $ 55,980,818 | $ 58,131,813 |
Property plant and equipment, and intangible assets | 6,560,430 | 6,614,238 |
Technology Development | ||
Total segment assets: | ||
Assets | 19,131,725 | 21,203,211 |
Property plant and equipment, and intangible assets | 2,818,808 | 2,917,448 |
Products and Licensing | ||
Total segment assets: | ||
Assets | 36,849,093 | 36,928,602 |
Property plant and equipment, and intangible assets | $ 15,930,867 | $ 16,375,215 |
Contingencies and Guarantees -
Contingencies and Guarantees - Additional Information (Detail) $ in Millions | 3 Months Ended | ||
Jun. 30, 2015USD ($)purchase_order | Mar. 31, 2016USD ($) | Sep. 30, 2014USD ($) | |
Loss Contingencies [Line Items] | |||
Number of non-cancelable purchase orders executed | purchase_order | 2 | ||
Non-cancelable purchase order delivery period | 18 months | ||
Tunable Lasers | |||
Loss Contingencies [Line Items] | |||
Non-cancelable purchase order commitment | $ 1.4 | ||
Non-cancelable purchase order commitment remained | $ 0.4 | ||
HSOR | |||
Loss Contingencies [Line Items] | |||
Non-cancelable purchase order commitment | 1.9 | ||
Non-cancelable purchase order commitment remained | $ 0.9 | ||
Preliminary Audit Report | Defense Contract Audit Agency | |||
Loss Contingencies [Line Items] | |||
Claimed cost, subject to potential penalty | $ 1.1 | $ 0.8 |