News Release Details

Revenues Decline by $1.2 Million Compared to Second Quarter 2008; Net Loss Increases by $0.6 Million

ROANOKE, Va.--(BUSINESS WIRE)--Sep. 9, 2009-- Luna Innovations Incorporated (NASDAQ:LUNA), a company focusing on sensing & instrumentation and pharmaceutical nanomedicines, today announced its financial results for the quarter ended June 30, 2009.

As compared to the same quarter last year, second quarter 2009 revenues decreased from $9.9 million to $8.7 million, gross profit decreased from $4.1 million to $3.3 million, and loss per share increased from $0.16 to $0.21. The increase in loss per share resulted from lower product sales in addition to higher costs associated with continuing litigation activities, partially offset by improvements in other areas of operating expenses.

Kent Murphy, Chairman and Chief Executive Officer, provided this comment related to the second quarter results and the company’s decision to file for reorganization under Chapter 11 in July: “The slowdown in product sales that began in the fourth quarter of last year with the country’s overall economic decline continued to affect our product sales in the second quarter. While the costs of our ongoing litigation with Hansen Medical also continue to adversely impact our bottom-line results, we have made significant improvements in the efficiency of our operations and continue to conduct business in the ordinary course. Our costs associated with legal matters increased approximately $1 million, to $1.6 million, in the second quarter of 2009 compared with approximately $0.8 million in the second quarter of 2008. Excluding that increase in our legal costs, our operating expenses for the most recent quarter would have decreased by approximately $1 million compared to the same period last year. When we filed for reorganization in mid-July, our objective was to protect the interests of all of our stakeholders while trying to resolve our legal matters as quickly as possible. If we are able to emerge from Chapter 11 quickly and in accordance with the plan that we have filed with the court, we will be positioned for continued success into the future.”

The company also announced today that it received notice on September 8, 2009, that the Nasdaq Listing Qualifications Panel decided to transfer its common stock from the NASDAQ Global Market to the NASDAQ Capital Market and continue listing of its common stock. The company had previously received a delisting letter on July 17, 2009, and the company had appealed the proposed delisting to the Panel. The hearing on the appeal was held on August 27, 2009. The company’s continued listing is subject to several conditions, including its emergence from Chapter 11 reorganization by December 31, 2009.

Second Quarter Financial Highlights

• Total revenues for the second quarter of 2009 decreased by $1.2 million to $8.7 million compared to $9.9 million during the second quarter of 2008.
• Product and license revenues decreased $0.7 million to approximately $2.2 million in the second quarter of 2009 compared to $2.9 million in the second quarter of 2008.
• Technology Development Division revenues decreased by $0.5 million as compared to the second quarter of 2008.
• Gross profit for the second quarter of 2009 decreased to $3.3 million from $4.1 million for the corresponding period of 2008.
• Operating expenses decreased to $5.6 million in the second quarter of 2009 from $5.8 million during the second quarter of 2008, notwithstanding an increase in legal fees of approximately $1 million.
• Net loss per share for the second quarter of 2009 was $0.21 per share, an increase from a loss per share of $0.16 for the second quarter of 2008.
• Cash and cash equivalents decreased to $12.1 million at June 30, 2009, as compared to $13.2 million at March 31, 2009 and $15.5 million at December 31, 2008.

Second Quarter Business Highlights

Technology Development Division

• Awarded $1.5 million corrosion test methods contract
• Selected for negotiations in NREL’s Photovoltaic Technology Pre-Incubator Program
• Demonstrated advanced material technologies in hydrophobic watershedding coatings for windshields and impact damage indicating paints during the Warrior 2009 demonstration sponsored by the Air Force Research Laboratory (AFRL), which highlights promising new technologies in the field during actual military exercise scenarios
• With the Mayo Clinic, published a paper in the international journal Annals of Biomedical Engineering discussing a next-generation fiber optic pressure microsensor that improves size and performance over previous generation sensors

Pharmaceuticals / Nanomedicine

• Published a paper titled “Fullerene nanomaterials potentiate hair growth” in the international, peer-reviewed journal Nanomedicine: Nanotechnology, Biology, and Medicine (NBM)

Instrumentation, Test & Measurement

• Launched our distributed sensing system with potential application in areas such as structural health monitoring of carbon fiber reinforced materials of new aircraft, aviation electronic systems and sink hole monitoring systems for railways

Outlook for Remainder of 2009

Given the uncertainties associated with Luna’s Chapter 11 reorganization and the Hansen litigation, the company is unable to provide a reasonable projection for its expected results of operations for the remainder of 2009 at this time.

Conference Call Information

As previously announced, Luna Innovations will conduct an investor conference call at 5:00 p.m. (EDT) today to discuss its financial results for the second quarter of 2009. The call can be accessed by dialing 1.866.314.4865 domestically or 1.617.213.8050 internationally prior to the start of the call. The access code is 77289631. The conference call will also be webcast live over the Internet. The webcast can be accessed by logging on to the “Investor Relations” section of the Luna Innovations website, http://www.lunainnovations.com, prior to the event. The webcast will be archived under the “Webcasts and Presentations” section of the Luna Innovations website for at least 30 days following the conference call.

About Luna Innovations:

Luna Innovations Incorporated (www.lunainnovations.com) develops and manufactures new-generation products for the healthcare, telecommunications, energy and defense markets. Our products are used to measure, monitor, protect and improve critical processes in the markets we serve. Through its disciplined commercialization business model, Luna has become a recognized leader in transitioning science to solutions. Luna is headquartered in Roanoke, Virginia.

Forward Looking Statements:
This release includes information that constitutes “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding, but not limited to (i) Luna’s intention to continue to serve its customers’ needs; (ii) improvements in operating efficiencies; (iii) the company’s position if it can emerge from Chapter 11 quickly under its filed plan of reorganization; (iv) demonstration of material technologies; and (v) the potential expansion of applications for the company’s distributing sensing technology. The company attempts, whenever possible, to identify forward-looking statements by words such as “intends,” “will,” “plans,” “anticipates,” “expects,” “may,” “estimates,” “believes,” “should,” “projects,” or “continue,” or the negative of those words and other comparable words. Similarly, statements that describe the company’s business strategy, goals, prospects, opportunities, outlook, objectives, plans or intentions are also forward-looking statements. Actual events or results may differ materially from the expectations expressed in such forward-looking statements as a result of various factors, including risks and uncertainties, many of which are beyond the company’s control. Factors that could cause actual results to differ materially from the expectations expressed in such forward-looking statements include, but are not limited to risks inherent in current or future litigation proceedings, particularly with respect to Hansen Medical, Inc.; the company’s inability to continue to operate its business in the normal course; whether the company can emerge from Chapter 11 reorganization in the near future; and difficulties with the application of the company’s technologies. Additional factors that may affect the future results of the company are set forth in the company’s quarterly and annual reports on Form 10-Q and Form 10-K, respectively, and other filings with the Securities and Exchange Commission (“SEC”), which are available at the SEC’s website at http://www.sec.gov, and at the company’s website at http://www.lunainnovations.com. These risk factors are updated from time to time through the filing of periodic reports with the SEC. The statements made in this press release are based on information available to the company as of the date of this release and Luna Innovations undertakes no obligation to update any of the forward-looking statements herein after the date of this press release.

Source: Luna Innovations Incorporated

Luna Innovations Incorporated
Investor Contact:
Dale Messick, CFO
1-540-769-8400
[email protected]
or
Media Contact:
Karin Clark
1-540-769-8400
[email protected]