UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 9, 2012

Luna Innovations Incorporated
(Exact name of registrant as specified in its charter)

 
 	 	 	 	 	
Delaware	 	000-52008	 	54-1560050	
(State or other jurisdiction
of incorporation)	 	(Commission
File Number)	 	(IRS Employer
Identification No.)	
1 Riverside Circle, Suite 400
Roanoke, Virginia 24016
(Address of principal executive offices, including zip code)
540-769-8400
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

Item 2.02. Results of Operations and Financial Condition
On August 9, 2012, Luna Innovations Incorporated (the “Company”) issued a press release announcing its financial results for the second quarter and six months ended June 30, 2012, as well as information regarding a conference call to discuss these financial results. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The information in this Current Report on Form 8-K and the exhibit attached hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01. Financial Statements and Exhibits
 
(d)	Exhibits.	

Exhibit	  	Description	
 	 	
99.1	  	Press Release dated August 9, 2012 by Luna Innovations Incorporated.	

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Luna Innovations Incorporated	
 	 	
By:	 	/s/ Talfourd H. Kemper, Jr.	
 	 	 	
 	 	Talfourd H. Kemper, Jr.
Vice President and General Counsel	
Date: August 9, 2012

EXHIBIT INDEX

Exhibit	  	Description	
 	 	
99.1	  	Press Release dated August 9, 2012 by Luna Innovations Incorporated.	

Exhibit 99.1

 	 	Release
Luna Innovations Incorporated
1 Riverside Circle, Suite 400
Roanoke, VA 24016	
Luna Innovations Reports Second Quarter 2012 Financial Results
Net loss improves 6% from prior year quarter; Total revenues decrease 15% over prior
year quarter; Operating expenses decrease 14% from prior year quarter
(ROANOKE, VA, August 9, 2012) – Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the second quarter and six months ended June 30, 2012.
As compared to the same quarter last year, total revenue decreased by 15%, from $9.6 million in the second quarter of 2011 to $8.2 million in the second quarter of 2012, driven primarily by the continued softness in the telecom test and measurement market that has negatively affected the company’s products and licensing revenues since the third quarter of 2011. Gross profit decreased from $3.7 million for the second quarter of 2011 to $3.1 million for the second quarter of 2012 with overall margins unchanged at 38%. Offsetting these declines, operating expenses improved 14% to $3.3 million in the second quarter of 2012 compared to $3.9 million in the second quarter of 2011. The company reported a net loss attributable to common stockholders of $269,000, or $0.02 per common share for the second quarter of 2012, an improvement of 7% compared to a net loss of $289,000 in the same quarter last year. Adjusted EBITDA, a non-GAAP measure, which is earnings before interest, taxes, and non-cash expenses of stock based compensation, depreciation, amortization and warrant expense, decreased to $0.5 million for the second quarter of 2012, as compared to $0.7 million for the second quarter of 2011. Cash decreased to $6.6 million at June 30, 2012 compared to $8.1 million at June 30, 2011.
“Our products and licensing revenues for the most recent quarter were consistent with our quarterly revenues since the third quarter of last year, when the telecom test and measurement sector as a whole declined significantly. Our products and licensing revenues over the past four quarters have consistently ranged $2.7 million to $3.1 million. Our growth strategy for the future includes expansion of our products into markets for fiber optic sensing led by our new ODiSI platform. I am pleased that we did complete the roll-out of our new ODiSI-B product with the first

 	 	 	
LUNA INNOVATIONS INCORPORATED	  	Luna Q212 Earnings, Page 2	
 
shipments of the product realized in the second quarter,” said My Chung, chief executive officer of Luna. “Becoming the leading provider of sensing systems for testing composite materials is one of our key strategies; therefore, we are encouraged by these initial customer purchases and committed to continuing to evolve our solution to respond to the needs of our customers. In addition, we have continued to make solid progress in driving our other strategic growth initiatives, focusing on our fiber-optic shape sensing for medical applications and our cybersecurity solutions.”
Second Quarter Financial and Business Summary
 
•	 	Total revenues decreased by 15%, from $9.6 million in the second quarter of 2011 to $8.2 million in the second quarter of 2012.	
 
•	 	Technology development revenues decreased by 5%, to $5.3 million, for the second quarter of 2012, from $5.6 million for the second quarter of 2011. Technology development revenues decreased by 6% compared to the first quarter of 2012.	
 
•	 	Products and licensing revenue decreased by 29%, from $4.0 million in the second quarter of 2011 to $2.8 million in the second quarter of 2012. Products and licensing revenue increased 5% over the first quarter of 2012	
 
•	 	Gross profit for the second quarter of 2012 decreased to $3.1 million, or 38% of total revenues, from $3.7 million, or 38% of total revenues, for the corresponding period of 2011.	
 
•	 	Selling, general and administrative expenses decreased by 17% to $2.7 million, or 33% of total revenues for the second quarter of 2012, from $3.3 million, or 34% of total revenues, for the second quarter of 2011.	
 
•	 	Total operating expenses decreased to $3.3 million, or 41% of total revenues, for the second quarter of 2012 from $3.9 million, or 40% of total revenues for the second quarter of 2011.	
 
•	 	Adjusted EBITDA decreased to $0.5 million in the second quarter 2012 from $0.7 million in the second quarter of 2011.	
 
•	 	Net loss attributable to common stockholders for the second quarter of 2012 decreased to $269,000 from $289,000 for the second quarter of 2011.	
 
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LUNA INNOVATIONS INCORPORATED	  	Luna Q212 Earnings, Page 3	
 
•	 	Cash and cash equivalents totaled $6.6 million at June 30, 2012, as compared to $7.9 million at March 31, 2012. Cash and cash equivalents decreased primarily due to payment of liabilities accrued as of December 31, 2011.	
Six Months Ended June 30, 2012 Financial Summary
 
•	 	Total revenue decreased by 11% to $16.6 million for the six months ended June 30, 2012 compared to $18.6 million for the six months ended June 30, 2011.	
 
•	 	Technology development revenues decreased by 2%, from $11.2 million for the six months ended June 30, 2011 to $11.0 million for the six months ended June 30, 2012. Technology development revenues for the six months ended June 30, 2012 decreased by 2% from the immediately preceding six month period.	
 
•	 	Products and licensing revenue decreased by 25%, from $7.4 million for the six months ended June 30, 2011 to $5.6 million for the six months ended June 30, 2012. Products and licensing revenue for the six months ended June 30, 2012 decreased 4% from the immediately preceding six month period.	
 
•	 	Gross profit for the six months ended June 30, 2012 decreased by 9%, to $6.4 million, compared to a gross profit of $7.0 million for the six months ended June 30, 2011. Gross margin percentages remained steady at 38% of revenues for the first six months of 2012 and 2011.	
 
•	 	Selling, general and administrative expenses decreased by 20% from $6.9 million, or 37% of total revenues, for the six months ended June 30, 2011 to $5.5 million, or 33% of total revenues, for the six months ended June 30, 2012.	
 
•	 	Total operating expenses decreased by 16% to $6.8 million, or 41% of total revenues, for the six months ended June 30, 2012 compared to $8.1 million, or 44% of total revenues, for the six months ended June 30, 2011.	
 
•	 	Adjusted EBITDA increased by 10% to $1.1 million for the six months ended June 30, 2012 from $1.0 million for the six months ended June 30, 2011.	
 
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LUNA INNOVATIONS INCORPORATED	  	Luna Q212 Earnings, Page 4	
 
•	 	Net loss attributable to common stockholders improved to $0.6 million for the six months ended June 30, 2012, compared to a net loss attributable to common stockholders of $1.4 million for the six months ended June 30, 2011.	
Non-GAAP Measures
In evaluating the operating performance of its business, Luna’s management excludes certain charges and credits that are required by generally accepted accounting principles (“GAAP”). These non-GAAP results provide useful information to both management and investors by excluding items that the company believes may not be indicative of its operating performance, because either they are unusual and the company does not expect them to recur in the ordinary course of its business or they are unrelated to the ongoing operation of the business in the ordinary course. These non-GAAP measures should be considered in addition to results and guidance prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the table following the financial statements attached to this press release.
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 and business developments for the second quarter of 2012 and expectations for the remainder of 2012. The call can be accessed by dialing  800.659.1942  domestically or  617.614.2710  internationally prior to the start of the call. The participant access code is  79070603.  Investors are advised to dial in at least five minutes prior to the call to register. 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,  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) is focused on sensing and instrumentation. Luna develops and manufactures new-generation products for the healthcare, telecommunications, energy and defense markets. The company’s 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.
 
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LUNA INNOVATIONS INCORPORATED	  	Luna Q212 Earnings, Page 5	
 
Forward-Looking Statements:
The statements in this release that are not historical facts constitute “forward-looking statements” made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include our expectations regarding the demand for the company’s fiber optic equipment and technologies and the company’s technical capabilities. Management cautions the reader that these forward-looking statements are only predictions and are subject to a number of both known and unknown risks and uncertainties, and actual results, performance, and/or achievements of the company may differ materially from the future results, performance, and/or achievements expressed or implied by these forward-looking statements as a result of a number of factors. These factors include, without limitation, failure of demand for the company’s products and services to meet expectations, technological challenges and those risks and uncertainties set forth in the company’s periodic reports and other filings with the Securities and Exchange Commission. Such filings are available at the SEC’s website at  www.sec.gov and at the company’s website at  www.lunainnovations.com . The statements made in this 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 after the date of this release.
 
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LUNA INNOVATIONS INCORPORATED	  	Luna Q212 Earnings, Page 6	
 
Luna Innovations Incorporated
Condensed Consolidated Statements of Operations

 	  	Three Months Ended
June 30,	 	 	Six Months Ended
June 30 ,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	  	(unaudited)	 	 	(unaudited)	 	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Technology development revenues	  	$	5,334,320	  	 	$	5,623,074	  	 	$	10,993,816	  	 	$	11,244,689	  	
Product and licensing revenues	  	 	2,845,864	  	 	 	4,000,515	  	 	 	5,559,677	  	 	 	7,377,525	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	8,180,184	  	 	 	9,623,589	  	 	 	16,553,493	  	 	 	18,622,214	  	
 	 	 	 	 	
Cost of revenues:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Technology development costs	  	 	3,768,081	  	 	 	4,194,442	  	 	 	7,670,979	  	 	 	8,280,608	  	
Product and license costs	  	 	1,267,201	  	 	 	1,767,778	  	 	 	2,514,696	  	 	 	3,340,469	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total cost of revenues	  	 	5,035,282	  	 	 	5,962,220	  	 	 	10,185,675	  	 	 	11,621,077	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross Profit	  	 	3,144,902	  	 	 	3,661,369	  	 	 	6,367,818	  	 	 	7,001,137	  	
 	 	 	 	 	
Operating expense:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative	  	 	2,706,983	  	 	 	3,251,073	  	 	 	5,517,494	  	 	 	6,929,593	  	
Research, development, and engineering	  	 	629,347	  	 	 	620,470	  	 	 	1,314,311	  	 	 	1,180,159	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expense	  	 	3,336,330	  	 	 	3,871,543	  	 	 	6,831,805	  	 	 	8,109,752	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating loss	  	 	(191,428	)	 	 	(210,174	) 	 	 	(463,987	)	 	 	(1,108,615	) 	
 	 	 	 	 	
Other expense, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income/(expense), net	  	 	23,265	  	 	 	37,823	  	 	 	46,533	  	 	 	35,835	  	
Interest expense	  	 	(74,357	)	 	 	(84,303	)	 	 	(154,015	)	 	 	(198,725	)	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other expense	  	 	(51,092	)	 	 	(46,480	)	 	 	(107,482	)	 	 	(162,890	)	
 	 	 	 	 	
Loss before income taxes	  	 	(242,520	)	 	 	(256,654	) 	 	 	(517,469	)	 	 	(1,271,505	) 	
Income tax expense	  	 	—  	  	 	 	—  	  	 	 	5,799	  	 	 	10,020	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss	  	 	(242,520	)	 	 	(256,654	) 	 	 	(577,268	)	 	 	(1,281,525	) 	
 	 	 	 	 	
Preferred stock dividend	  	 	26,784	  	 	 	32,708	  	 	 	60,880	  	 	 	74,336	  	
 	 	 	 	 	
Net loss attributable to common stockholders	  	$	(269,304	)	 	$	(289,362	) 	 	$	(638,148	)	 	$	(1,355,861	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net loss per share of common stock:	  	$	(0.02	)	 	$	(0.02	) 	 	$	(0.05	)	 	$	(0.10	) 	

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LUNA INNOVATIONS INCORPORATED	  	Luna Q212 Earnings, Page 7	
 
Luna Innovations Incorporated
Condensed Consolidated Balance Sheets

 	  	June 30,
2012	 	 	December 31,
2011	 	
 	  	(unaudited)	 	 	 	 	
Assets	  	 	 	 	 	 	 	 	
Current assets	  	 	 	 	 	 	 	 	
Cash and cash equivalents	  	$	6,639,519	  	 	$	8,939,127	  	
Accounts receivable, net	  	 	7,170,950	  	 	 	5,958,086	  	
Inventory, net	  	 	3,395,620	  	 	 	3,330,773	  	
Prepaid expenses	  	 	921,149	  	 	 	1,071,438	  	
Other current assets	  	 	35,717	  	 	 	35,717	  	
 	  	 	 	 	 	 	 	 	
Total current assets	  	 	18,162,955	  	 	 	19,335,141	  	
Property and equipment, net	  	 	2,556,583	  	 	 	2,816,674	  	
Intangible assets, net	  	 	455,460	  	 	 	539,563	  	
Other assets	  	 	190,460	  	 	 	228,043	  	
 	  	 	 	 	 	 	 	 	
Total assets	  	$	21,365,458	  	 	$	22,919,421	  	
 	  	 	 	 	 	 	 	 	
Liabilities and stockholders’ equity	  	 	 	 	 	 	 	 	
Liabilities:	  	 	 	 	 	 	 	 	
Current Liabilities	  	 	 	 	 	 	 	 	
Current portion of long term debt obligation	  	 	1,500,000	  	 	 	1,625,000	  	
Current portion of capital lease obligation	  	 	52,496	  	 	 	50,949	  	
Accounts payable	  	 	1,854,041	  	 	 	1,656,602	  	
Accrued liabilities	  	 	2,579,446	  	 	 	3,612,193	  	
Deferred credits	  	 	1,134,112	  	 	 	1,462,603	  	
 	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	7,120,095	  	 	 	8,407,347	  	
Long-term debt obligation	  	 	3,000,000	  	 	 	3,625,000	  	
Long-term lease obligation	  	 	156,367	  	 	 	183,008	  	
 	  	 	 	 	 	 	 	 	
Total liabilities	  	 	10,276,462	  	 	 	12,215,355	  	
Commitments and contingencies	  	 	 	 	 	 	 	 	
Stockholders’ equity:	  	 	 	 	 	 	 	 	
Preferred stock	  	 	1,322	  	 	 	1,322	  	
Common stock	  	 	14,091	  	 	 	13,969	  	
Additional paid-in capital	  	 	60,312,472	  	 	 	59,289,516	  	
Accumulated deficit	  	 	(49,238,889	)	 	 	(48,600,741	)	
 	  	 	 	 	 	 	 	 	
Total stockholders’ equity	  	 	11,088,996	  	 	 	10,704,066	  	
 	  	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	  	$	21,365,458	  	 	$	22,919,421	  	

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LUNA INNOVATIONS INCORPORATED	  	Luna Q212 Earnings, Page 8	
 
Luna Innovations Incorporated
Condensed Consolidated Statements of Cash Flows

 	  	Six months ended	 	
 	  	June 30,	 	
 	  	2012	 	 	2011	 	
 	  	(unaudited)	 	
Cash (used in)/provided by operating activities	  	 	 	 	 	 	 	 	
Net loss	  	$	(577,268	)	 	$	(1,281,525	)	
Adjustments to reconcile net loss to net cash used in operating activities	  	 	 	 	 	 	 	 	
Depreciation and amortization	  	 	528,113	  	 	 	710,269	  	
Share-based compensation	  	 	928,368	  	 	 	1,275,147	  	
Warrant expense	  	 	12,032	  	 	 	38,893	  	
Change in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	(1,212,864	) 	 	 	994,149	  	
Inventory	  	 	(69,186	)	 	 	(665,883	)	
Other current assets	  	 	150,289	  	 	 	(22,503	) 	
Other assets	  	 	37,583	  	 	 	37,583	  	
Accounts payable and accrued expenses	  	 	(847,341	) 	 	 	111,900	  	
Deferred credits	  	 	(328,491	) 	 	 	103,138	  	
 	  	 	 	 	 	 	 	 	
Net cash (used in)/provided by operating activities	  	 	(1,378,765	) 	 	 	1,301,168	  	
 	  	 	 	 	 	 	 	 	
Cash flows used in investing activities	  	 	 	 	 	 	 	 	
Acquisition of property and equipment	  	 	(123,732	)	 	 	(173,945	) 	
Intangible property costs	  	 	(55,847	)	 	 	(199,741	) 	
 	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(179,579	)	 	 	(373,686	) 	
 	  	 	 	 	 	 	 	 	
Cash flows used in financing activities	  	 	 	 	 	 	 	 	
Payments on capital lease obligations	  	 	(25,094	)	 	 	(18,030	) 	
Proceeds from debt obligations	  	 	—  	  	 	 	6,000,000	  	
Payment of debt obligations	  	 	(750,000	)	 	 	(6,242,394	) 	
Proceeds from the exercise of options and warrants	  	 	33,830	  	 	 	182,368	  	
 	  	 	 	 	 	 	 	 	
Net cash used in financing activities	  	 	(741,264	)	 	 	(78,056	) 	
 	  	 	 	 	 	 	 	 	
Net change in cash	  	 	(2,299,608	) 	 	 	849,426	  	
Cash and cash equivalents, beginning of period	  	 	8,939,127	  	 	 	7,216,580	  	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	  	$	6,639,519	  	 	$	8,066,006	  	

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LUNA INNOVATIONS INCORPORATED	  	Luna Q212 Earnings, Page 9	
 
Luna Innovations Incorporated
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA

 	  	Three Months Ended	 	 	Six Months Ended	 	
 	  	June 30,	 	 	June 30,	 	
 	  	2012	 	 	2011	 	 	2012	 	 	2011	 	
 	  	(unaudited)	 	 	(unaudited)	 	
Net loss	  	$	(242,520	)	 	$	(256,654	)	 	$	(577,268	)	 	$	(1,281,525	)	
Interest expense	  	 	74,357	  	 	 	84,303	  	 	 	154,015	  	 	 	198,725	  	
Income tax expense	  	 	—  	  	 	 	—  	  	 	 	5,799	  	 	 	10,020	  	
Depreciation and amortization	  	 	244,012	  	 	 	382,856	  	 	 	528,113	  	 	 	710,269	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBITDA	  	 	75,849	  	 	 	210,505	  	 	 	110,659	  	 	 	(362,511	)	
Stock-based compensation and warrant expense	  	 	473,930	  	 	 	472,328	  	 	 	940,400	  	 	 	1,314,040	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	  	$	549,779	  	 	$	682,833	  	 	$	1,051,059	  	 	$	951,529	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
###
Investor Contact:
Dale Messick, CFO
Luna Innovations Incorporated
Phone:1.540.769.8400
Email: IR@lunainnovations.com
 
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