Luna Innovations (LUNA) 10-Q 10 Nov 16 2016 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 08, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q3
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		27,542,401

Consolidated Balance Sheets (Un

Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 13,183,151	$ 17,464,040
Accounts receivable, net	11,976,920	11,034,557
Inventory	7,898,724	8,863,167
Prepaid expenses and other current assets	1,770,071	1,388,439
Total current assets	34,828,866	38,750,203
Property and equipment, net	7,112,535	6,614,238
Intangible assets, net	9,053,931	10,404,312
Goodwill	2,348,331	2,274,112
Other assets	88,948	88,948
Total assets	53,432,611	58,131,813
Current liabilities:
Current portion of long-term debt obligations	1,833,333	1,833,333
Current portion of capital lease obligations	50,926	31,459
Accounts payable	3,257,014	4,054,425
Accrued liabilities	8,220,339	8,304,686
Deferred revenue	988,888	1,109,759
Total current liabilities	14,350,500	15,333,662
Long-term deferred rent	1,440,146	1,564,229
Long-term debt obligations	2,916,667	4,291,667
Long-term capital lease obligations	128,612	35,237
Total liabilities	18,835,925	21,224,795
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at September 30, 2016 and December 31, 2015	1,322	1,322
Common stock, par value $0.001, 100,000,000 shares authorized, 27,982,877 and 27,644,832 shares issued, 27,542,401 and 27,477,181 shares outstanding at September 30, 2016 and December 31, 2015	28,262	28,178
Treasury stock at cost, 440,427 and 167,652 shares at September 30, 2016 and December 31, 2015	(509,994)	(184,934)
Additional paid-in capital	82,226,909	81,461,907
Accumulated deficit	(47,149,813)	(44,399,455)
Total stockholders’ equity	34,596,686	36,907,018
Total liabilities and stockholders’ equity	$ 53,432,611	$ 58,131,813

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) (Unaudited) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized (in shares)	1,321,514	1,321,514
Preferred stock, issued (in shares)	1,321,514	1,321,514
Preferred stock, outstanding (in shares)	1,321,514	1,321,514
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	100,000,000	100,000,000
Common stock, issued (in shares)	27,982,877	27,644,832
Common stock, outstanding (in shares)	27,542,401	27,477,181
Treasury Stock (in shares)	440,427	167,652

Consolidated Statements of Oper

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Technology development	$ 4,312,372	$ 3,277,442	$ 12,173,016	$ 9,881,228
Products and licensing	10,306,548	9,927,788	31,079,821	18,688,852
Total revenues	14,618,920	13,205,230	43,252,837	28,570,080
Cost of revenues:
Technology development	3,106,098	2,558,987	9,167,380	7,218,757
Products and licensing	5,903,522	5,667,170	18,461,702	9,886,557
Total cost of revenues	9,009,620	8,226,157	27,629,082	17,105,314
Gross profit	5,609,300	4,979,073	15,623,755	11,464,766
Operating expense:
Selling, general and administrative	4,567,168	4,210,718	13,793,051	13,916,545
Research, development and engineering	1,403,678	1,491,096	4,194,824	2,982,451
Total operating expense	5,970,846	5,701,814	17,987,875	16,898,996
Operating loss	(361,546)	(722,741)	(2,364,120)	(5,434,230)
Other income (expense):
Other (expense) income, net	(231)	14,765	(36,940)	(7,602)
Interest expense	(73,599)	(77,417)	(238,689)	(136,520)
Total other expense	(73,830)	(62,652)	(275,629)	(144,122)
Loss before income taxes	(435,376)	(785,393)	(2,639,749)	(5,578,352)
Income tax expense	9,702	16,296	35,877	19,104
Net loss	(445,078)	(801,689)	(2,675,626)	(5,597,456)
Preferred stock dividend	28,941	18,217	74,731	64,798
Net loss attributable to common stockholders	$ (474,019)	$ (819,906)	$ (2,750,357)	$ (5,662,254)
Net loss per share attributable to common stockholders:
Basic and diluted (in dollars per share)	$ (0.02)	$ (0.03)	$ (0.10)	$ (0.26)
Weighted average common shares and common equivalent shares outstanding:
Basic and diluted (in shares)	27,605,028	27,393,392	27,531,730	21,530,315

Consolidated Statements of Cash

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows used in operating activities
Net loss	$ (2,675,626)	$ (5,597,456)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	2,759,877	1,548,808
Share-based compensation	665,354	846,727
Bad debt expense	255,522	10,375
Change in assets and liabilities
Accounts receivable	(1,197,885)	(328,061)
Inventory	964,443	(1,426,968)
Other current assets	(381,632)	(396,671)
Accounts payable and accrued expenses	(1,055,060)	(897,163)
Deferred revenue	(120,871)	(72,107)
Net cash used in operating activities	(785,878)	(6,312,516)
Cash flows (used in) provided by investing activities
Acquisition of property and equipment	(1,433,260)	(387,508)
Intangible property costs	(317,287)	(237,245)
Cash acquired in business combination	0	374,517
Net cash used in investing activities	(1,750,547)	(250,236)
Cash flows (used in) provided by financing activities
Payments on capital lease obligations	(44,404)	(56,629)
Payments of debt obligations	(1,375,000)	(6,337,355)
Repurchase of common stock	(325,060)	(152,713)
Proceeds from term loan	0	6,000,000
Proceeds from the exercise of options	0	82,516
Net cash used in financing activities	(1,744,464)	(464,181)
Net decrease in cash and cash equivalents	(4,280,889)	(7,026,933)
Cash and cash equivalents—beginning of period	17,464,040	14,116,969
Cash and cash equivalents—end of period	13,183,151	7,090,036
Supplemental disclosure of cash flow information
Cash paid for interest	239,347	106,998
Cash paid for income taxes	203,305	19,104
Non-cash investing and financing activities
Shares of common stock issued for business combination	0	11,872,557
Dividend on preferred stock, 59,469 shares of common stock issuable for the nine months ended September 30, 2016 and 2015	74,731	64,798
Capital expenditures funded by capital lease borrowings	$ 157,246	$ 0

Consolidated Statements of Cas6

Consolidated Statements of Cash Flows (Parenthetical) (Unaudited) - shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Statement of Cash Flows [Abstract]
Dividend on preferred stock, common issuable (in shares)	59,469	59,469

Basis of Presentation and Signi

Basis of Presentation and Significant Accounting Policies	9 Months Ended
	Sep. 30, 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 are a leader in advanced optical technology, providing unique capabilities in high speed optoelectronics and high performance fiber optic test products for the telecommunications industry and distributed fiber optic sensing for the aerospace and automotive industries. 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, as amended. 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 September 30, 2016 , results of operations for the three and nine months ended September 30, 2016 and 2015 , and cash flows for the nine months ended September 30, 2016 and 2015 . The results of operations for the three and nine months ended September 30, 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. 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 5.6 million and 6.5 million common stock equivalents (which include outstanding warrants, preferred stock and stock options) are not included for the three months ended September 30, 2016 and 2015 , respectively, as they are anti-dilutive to earnings per share due to our net loss. The effect of 5.7 million and 6.2 million common stock equivalents are not included for the nine months ended September 30, 2016 and 2015 , respectively, as they are considered anti-dilutive to earnings per share due to our net loss. Recently Issued Accounting Pronouncements In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230) , which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how cash receipts and cash payments are presented in the statement of cash flows. ASU 2016-15 is effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The amendments should be applied retrospectively to all periods presented. We do not expect ASU 2016-15 will have a material impact on our financial statements. In April 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 606, and issued ASU No. 2016-10, Revenue from contracts with customers: Identifying Performance Obligations and Licensing . This amendment prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment supersedes the revenue recognition requirements in Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the Accounting Standards Codification, and is effective for annual and interim reporting periods beginning after December 15, 2017. 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 March 2016, the FASB issued 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.

Merger with API

Merger with API	9 Months Ended
	Sep. 30, 2016
Business Combinations [Abstract]
Merger with API	Merger with API On May 8, 2015, we completed our merger with Advanced Photonix, Inc. ("API") pursuant to the Agreement and Plan of Merger (the "Merger Agreement") for a total purchase consideration of $ 15.9 million (the "Merger"). 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 $0.1 million and $3.6 million in Merger-related costs for the three and nine months ended September 30, 2015 , respectively. 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 three and nine months ended September 30, 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 completed an allocation of the purchase consideration with the assistance of a third-party valuation expert, as represented in the table below. 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 2,348,331 Other assets 86,953 Accounts payable and accrued expenses (5,508,789 ) Debt (5,212,355 ) Other liabilities (33,573 ) Total purchase consideration $ 15,859,654 The 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 Amortization expense related to intangible assets was $1.7 million for the nine months ended September 30, 2016 . Goodwill Goodwill represents the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed in connection with the Merger. During 2015 and 2016, we recognized various measurement period adjustments to the value of assets acquired and liabilities assumed in the Merger. These adjustments primarily related to the estimated value of trade names acquired, certain deferred compensation and claims reserve liabilities assumed, with an offsetting increase to the recorded value of goodwill. Goodwill as of January 1, 2014 $ — Goodwill recorded at acquisition date of API 614,184 Measurement period adjustments 1,659,928 Goodwill as of December 31, 2015 2,274,112 Measurement period adjustments 74,219 Goodwill as of September 30, 2016 $ 2,348,331 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, amortization expense for the intangible assets acquired, interest expense for the new debt facility, and elimination of the Merger-related transaction expenses recognized in each period. The pro forma data is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the Merger actually occurred on January 1, 2015 or 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 September 30, Nine Months Ended September 30, 2016 2015 2016 2015 (unaudited) (unaudited) Revenue $ 14,619 $ 13,205 $ 43,253 $ 37,437 Net loss $ (427 ) $ (802 ) $ (2,473 ) $ (4,691 )

Inventory

Inventory	9 Months Ended
	Sep. 30, 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: September 30, December 31, (unaudited) Finished goods $ 1,603,353 $ 1,938,466 Work-in-process 1,145,002 1,227,270 Raw materials 5,150,369 5,697,431 Total inventory $ 7,898,724 $ 8,863,167

Accrued Liabilities

Accrued Liabilities	9 Months Ended
	Sep. 30, 2016
Payables and Accruals [Abstract]
Accrued Liabilities	Accrued Liabilities Accrued liabilities at September 30, 2016 and December 31, 2015 consisted of the following: September 30, 2016 December 31, 2015 (unaudited) Accrued compensation $ 4,848,062 $ 4,719,533 Claims reserve 1,577,123 1,752,904 Accrued sub-contracts 493,357 351,847 Accrued professional fees 223,220 133,847 Accrued income tax — 160,438 Deferred rent 157,287 137,889 Royalties 255,719 351,003 Warranty reserve 176,338 173,687 Accrued liabilities - other 489,233 523,538 Total accrued liabilities $ 8,220,339 $ 8,304,686

Debt

Debt	9 Months Ended
	Sep. 30, 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, 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 bore interest at a floating prime rate plus 2% and was 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, which we have fully borrowed. The Waiver and Seventh Loan Modification Agreement also 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. As modified by the Seventh Loan Modification Agreement, the Term Loan bears interest at a floating prime rate plus 2% and is to be repaid in 35 monthly installments of $27,778 plus accrued interest. 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 September 30, 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 September 30, 2016 , there were no events of default on the Credit Facility. The balance under the Term Loan at September 30, 2016 and December 31, 2015 , was $4.8 million and $6.1 million , respectively. The effective rate of our Term Loan at September 30, 2016 was 5.5% . The following table presents a summary of debt outstanding as of September 30, 2016 and December 31, 2015 : September 30, 2016 December 31, 2015 (unaudited) Silicon Valley Bank Term Loan $ 4,750,000 $ 6,125,000 Less: current portion 1,833,333 1,833,333 Total long-term debt $ 2,916,667 $ 4,291,667 The schedule of remaining principal payments under our term loan as of September 30, 2016 was as follows: 2016 458,328 2017 1,833,336 2018 1,833,336 2019 625,000 $ 4,750,000

Capital Stock and Share-Based C

Capital Stock and Share-Based Compensation	9 Months Ended
	Sep. 30, 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 requisite 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. The fair value of each option granted during the nine months ended September 30, 2016 and 2015 was estimated as of the grant date using the Black-Scholes-Merton option pricing model with the following assumptions: Nine Months Ended September 30, 2016 2015 Risk-free interest rate 1.5% 1.88% Expected life of options (in years) 7.5 7.5 Expected stock price volatility 73% 103% Employee turnover rates 14% 40% Expected dividend yield —% —% A summary of the activity for our 2003 Stock Plan, 2006 Equity Incentive Plan and 2016 Equity Incentive Plan is presented below for the nine months ended September 30, 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 20,000 $1.15 $ 1.15 Canceled (798,749 ) $1.18 - $8.43 $ 2.93 Balance, September 30, 2016 3,021,979 $0.61 - $8.43 $ 1.96 $ 72,271 2,728,465 $ 2.03 $ 85,643 (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 September 30, 2016 , the outstanding stock options to purchase an aggregate of 3.0 million shares had a weighted-average remaining contractual term of 5.2 years , and the exercisable stock options to purchase an aggregate of 2.7 million shares had a weighted-average remaining contractual term of 4.9 years. For the three months ended September 30, 2016 and 2015 we recognized $0.2 million and $0.3 million in share-based compensation expense, respectively, and for the nine months ended September 30, 2016 and 2015 we recognized $0.7 million and $0.8 million in share-based compensation expense, respectively, which is included in our selling, general and administrative expense in the accompanying consolidated financial statements. We expect to recognize $0.4 million in share-based compensation expense over the weighted-average remaining service period of 1.0 years for stock options outstanding as of September 30, 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 $ 823,639 Granted 313,724 $ 1.15 572,700 Vested (303,246 ) $ 1.25 (379,058 ) Repurchased (73,675 ) $ 1.14 (84,244 ) Balance at September 30, 2016 $ 606,428 $ 1.18 $ 933,037 The following details our equity transactions during the nine months ended September 30, 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 Exercise of stock options — — — — — — — Share-based compensation — — 337,995 — — — 665,354 Non-cash compensation — — — 25 — — 24,976 Stock dividends to Carilion Clinic (1) — — — 59 — — 74,672 Forfeitures of restricted stock grants — — (73,675 ) — — — — Repurchase of common stock — — (199,100 ) — 272,775 (325,060 ) — Balance at September 30, 2016 1,321,514 1,322 27,542,401 28,262 440,427 (509,994 ) 82,226,909 (1) The stock dividends payable in connection with Carilion Clinic’s Series A Preferred Stock will be issued subsequent to September 30, 2016 . For the period from January 12, 2010, the original issue date of the Series A Preferred Stock, through September 30, 2016 , the Series A Preferred Stock issued to Carilion has accrued $1,032,895 in dividends. The accrued and unpaid dividends as of September 30, 2016 will be paid by the issuance of 532,578 shares of our common stock upon Carilion’s written request. Stock Repurchase Program In May 2016, our board of directors authorized us to repurchase up to $2,000,000 of our common stock through May 31, 2017. Our stock repurchase program does not obligate us to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. As of September 30, 2016, we had repurchased a total of 199,100 shares for an aggregate purchase price of $0.2 million . The following chart details our share repurchases during each month of the quarter ended September 30, 2016 : Total Number of Shares Repurchased Average Price Paid per Share July 2016 41,100 $ 1.24 August 2016 79,000 $ 1.19 September 2016 20,000 $ 1.21 We currently maintain these repurchased shares as treasury stock.

Operating Segments

Operating Segments	9 Months Ended
	Sep. 30, 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 September 30, 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 Nine Months Ended 2016 2015 2016 2015 (unaudited) (unaudited) Revenues: Technology development $ 4,312,372 $ 3,277,442 $ 12,173,016 $ 9,881,228 Products and licensing 10,306,548 9,927,788 31,079,821 18,688,852 Total revenues $ 14,618,920 $ 13,205,230 $ 43,252,837 $ 28,570,080 Technology development operating income (loss) $ 295,524 $ (476,179 ) $ (34,615 ) $ (3,423,863 ) Products and licensing operating loss (657,070 ) (246,562 ) (2,329,505 ) (2,010,367 ) Total operating loss $ (361,546 ) $ (722,741 ) $ (2,364,120 ) $ (5,434,230 ) Depreciation, technology development $ 87,884 $ 110,597 $ 264,549 $ 314,451 Depreciation, products and licensing $ 300,530 $ 273,727 $ 827,660 $ 499,530 Amortization, technology development $ 23,651 $ 21,026 $ 141,490 $ 78,248 Amortization, products and licensing $ 486,209 $ 319,028 $ 1,526,178 $ 656,579 The table below presents assets for reportable segments: September 30, December 31, (unaudited) Total segment assets: Technology development $ 15,390,519 $ 21,203,211 Products and licensing 38,042,092 36,928,602 Total assets $ 53,432,611 $ 58,131,813 Property plant and equipment, and intangible assets, technology development $ 2,716,840 $ 2,917,448 Property plant and equipment, and intangible assets, products and licensing $ 15,797,957 $ 16,375,215 There are no material inter-segment revenues for any period presented. The U.S. government accounted for 31% and 26% of total consolidated revenues for the three months ended September 30, 2016 and 2015 , respectively, and for 30% and 36% of total consolidated revenues for the nine months ended September 30, 2016 and 2015 , respectively. International revenues (customers outside the United States) accounted for approximately 22% and 31% of total consolidated revenues for the three months ended September 30, 2016 and 2015 , respectively, and approximately 29% and 23% of total consolidated revenues for the nine months ended September 30, 2016 and 2015 , respectively. Revenues from customers in China represented approximately 9% and 16% of total revenues for the three and nine months ended September 30, 2016 , respectively. No other single country, outside of the United States, represented more than 10% of total revenues in the three and nine months ended September 30, 2015 .

Contingencies and Guarantees

Contingencies and Guarantees	9 Months Ended
	Sep. 30, 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 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 third quarter of 2016 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 September 30, 2016 , approximately $1.4 million of this commitment remained. 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)	9 Months Ended
	Sep. 30, 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 are a leader in advanced optical technology, providing unique capabilities in high speed optoelectronics and high performance fiber optic test products for the telecommunications industry and distributed fiber optic sensing for the aerospace and automotive industries. 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, as amended. 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 September 30, 2016 , results of operations for the three and nine months ended September 30, 2016 and 2015 , and cash flows for the nine months ended September 30, 2016 and 2015 . The results of operations for the three and nine months ended September 30, 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.
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 August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230) , which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how cash receipts and cash payments are presented in the statement of cash flows. ASU 2016-15 is effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The amendments should be applied retrospectively to all periods presented. We do not expect ASU 2016-15 will have a material impact on our financial statements. In April 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 606, and issued ASU No. 2016-10, Revenue from contracts with customers: Identifying Performance Obligations and Licensing . This amendment prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment supersedes the revenue recognition requirements in Topic 605, Revenue Recognition , and most industry-specific guidance throughout the Industry Topics of the Accounting Standards Codification, and is effective for annual and interim reporting periods beginning after December 15, 2017. 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 March 2016, the FASB issued 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.

Merger with API (Tables)

Merger with API (Tables)	9 Months Ended
	Sep. 30, 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 Allocation of the Purchase Consideration	We completed an allocation of the purchase consideration with the assistance of a third-party valuation expert, as represented in the table below. 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 2,348,331 Other assets 86,953 Accounts payable and accrued expenses (5,508,789 ) Debt (5,212,355 ) Other liabilities (33,573 ) Total purchase consideration $ 15,859,654
Schedule of Identifiable Intangible Assets Acquired and their Estimated Lives	The 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 Goodwill and Related Adjustments	These adjustments primarily related to the estimated value of trade names acquired, certain deferred compensation and claims reserve liabilities assumed, with an offsetting increase to the recorded value of goodwill. Goodwill as of January 1, 2014 $ — Goodwill recorded at acquisition date of API 614,184 Measurement period adjustments 1,659,928 Goodwill as of December 31, 2015 2,274,112 Measurement period adjustments 74,219 Goodwill as of September 30, 2016 $ 2,348,331
Unaudited Pro Forma Financial Information	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, amortization expense for the intangible assets acquired, interest expense for the new debt facility, and elimination of the Merger-related transaction expenses recognized in each period. The pro forma data is for informational purposes only and is not necessarily indicative of the consolidated results of operations of the combined business had the Merger actually occurred on January 1, 2015 or 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 September 30, Nine Months Ended September 30, 2016 2015 2016 2015 (unaudited) (unaudited) Revenue $ 14,619 $ 13,205 $ 43,253 $ 37,437 Net loss $ (427 ) $ (802 ) $ (2,473 ) $ (4,691 )

Inventory (Tables)

Inventory (Tables)	9 Months Ended
	Sep. 30, 2016
Inventory Disclosure [Abstract]
Components of Inventory	Components of inventory were as follows: September 30, December 31, (unaudited) Finished goods $ 1,603,353 $ 1,938,466 Work-in-process 1,145,002 1,227,270 Raw materials 5,150,369 5,697,431 Total inventory $ 7,898,724 $ 8,863,167

Accrued Liabilities (Tables)

Accrued Liabilities (Tables)	9 Months Ended
	Sep. 30, 2016
Payables and Accruals [Abstract]
Schedule of Accrued Liabilities	Accrued liabilities at September 30, 2016 and December 31, 2015 consisted of the following: September 30, 2016 December 31, 2015 (unaudited) Accrued compensation $ 4,848,062 $ 4,719,533 Claims reserve 1,577,123 1,752,904 Accrued sub-contracts 493,357 351,847 Accrued professional fees 223,220 133,847 Accrued income tax — 160,438 Deferred rent 157,287 137,889 Royalties 255,719 351,003 Warranty reserve 176,338 173,687 Accrued liabilities - other 489,233 523,538 Total accrued liabilities $ 8,220,339 $ 8,304,686

Debt (Tables)

Debt (Tables)	9 Months Ended
	Sep. 30, 2016
Debt Disclosure [Abstract]
Summary of Debt Outstanding	The following table presents a summary of debt outstanding as of September 30, 2016 and December 31, 2015 : September 30, 2016 December 31, 2015 (unaudited) Silicon Valley Bank Term Loan $ 4,750,000 $ 6,125,000 Less: current portion 1,833,333 1,833,333 Total long-term debt $ 2,916,667 $ 4,291,667
Schedule of Remaining Principal Payments Under the Term Loan	The schedule of remaining principal payments under our term loan as of September 30, 2016 was as follows: 2016 458,328 2017 1,833,336 2018 1,833,336 2019 625,000 $ 4,750,000

Capital Stock and Share-Based20

Capital Stock and Share-Based Compensation (Tables)	9 Months Ended
	Sep. 30, 2016
Equity [Abstract]
Assumptions Used to Estimate Fair Value of Options Granted	The fair value of each option granted during the nine months ended September 30, 2016 and 2015 was estimated as of the grant date using the Black-Scholes-Merton option pricing model with the following assumptions: Nine Months Ended September 30, 2016 2015 Risk-free interest rate 1.5% 1.88% Expected life of options (in years) 7.5 7.5 Expected stock price volatility 73% 103% Employee turnover rates 14% 40% Expected dividend yield —% —%
Summary of Activity for Stock and Equity Incentive Plans	A summary of the activity for our 2003 Stock Plan, 2006 Equity Incentive Plan and 2016 Equity Incentive Plan is presented below for the nine months ended September 30, 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 20,000 $1.15 $ 1.15 Canceled (798,749 ) $1.18 - $8.43 $ 2.93 Balance, September 30, 2016 3,021,979 $0.61 - $8.43 $ 1.96 $ 72,271 2,728,465 $ 2.03 $ 85,643 (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 $ 823,639 Granted 313,724 $ 1.15 572,700 Vested (303,246 ) $ 1.25 (379,058 ) Repurchased (73,675 ) $ 1.14 (84,244 ) Balance at September 30, 2016 $ 606,428 $ 1.18 $ 933,037
Details of Equity Transactions	The following details our equity transactions during the nine months ended September 30, 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 Exercise of stock options — — — — — — — Share-based compensation — — 337,995 — — — 665,354 Non-cash compensation — — — 25 — — 24,976 Stock dividends to Carilion Clinic (1) — — — 59 — — 74,672 Forfeitures of restricted stock grants — — (73,675 ) — — — — Repurchase of common stock — — (199,100 ) — 272,775 (325,060 ) — Balance at September 30, 2016 1,321,514 1,322 27,542,401 28,262 440,427 (509,994 ) 82,226,909 (1) The stock dividends payable in connection with Carilion Clinic’s Series A Preferred Stock will be issued subsequent to September 30, 2016 . For the period from January 12, 2010, the original issue date of the Series A Preferred Stock, through September 30, 2016 , the Series A Preferred Stock issued to Carilion has accrued $1,032,895 in dividends. The accrued and unpaid dividends as of September 30, 2016 will be paid by the issuance of 532,578 shares of our common stock upon Carilion’s written request.
Details of Stock Repurchase Program	The following chart details our share repurchases during each month of the quarter ended September 30, 2016 : Total Number of Shares Repurchased Average Price Paid per Share July 2016 41,100 $ 1.24 August 2016 79,000 $ 1.19 September 2016 20,000 $ 1.21

Operating Segments (Tables)

Operating Segments (Tables)	9 Months Ended
	Sep. 30, 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 Nine Months Ended 2016 2015 2016 2015 (unaudited) (unaudited) Revenues: Technology development $ 4,312,372 $ 3,277,442 $ 12,173,016 $ 9,881,228 Products and licensing 10,306,548 9,927,788 31,079,821 18,688,852 Total revenues $ 14,618,920 $ 13,205,230 $ 43,252,837 $ 28,570,080 Technology development operating income (loss) $ 295,524 $ (476,179 ) $ (34,615 ) $ (3,423,863 ) Products and licensing operating loss (657,070 ) (246,562 ) (2,329,505 ) (2,010,367 ) Total operating loss $ (361,546 ) $ (722,741 ) $ (2,364,120 ) $ (5,434,230 ) Depreciation, technology development $ 87,884 $ 110,597 $ 264,549 $ 314,451 Depreciation, products and licensing $ 300,530 $ 273,727 $ 827,660 $ 499,530 Amortization, technology development $ 23,651 $ 21,026 $ 141,490 $ 78,248 Amortization, products and licensing $ 486,209 $ 319,028 $ 1,526,178 $ 656,579 The table below presents assets for reportable segments: September 30, December 31, (unaudited) Total segment assets: Technology development $ 15,390,519 $ 21,203,211 Products and licensing 38,042,092 36,928,602 Total assets $ 53,432,611 $ 58,131,813 Property plant and equipment, and intangible assets, technology development $ 2,716,840 $ 2,917,448 Property plant and equipment, and intangible assets, products and licensing $ 15,797,957 $ 16,375,215

Basis of Presentation and Sig22

Basis of Presentation and Significant Accounting Policies (Details) shares in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2016shares	Sep. 30, 2015shares	Sep. 30, 2016segmentshares	Sep. 30, 2015shares
Accounting Policies [Abstract]
Number of operating segments | segment			2
Antidilutive securities excluded from computation of net loss per share (in shares) | shares	5.6	6.5	5.7	6.2

Merger with API - Narrative (De

Merger with API - Narrative (Details) - API	May 08, 2015USD ($)	Sep. 30, 2016USD ($)	Sep. 30, 2015USD ($)	Sep. 30, 2016USD ($)	Sep. 30, 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		$ 0	$ 100,000	$ 0	$ 3,600,000
Intangible asset amortization expense				$ 1,700,000

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 ($)	Sep. 30, 2016	Dec. 31, 2015	May 08, 2015	Dec. 31, 2013
Allocation of Purchase Consideration
Goodwill	$ 2,348,331	$ 2,274,112
API
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	$ 2,348,331	$ 2,274,112	2,348,331	$ 0
Other assets			86,953
Accounts payable and accrued expenses			(5,508,789)
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 - USD ($)	May 08, 2015	Sep. 30, 2016
Acquired Finite-Lived Intangible Assets [Line Items]
Identifiable intangible assets	$ 11,100,000
In-process research and development
Acquired Indefinite-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 - Goodwill (Det

Merger with API - Goodwill (Details) - USD ($)	9 Months Ended	24 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Goodwill
Goodwill, beginning balance	$ 2,274,112
Goodwill, ending balance	2,348,331	$ 2,274,112
API
Goodwill
Goodwill, beginning balance	2,274,112	0
Goodwill recorded at acquisition date of API		614,184
Measurement period adjustments	74,219	1,659,928
Goodwill, ending balance	$ 2,348,331	$ 2,274,112

Merger with API - Pro Forma Con

Merger with API - Pro Forma Consolidated Results of Operations (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Business Combinations [Abstract]
Revenue	$ 14,619	$ 13,205	$ 43,253	$ 37,437
Net loss	$ (427)	$ (802)	$ (2,473)	$ (4,691)

Inventory (Details)

Inventory (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Inventory Disclosure [Abstract]
Finished goods	$ 1,603,353	$ 1,938,466
Work-in-process	1,145,002	1,227,270
Raw materials	5,150,369	5,697,431
Total inventory	$ 7,898,724	$ 8,863,167

Accrued Liabilities (Details)

Accrued Liabilities (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Payables and Accruals [Abstract]
Accrued compensation	$ 4,848,062	$ 4,719,533
Claims reserve	1,577,123	1,752,904
Accrued sub-contracts	493,357	351,847
Accrued professional fees	223,220	133,847
Accrued income tax	0	160,438
Deferred rent	157,287	137,889
Royalties	255,719	351,003
Warranty reserve	176,338	173,687
Accrued liabilities - other	489,233	523,538
Total accrued liabilities	$ 8,220,339	$ 8,304,686

Debt - Additional Information (

Debt - Additional Information (Details)	May 08, 2015USD ($)installment	Sep. 30, 2015USD ($)installment	May 07, 2015installment	Sep. 30, 2016USD ($)	Dec. 31, 2015USD ($)
Debt Instrument [Line Items]
Long-term debt				$ 4,750,000	$ 6,125,000
Term Loan | Silicon Valley Bank
Debt Instrument [Line Items]
Debt, face amount				$ 6,000,000
Debt, number of monthly payment | installment			48
Effective interest rate				5.50%
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
Debt, number of monthly payment | installment		35
Debt, additional interest above prime rate		2.00%
Debt, monthly principal payments		$ 27,778
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 ($)	Sep. 30, 2016	Dec. 31, 2015
Debt Disclosure [Abstract]
Silicon Valley Bank Term Loan	$ 4,750,000	$ 6,125,000
Less: current portion	1,833,333	1,833,333
Total long-term debt	$ 2,916,667	$ 4,291,667

Debt - Remaining Principal Paym

Debt - Remaining Principal Payments Under the Term Loan (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Debt Disclosure [Abstract]
2,016	$ 458,328
2,017	1,833,336
2,018	1,833,336
2,019	625,000
Silicon Valley Bank Term Loan	$ 4,750,000	$ 6,125,000

Capital Stock and Share-Based34

Capital Stock and Share-Based Compensation - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Equity [Abstract]
Expected dividend yield			0.00%	0.00%
Aggregate outstanding stock options (in shares)	3,021,979		3,021,979		3,800,728
Outstanding stock options, weighted average remaining contractual term			5 years 2 months 12 days
Exercisable stock options (in shares)	2,728,465		2,728,465		3,045,150
Exercisable stock options, weighted average remaining contractual term			4 years 10 months 24 days
Share-based compensation	$ 200,000	$ 300,000	$ 665,354	$ 846,727
Stock-based compensation expense not yet recognized	$ 400,000		$ 400,000
Weighted average remaining service period			1 year

Capital Stock and Share-Based35

Capital Stock and Share-Based Compensation - Assumptions Used to Estimate Fair Values of Options Granted (Details)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Equity [Abstract]
Risk-free interest rate	1.50%	1.88%
Expected life of options	7 years 6 months	7 years 6 months
Expected stock price volatility	73.00%	103.00%
Employee turnover rates	14.00%	40.00%
Expected dividend yield	0.00%	0.00%

Capital Stock and Share-Based36

Capital Stock and Share-Based Compensation - Summary of Activity of 2003 Stock Plan, 2006 Equity Incentive Plan and 2016 Equity Incentive Plan (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Options Outstanding, Number of Shares
Beginning Balance (shares)	3,800,728
Granted (in shares)	20,000
Canceled (in shares)	(798,748.6)
Ending Balance (shares)	3,021,979
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
Granted (in usd per share)	1.15
Canceled lower limit (in usd per share)	1.18
Canceled upper limit (in usd per share)	8.43
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)	1.15
Canceled (in usd per share)	2.93
Ending Balance (in usd per share)	$ 1.96
Additional Disclosures
Options Outstanding, Aggregate Intrinsic Value	$ 72,271	$ 111,314
Options Exercisable, Number of Shares	2,728,465	3,045,150
Options Exercisable, Weighted Average Exercise Price (in usd per share)	$ 2.03	$ 2.39
Options Exercisable, Aggregate Intrinsic Value	$ 85,643	$ 103,603

Capital Stock and Share-Based37

Capital Stock and Share-Based Compensation - Summary of Restricted Stock Awards (Details)	9 Months Ended
	Sep. 30, 2016USD ($)$ / sharesshares
Number of Unvested Shares
Number of Shares, Beginning balance (in shares) | shares	669,625
Number of Shares, Granted (in shares) | shares	313,724
Number of Shares, Vested (in shares) | shares	(303,246)
Number of Shares, Repurchased (in shares) | shares	(73,675)
Number of Shares, Ending balance (in shares) | shares	606,428
Weighted Average Grant Date Fair Value
Weighted average fair value, Beginning balance (in usd per share) | $ / shares	$ 1.23
Weighted average fair value, Granted (in usd per share) | $ / shares	1.15
Weighted average fair value, Vested (in usd per share) | $ / shares	1.25
Weighted average fair value, Repurchased (in usd per share) | $ / shares	1.14
Weighted average fair value, Ending balance (in usd per share) | $ / shares	$ 1.18
Aggregate Value of Unvested Shares
Aggregate value of shares, Beginning balance | $	$ 823,639
Aggregate value of shares, Granted | $	572,700
Aggregate value of shares, Vested | $	(379,058)
Aggregate value of shares, Repurchased | $	(84,244)
Aggregate value of shares, Ending balance | $	$ 933,037

Capital Stock and Share-Based38

Capital Stock and Share-Based Compensation - Equity Transactions (Details) - USD ($)	1 Months Ended			9 Months Ended
	Sep. 30, 2016	Aug. 31, 2016	Jul. 31, 2016	Sep. 30, 2016
Increase (Decrease) in Stockholders' Equity
Stockholder's equity beginning balance				$ 36,907,018
Preferred stock beginning balance (in shares)				1,321,514
Common stock beginning balance (in shares)				27,477,181
Treasury stock beginning balance (in shares)				167,652
Forfeitures of restricted stock grants				$ 0
Repurchase of common stock (in shares)	20,000	79,000	41,100	199,100
Preferred stock ending balance (in shares)	1,321,514			1,321,514
Common stock ending balance (in shares)	27,542,401			27,542,401
Treasury stock ending balance (in shares)	440,427			440,427
Stockholder's equity ending balance	$ 34,596,686			$ 34,596,686
Carilion Clinic | Series A Preferred Stock
Increase (Decrease) in Stockholders' Equity
Accrued dividends	$ 1,032,895			$ 1,032,895
Stock dividends for preferred shareholders (in shares)				532,578
Preferred Stock
Increase (Decrease) in Stockholders' Equity
Stockholder's equity beginning balance				$ 1,322
Preferred stock beginning balance (in shares)				1,321,514
Exercise of stock options				$ 0
Exercise of stock options (in shares)				0
Share-based compensation				$ 0
Share-based compensation (in shares)				0
Non-cash compensation				$ 0
Non-cash compensation (in shares)				0
Stock dividends to Carilion Clinic				$ 0
Stock dividends to Carilion Clinic (in shares)				0
Forfeitures of restricted stock grants				$ 0
Forfeitures of restricted stock grants (in shares)				0
Repurchase of common stock				$ 0
Repurchase of common stock (in shares)				0
Preferred stock ending balance (in shares)	1,321,514			1,321,514
Stockholder's equity ending balance	$ 1,322			$ 1,322
Common Stock
Increase (Decrease) in Stockholders' Equity
Stockholder's equity beginning balance				$ 28,178
Common stock beginning balance (in shares)				27,477,181
Exercise of stock options				$ 0
Exercise of stock options (in shares)				0
Share-based compensation				$ 0
Share-based compensation (in shares)				337,995
Non-cash compensation				$ 25
Non-cash compensation (in shares)				0
Stock dividends to Carilion Clinic				$ 59
Stock dividends to Carilion Clinic (in shares)				0
Forfeitures of restricted stock grants				$ 0
Forfeitures of restricted stock grants (in shares)				(73,675)
Repurchase of common stock				$ 0
Repurchase of common stock (in shares)				(199,100)
Common stock ending balance (in shares)	27,542,401			27,542,401
Stockholder's equity ending balance	$ 28,262			$ 28,262
Treasury Stock
Increase (Decrease) in Stockholders' Equity
Stockholder's equity beginning balance				$ (184,934)
Treasury stock beginning balance (in shares)				167,652
Exercise of stock options				$ 0
Exercise of stock options (in shares)				0
Share-based compensation				$ 0
Share-based compensation (in shares)				0
Non-cash compensation				$ 0
Non-cash compensation (in shares)				0
Stock dividends to Carilion Clinic				$ 0
Stock dividends to Carilion Clinic (in shares)				0
Forfeitures of restricted stock grants				$ 0
Forfeitures of restricted stock grants (in shares)				0
Repurchase of common stock				$ (325,060)
Repurchase of common stock (in shares)				272,775
Treasury stock ending balance (in shares)	440,427			440,427
Stockholder's equity ending balance	$ (509,994)			$ (509,994)
Additional Paid-in Capital
Increase (Decrease) in Stockholders' Equity
Stockholder's equity beginning balance				81,461,907
Exercise of stock options				0
Share-based compensation				665,354
Non-cash compensation				24,976
Stock dividends to Carilion Clinic				74,672
Repurchase of common stock				0
Stockholder's equity ending balance	$ 82,226,909			$ 82,226,909

Capital Stock and Share-Based39

Capital Stock and Share-Based Compensation - Stock Repurchase Program (Details) - USD ($)	1 Months Ended			9 Months Ended
	Sep. 30, 2016	Aug. 31, 2016	Jul. 31, 2016	Sep. 30, 2016	May 31, 2016
Equity [Abstract]
Authorized share repurchase amount					$ 2,000,000
Amount of stock repurchased				$ 200,000
Total Number of Shares Repurchased (in shares)	20,000	79,000	41,100	199,100
Average Price Paid per Share (in usd per share)	$ 1.21	$ 1.19	$ 1.24

Operating Segments - Additional

Operating Segments - Additional Information (Details) - segment	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Segment Reporting [Abstract]
Number of operating segments			2
Revenues | Government Contracts Concentration Risk | U.S. Government
Segment Reporting Information [Line Items]
Percentage of total consolidated revenues by customer	31.00%	26.00%	30.00%	36.00%
Revenues | Geographic Concentration Risk | Outside of the United States
Segment Reporting Information [Line Items]
Percentage of total consolidated revenues by customer	22.00%	31.00%	29.00%	23.00%
Revenues | Geographic Concentration Risk | China
Segment Reporting Information [Line Items]
Percentage of total consolidated revenues by customer	9.00%		16.00%

Operating Segments - Revenues a

Operating Segments - Revenues and Operating Loss for Reportable Segments Not Including Discontinued Operations (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Technology development	$ 4,312,372	$ 3,277,442	$ 12,173,016	$ 9,881,228
Products and licensing	10,306,548	9,927,788	31,079,821	18,688,852
Total revenues	14,618,920	13,205,230	43,252,837	28,570,080
Segment Reporting Information [Line Items]
Total operating income (loss)	(361,546)	(722,741)	(2,364,120)	(5,434,230)
Technology development
Segment Reporting Information [Line Items]
Total operating income (loss)	295,524	(476,179)	(34,615)	(3,423,863)
Depreciation	87,884	110,597	264,549	314,451
Amortization	23,651	21,026	141,490	78,248
Products and licensing
Segment Reporting Information [Line Items]
Total operating income (loss)	(657,070)	(246,562)	(2,329,505)	(2,010,367)
Depreciation	300,530	273,727	827,660	499,530
Amortization	$ 486,209	$ 319,028	$ 1,526,178	$ 656,579

Operating Segments - Assets for

Operating Segments - Assets for Reportable Segments (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Total segment assets:
Total assets	$ 53,432,611	$ 58,131,813
Property plant and equipment, and intangible assets	7,112,535	6,614,238
Technology development
Total segment assets:
Total assets	15,390,519	21,203,211
Property plant and equipment, and intangible assets	2,716,840	2,917,448
Products and licensing
Total segment assets:
Total assets	38,042,092	36,928,602
Property plant and equipment, and intangible assets	$ 15,797,957	$ 16,375,215

Contingencies and Guarantees (D

Contingencies and Guarantees (Details) $ in Millions	3 Months Ended
	Sep. 30, 2016USD ($)purchase_order	Jun. 30, 2015USD ($)	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 remaining	$ 1.4
Preliminary Audit Report | Defense Contract Audit Agency
Loss Contingencies [Line Items]
Claimed cost, subject to potential penalty		$ 1.1	$ 0.8