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, 2011

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, 2011, Luna Innovations Incorporated (the “Company”) issued a press release announcing its financial results for the second quarter and six months ended June 30, 2011, which also included certain forward-looking statements relating to the third quarter ending September 30, 2011 and the full year ending December 31, 2011, 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, 2011 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, 2011

EXHIBIT INDEX

Exhibit	  	Description	
 	 	
99.1	  	Press Release dated August 9, 2011 by Luna Innovations Incorporated.	

Exhibit 99.1

 	 	 	
 	 	Release
Luna Innovations Incorporated
1 Riverside Circle, Suite 400
Roanoke, VA 24016	
Luna Innovations Reports Second Quarter 2011 Financial Results
Total revenues increase 7% over prior year quarter; Product & license revenues increase
38% over prior year quarter; Fourth consecutive quarter of positive cash flow
(ROANOKE, VA, August 9, 2011) – Luna Innovations Incorporated (NASDAQ: LUNA) today announced its financial results for the second quarter and six months ended June 30, 2011.
As compared to the same quarter last year, product and license revenue increased by 38%, from $2.9 million in the second quarter of 2010 to $4.0 million in the second quarter of 2011, while total revenue increased by 7%, from $9.0 million in the second quarter of 2010 to $9.6 million in the second quarter of 2011. Gross profit increased from $3.3 million for the second quarter of 2010 to $3.7 million for the second quarter of 2011. The company reported a net loss attributable to common stockholders of $0.3 million, or $0.02 per common share for the second quarter of 2011, as compared to a net loss attributable to common stockholders of $0.7 million, or $0.05 per common share for the second quarter of 2010. Adjusted EBITDA, a non-GAAP measure, which is earnings before interest, taxes, depreciation and amortization, excluding litigation and reorganization related items and non-cash stock-based compensation and warrant expense, decreased to $0.7 million for the second quarter of 2011, as compared to $0.8 million for the second quarter of 2010. Cash increased to $8.1 million at June 30, 2011 compared to $6.3 million at June 30, 2010.
“We are pleased to see continued improvement in our bottom line and cash flow, largely being accomplished through growth in our product and license revenue, which saw a year-over-year increase of 38%,” said My Chung, chief executive officer of Luna. “We remain focused on molding our corporate strategy to align product development, contract research, and services with a commercialization strategy that will facilitate long-term growth and increased shareholder value.”
 
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LUNA INNOVATIONS INCORPORATED	 	Luna Q211 Earnings, Page 2	
 
Second Quarter Financial and Business Summary
— Total revenues increased by 7%, from $9.0 million in the second quarter of 2010 to $9.6 million in the second quarter of 2011.
— Product and license revenue increased by 38%, from $2.9 million in the second quarter of 2010 to $4.0 million in the second quarter of 2011. Technology development revenues decreased by 8%, to $5.6 million, for the second quarter of 2011 from $6.1 million for the second quarter of 2010.
— Gross profit for the second quarter of 2011 increased to $3.7 million, or 38% of total revenues, from $3.3 million, or 37% of total revenues, for the corresponding period of 2010.
— Selling, general and administrative expenses decreased by 3% to $3.3 million, or 34% of total revenues for the second quarter of 2011, from $3.4 million, or 37% of total revenues, for the second quarter of 2010.
— Total operating expenses increased to $3.9 million, or 40% of total revenues, for the second quarter of 2011 from $3.8 million, or 42% of total revenues for the second quarter of 2010.
— Adjusted EBITDA decreased to $0.7 million in the second quarter 2011 from $0.8 million in the second quarter of 2010.
— Net loss attributable to common stockholders improved to $0.3 million for the second quarter of 2011 compared to a net loss attributable to common stockholders of $0.7 million for the second quarter of 2010.
— Achieved fourth consecutive quarter of positive cash flow. Cash and cash equivalents totaled $8.1 million at June 30, 2011, as compared to $7.5 million at March 31, 2011. The second quarter of 2011 included $0.4 million of additional indebtedness as a part of the refinancing with Silicon Valley Bank discussed below.
— My E. Chung appointed as Luna’s president, chief executive officer and a member of the board of directors.
 
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LUNA INNOVATIONS INCORPORATED	 	Luna Q211 Earnings, Page 3	
 
— Luna refinanced its credit facility with Silicon Valley Bank to establish a $6.0 million term loan and a $1.0 million revolving line of credit. With the proceeds of the term loan, Luna repaid the remaining balance on the promissory note to Hansen Medical, Inc. of $3.0 million and its prior balance on its revolving line of credit with Silicon Valley Bank of $2.5 million.
Six Months Ended June 30, 2011 Financial Summary
— Total revenue increased $1.7 million, or 10%, to $18.6 million for the six months ended June 30, 2011 compared to $16.9 million for the six months ended June 30, 2010.
— Product and license revenue increased by 48%, from $5.0 million for the six months ended June 30, 2010 to $7.4 million for the six months ended June 30, 2011. Technology development revenues decreased by 6%, from $11.9 million for the six months ended June 30, 2010 to $11.2 million for the six months ended June 30, 2011.
— Gross profit for the six months ended June 30, 2011 increased by 14%, to $7.0 million, compared to a gross profit of $6.1 million for the six months ended June 30, 2010.
— Selling, general and administrative expenses increased by 2% from $6.8 million, or 40% of total revenues, for the six months ended June 30, 2010 to $6.9 million, or 37% of total revenues, for the six months ended June 30, 2011.
— Total operating expenses increased by 5% to $8.1 million, or 44% of total revenues, for the six months ended June 30, 2011 compared to $7.7 million, or 46% of total revenues, for the six months ended June 30, 2010.
— Adjusted EBITDA decreased to $1.0 million for the six months ended June 30, 2011 from $1.4 million for the six months ended June 30, 2010.
— Net loss attributable to common stockholders improved to $1.4 million for the six months ended June 30, 2011 compared to a net loss attributable to common stockholders of $2.0 million for the six months ended June 30, 2010.
 
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LUNA INNOVATIONS INCORPORATED	 	Luna Q211 Earnings, Page 4	
 
Outlook 2011
Based on information as of August 9, 2011, the company expects total revenue for 2011 to be in the range of $35.0 million to $37.0 million. Also for 2011, the company anticipates a net loss to common stockholders in the range of $2.5 million to $3.0 million. For the third quarter of 2011, the company expects revenue of approximately $8.5 million to $9.0 million and a net loss attributable to common stockholders of approximately $0.5 million to $0.7 million.
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 2011 and expectations for the remainder of 2011. The call can be accessed by dialing  866.356.3095  domestically or  617.597.5391 internationally prior to the start of the call. The participant access code is  73844771.  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.
 
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LUNA INNOVATIONS INCORPORATED	 	Luna Q211 Earnings, Page 5	
 
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.
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 financial results for the third quarter and full year 2011, as well as the demand for the company’s fiber optic equipment and technologies. 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 the fact that the outlook for the third quarter and full year 2011 could change, failure of demand for the company’s products and services to meet expectations, 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 Q211 Earnings, Page 6	
 
Luna Innovations Incorporated
Condensed Consolidated Statements of Operations

 	  	Three Months Ended
June 30,	 	 	Six Months Ended
June 30 ,	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(unaudited)	 	 	(unaudited)	 	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Technology development revenues	  	$	5,623,074	  	 	$	6,091,503	  	 	$	11,244,689	  	 	$	11,902,597	  	
Product and license revenues	  	 	4,000,515	  	 	 	2,907,139	  	 	 	7,377,525	  	 	 	4,981,836	  	

Total revenues	  	 	9,623,589	  	 	 	8,998,642	  	 	 	18,622,214	  	 	 	16,884,433	  	
 	 	 	 	 	
Cost of revenues:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Technology development costs	  	 	4,194,442	  	 	 	4,192,920	  	 	 	8,280,608	  	 	 	8,025,260	  	
Product and license costs	  	 	1,767,778	  	 	 	1,499,861	  	 	 	3,340,469	  	 	 	2,719,102	  	

Total cost of revenues	  	 	5,962,220	  	 	 	5,692,781	  	 	 	11,621,077	  	 	 	10,744,362	  	

Gross Profit	  	 	3,661,369	  	 	 	3,305,861	  	 	 	7,001,137	  	 	 	6,140,071	  	
 	 	 	 	 	
Operating expense:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling, general and administrative	  	 	3,251,073	  	 	 	3,350,524	  	 	 	6,929,593	  	 	 	6,765,036	  	
Research, development, and engineering	  	 	620,470	  	 	 	430,181	  	 	 	1,180,159	  	 	 	946,809	  	

Total operating expense	  	 	3,871,543	  	 	 	3,780,705	  	 	 	8,109,752	  	 	 	7,711,845	  	

Operating loss	  	 	(210,174	) 	 	 	(474,844	)	 	 	(1,108,615	) 	 	 	(1,571,774	)	
 	 	 	 	 	
Other income/(expense)	  	 	37,823	  	 	 	—  	  	 	 	35,835	  	 	 	(14,872	) 	
Interest expense	  	 	(84,303	) 	 	 	(143,485	) 	 	 	(198,725	) 	 	 	(227,526	) 	

Total other income/(expense)	  	 	(46,480	) 	 	 	(143,485	) 	 	 	(162,890	) 	 	 	(242,398	) 	
 	 	 	 	 	
Loss before income taxes	  	 	(256,654	) 	 	 	(618,329	)	 	 	(1,271,505	) 	 	 	(1,814,172	)	
Income tax expense	  	 	—  	  	 	 	—  	  	 	 	10,020	  	 	 	—  	  	

Net loss	  	 	(256,654	) 	 	 	(618,329	)	 	 	(1,281,525	) 	 	 	(1,814,172	)	
 	 	 	 	 	
Preferred stock dividend	  	 	32,708	  	 	 	93,000	  	 	 	74,336	  	 	 	174,633	  	
 	 	 	 	 	
Net loss attributible to common stockholders	  	$	(289,362	) 	 	$	(711,329	)	 	$	(1,355,861	) 	 	$	(1,988,805	)	

Net loss per share of common stock:	  	$	(0.02	) 	 	$	(0.05	)	 	$	(0.10	) 	 	$	(0.16	)	

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LUNA INNOVATIONS INCORPORATED	 	Luna Q211 Earnings, Page 7	
 
Luna Innovations Incorporated
Condensed Consolidated Balance Sheets

 	  	June 30,
2011	 	 	December 31,
2010	 	
 	  	(unaudited)	 	 	 	 	
Assets	  	 	 	 	 	 	 	 	
Current assets	  	 	 	 	 	 	 	 	
Cash and cash equivalents	  	$	8,066,006	  	 	$	7,216,580	  	
Accounts receivable, net	  	 	6,675,480	  	 	 	7,669,625	  	
Inventory, net	  	 	3,772,483	  	 	 	3,106,600	  	
Prepaid expenses	  	 	688,057	  	 	 	665,210	  	
Other current assets	  	 	45,004	  	 	 	45,348	  	

Total current assets	  	 	19,247,030	  	 	 	18,703,363	  	
Property and equipment, net	  	 	3,144,099	  	 	 	3,204,670	  	
Intangible assets, net	  	 	662,551	  	 	 	664,418	  	
Other assets	  	 	265,627	  	 	 	303,210	  	

Total assets	  	$	23,319,307	  	 	$	22,875,661	  	

Liabilities and stockholders’ equity	  	 	 	 	 	 	 	 	
Liabilities :	  	 	 	 	 	 	 	 	
Current Liabilities	  	 	 	 	 	 	 	 	
Line of credit	  	$	—  	  	 	$	2,500,000	  	
Current portion of long term debt obligation	  	 	1,500,000	  	 	 	1,195,784	  	
Current portion of capital lease obligation	  	 	49,446	  	 	 	2,194	  	
Accounts payable	  	 	1,498,678	  	 	 	2,008,183	  	
Accrued liabilities	  	 	4,209,901	  	 	 	3,549,604	  	
Deferred credits	  	 	1,685,740	  	 	 	1,392,602	  	

Total current liabilities	  	 	8,943,765	  	 	 	10,648,367	  	
Long-term debt obligation	  	 	4,375,000	  	 	 	2,611,609	  	
Long-term lease obligation	  	 	208,864	  	 	 	—  	  	

Total liabilities	  	 	13,527,629	  	 	 	13,259,976	  	
 	 	 	
Commitments and contingencies	  	 	 	 	 	 	 	 	
Stockholders’ equity:	  	 	 	 	 	 	 	 	
Preferred stock	  	 	1,322	  	 	 	1,322	  	
Common stock	  	 	13,763	  	 	 	13,526	  	
Additional paid-in capital	  	 	58,213,370	  	 	 	56,681,756	  	
Accumulated deficit	  	 	(48,436,777	) 	 	 	(47,080,919	) 	

Total stockholders’ equity	  	 	9,791,678	  	 	 	9,615,685	  	

Total liabilities and stockholders’ equity	  	$	23,319,307	  	 	$	22,875,661	  	

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LUNA INNOVATIONS INCORPORATED	 	Luna Q211 Earnings, Page 8	
 
Luna Innovations Incorporated
Condensed Consolidated Statements of Cash Flows

 	  	Six months ended	 	
 	  	June 30,	 	
 	  	 	 	 	 	 	 	 	
 	  	2011	 	 	2010	 	
 	  	(unaudited)	 	
Cash flows provided by (used in) operating activities	  	 	 	 	 	 	 	 	
Net loss	  	$	(1,281,525	) 	 	$	(1,814,172	) 	
Adjustments to reconcile net loss to net cash provided by (used in) operating activities	  	 	 	 	 	 	 	 	
Depreciation and amortization	  	 	710,269	  	 	 	641,979	  	
Share-based compensation	  	 	1,275,147	  	 	 	1,763,015	  	
Warrant expense	  	 	38,893	  	 	 	122,183	  	
Change in assets and liabilities:	  	 	 	 	 	 	 	 	
Accounts receivable	  	 	994,149	  	 	 	(1,007,451	) 	
Inventory	  	 	(665,883	) 	 	 	(127,163	) 	
Other current assets	  	 	(22,503	) 	 	 	668,871	  	
Other assets	  	 	37,583	  	 	 	31,024	  	
Accounts payable and accrued expenses	  	 	111,900	  	 	 	(2,386,304	) 	
Deferred credits	  	 	103,138	  	 	 	426,444	  	

Net cash provided by (used in) operating activities	  	 	1,301,168	  	 	 	(1,681,574	) 	

Cash flows used in investing activities	  	 	 	 	 	 	 	 	
Acquisition of property and equipment	  	 	(173,945	) 	 	 	(39,146	)	
Intangible property costs	  	 	(199,741	) 	 	 	(88,712	)	

Net cash used in investing activities	  	 	(373,686	) 	 	 	(127,858	)	

Cash flows provided by (used in) financing activities	  	 	 	 	 	 	 	 	
 	 	 	
Payments on capital lease obligations	  	 	(18,030	) 	 	 	(2,684	)	
Proceeds from debt obligations	  	 	6,000,000	  	 	 	2,500,000	  	
Payment of debt obligations	  	 	(6,242,394	) 	 	 	(265,657	)	
Proceeds from the exercise of options and warrants	  	 	182,368	  	 	 	616,940	  	

Net cash (used in) provided by financing activities	  	 	(78,056	) 	 	 	2,848,599	  	

Net change in cash	  	 	849,426	  	 	 	1,039,167	  	
Cash and cash equivalents—beginning of period	  	 	7,216,580	  	 	 	5,228,802	  	

Cash and cash equivalents—end of period	  	$	8,066,006	  	 	$	6,267,969	  	

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LUNA INNOVATIONS INCORPORATED	 	Luna Q211 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,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(unaudited)	 	 	(unaudited)	 	
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	
Net loss	  	$	(256,654	) 	 	$	(618,329	) 	 	$	(1,281,525	) 	 	$	(1,814,172	) 	
Interest expense	  	 	84,303	  	 	 	143,485	  	 	 	198,725	  	 	 	227,526	  	
Income tax expense	  	 	—  	  	 	 	—  	  	 	 	10,020	  	 	 	—  	  	
Depreciation and amortization	  	 	382,856	  	 	 	313,020	  	 	 	710,269	  	 	 	641,979	  	

EBITDA	  	 	210,505	  	 	 	(161,824	) 	 	 	(362,511	) 	 	 	(944,667	) 	
Stock-based compensation and warrant expense	  	 	472,328	  	 	 	950,814	  	 	 	1,314,040	  	 	 	1,886,198	  	
Fees associated with Hansen litigation and Chapter 11 reorganization	  	 	—  	  	 	 	39,863	  	 	 	—  	  	 	 	422,750	  	

Adjusted EBITDA	  	$	682,833	  	 	$	828,853	  	 	$	951,529	  	 	$	1,364,281	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
###
Investor Contact:
Dale Messick, CFO
Luna Innovations Incorporated
Phone:1.540.769.8400
Email: IR@lunainnovations.com
 
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