Document


 
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): July 31, 2018

 
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.)
301 1st Street SW, Suite 200
Roanoke, Virginia 24011
(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):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)




o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indícate by check mark whether the registrant is an emerging growth Company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b‑2 of the Securities Exchange Act of 1934 (§240.12b‑2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





 
Item 1.01    Entry into a Definitive Material Agreement.

On July 31, 2018, Luna Innovations Incorporated, together with its subsidiaries Advanced Photonix, Inc. and Advanced Photonix Canada, Inc. (“we” or the “Company”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with OSI Optoelectronics, Inc. (“OSI” or the “Buyer”). Pursuant to the Asset Purchase Agreement, the Company sold substantially all of its assets related to its custom optoelectronic component and subassembly business (“Optoelectronics”) in the United States and Canada to the Buyer, including all of the intellectual property used or useful for its Optoelectronics operations, for total cash consideration of $17.5 million, paid at closing, in addition to contingent consideration of up to $1.0 million (altogether, the “Transaction”). The purchase price is subject to positive or negative adjustment based upon the final determination of working capital of the Optoelectronics business as of the closing date compared to a target working capital amount specified in the Asset Purchase Agreement. The contingent consideration is subject to the Optoelectronic business achieving specified revenue targets for the 18 month period following the closing date. The Company had been engaged since 2015 in the Optoelectronic business as part of the Company’s merger with Advanced Photonix, Inc.

Also, as a part of the Transaction, for a period of five years after closing, the Company has agreed not to compete or engage in the Optoelectronics market.

The foregoing summary is not complete and is qualified in its entirety by reference to the Asset Purchase Agreement, a copy of which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.

Item 2.01     Completion of Acquisition or Disposition of Assets.

The information included in Item 1.01 is incorporated herein by reference.

Item 9.01     Financial Statements and Exhibits.
 
 
 
 
(b)
Pro Forma Financial Information
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

On July 31, 2018, Luna Innovations Incorporated (the “Company”), through its wholly owned subsidiaries Advanced Photonix, Inc. and Advanced Photonix Canada, Inc., completed the sale of its custom optoelectronic components and subassemblies (“Optoelectronics”) assets and operations to OSI Optoelectronics, Inc. (“OSI”). The assets sold primarily consisted of the accounts receivable, inventories, and equipment utilized by the Company in the development, manufacture, and sale of Optoelectronics products in the Company’s Camarillo, California and Montreal, Quebec locations for a sale price of $17.5 million paid at closing plus contingent consideration of up to $1.0 million (the “Transaction”). OSI also assumed the lease of the buildings in Camarillo, California and Montreal, Quebec in addition to certain other specified liabilities.

The purchase price is subject to positive or negative adjustment based upon the final determination of working capital of the Optoelectronics business as of the closing date compared to a target working capital amount specified in the Asset Purchase Agreement.

The accompanying unaudited pro forma consolidated financial information gives effect to the Transaction. The unaudited pro forma balance sheet of the Company as of June 30, 2018 is presented as if the Transaction had occurred on June 30, 2018. The Transaction, which qualifies for discontinued operations reporting, is reflected in the accompanying unaudited pro forma consolidated statements of operations for all periods presented as if the Transaction had occurred on January 1, 2016.

The accompanying unaudited pro forma consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the pro forma results of operations and financial position of the Company as of and for the periods indicated. The accompanying unaudited pro forma consolidated financial statements are presented for illustrative



and informational purposes only and are not intended to represent or be indicative of the financial condition or results of operations that would have actually occurred had the Transaction occurred on June 30, 2018, or as of January 1, 2016, nor does it purport to represent the Company’s future financial position or results of operations. The unaudited pro forma adjustments are based on information and assumptions that management considers reasonable and factually supportable and do not include items that are not expected to have a recurring impact.

Since the information presented below is only a summary and does not provide all of the information contained in the historical consolidated financial statements of Luna, you should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s historical consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

The following is a brief description of the amounts recorded under each of the column headings in the accompanying unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations:

Luna Historical

This column reflects the Company’s historical financial position as of June 30, 2018 and historical results of operations for the six months ended June 30, 2018, and for the years ended December 31, 2017 and 2016, prior to any adjustment for the Transaction described above and related pro forma adjustments described herein.

Transferred Optoelectronics

This column reflects the assets of the Optoelectronics business sold and liabilities assumed by OSI in the Transaction and the results of operations of the Optoelectronics business, as reflected in the Company’s historical financial statements as of June 30, 2018 and for the six months ended June 30, 2018 and for the years ended December 31, 2017 and 2016, prior to pro forma adjustments.

Other Pro Forma Adjustments

This column represents pro forma adjustments directly attributable to the Transaction. These adjustments are more fully described in the notes to the accompanying unaudited pro forma financial statements.




Luna Innovations Incorporated
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 2018

 
 
 
 
Luna
 
Transferred
 
 
 
Other Pro Forma
 
 
 
Pro Forma
 
 
 
 
Historical
 
Opto
 
Note
 
Adjustments
 
Note
 
Luna
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
33,292,800

 
$
—

 
 
 
$
14,955,198

 
c
 
$
48,247,998

 
Accounts receivable, net
 
9,385,772

 
(2,159,843
)
 
a
 
—

 
 
 
7,225,929

 
Receivable from sale of HSOR business
 
4,001,833

 
—

 
 
 
—

 
 
 
4,001,833

 
Contract assets
 
3,231,770

 
(1,249,551
)
 
a
 
—

 
 
 
1,982,219

 
Inventory
 
6,906,998

 
(1,736,107
)
 
a
 
—

 
 
 
5,170,891

 
Prepaid expenses and other current assets
 
1,054,984

 
(50,544
)
 
a
 
(39,047
)
 
d
 
965,393

 
 
Total current assets
 
57,874,157

 
(5,196,045
)
 
 
 
14,916,151

 
 
 
67,594,263

Long-term contract assets
 
308,093

 
—

 
 
 
—

 
 
 
308,093

Property and equipment, net
 
3,323,749

 
(607,468
)
 
a
 
—

 
 
 
2,716,281

Intangible assets, net
 
3,137,083

 
(1,423,546
)
 
a
 
—

 
 
 
1,713,537

Goodwill
 
502,000

 
(502,000
)
 
e
 
—

 
 
 
—

Other assets
 
18,024

 
(16,029
)
 
a
 
—

 
 
 
1,995

 
 
Total assets
 
$
65,163,106

 
$
(7,745,088
)
 
 
 
$
14,916,151

 
 
 
$
72,334,169

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt obligations
 
$
1,527,828

 
$
—

 
 
 
$
—

 
 
 
$
1,527,828

 
Current portion of capital lease obligations
 
34,661

 
(578
)
 
b
 
—

 
 
 
34,083

 
Accounts payable
 
3,787,701

 
(998,518
)
 
b
 
—

 
 
 
2,789,183

 
Accrued liabilities
 
5,554,481

 
(19,912
)
 
b
 
(444,802
)
 
d
 
5,089,767

 
Contract liabilities
 
1,400,922

 
(158,758
)
 
b
 
—

 
 
 
1,242,164

 
 
Total current liabilities
 
12,305,593

 
(1,177,766
)
 
 
 
(444,802
)
 
 
 
10,683,025

Long term deferred rent
 
1,109,397

 
—

 
 
 
—

 
 
 
1,109,397

Long term capital lease obligations
 
54,970

 
—

 
 
 
—

 
 
 
54,970

 
 
Total liabilities
 
13,469,960

 
(1,177,766
)
 
 
 
(444,802
)
 
 
 
11,847,392

Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
1,322

 
—

 
 
 
—

 
 
 
1,322

 
Common stock
 
29,897

 
—

 
 
 
—

 
 
 
29,897

 
Treasury stock
 
(2,116,640
)
 
—

 
 
 
—

 
 
 
(2,116,640
)
 
Additional paid-in capital
 
84,742,385

 
—

 
 
 
—

 
 
 
84,742,385

 
Accumulated deficit
 
(30,963,818
)
 
—

 
 
 
8,793,631

 
f
 
(22,170,187
)
 
 
Total stockholders' equity
 
51,693,146

 
—

 
 
 
8,793,631

 
 
 
60,486,777

 
 
Total liabilities and stockholders' equity
 
$
65,163,106

 
$
(1,177,766
)
 
 
 
$
8,348,829

 
 
 
$
72,334,169




Luna Innovations Incorporated
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2018

 
 
 
 
Luna
 
Pro Forma
 
 
 
Pro Forma
 
 
 
 
Historical
 
Adjustments
 
Note
 
Luna
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Technology development
 
$
10,103,056

 
—

 
 
 
$
10,103,056

 
Products & licensing
 
15,862,763

 
(7,273,925
)
 
a
 
8,588,838

 
 
Total revenues
 
25,965,819

 
(7,273,925
)
 
 
 
18,691,894

 
 
 
 
 
 
 
 
 
 
 
Cost of revenues:
 
 
 
 
 
 
 
 
 
Technology development
 
7,298,628

 
—

 
 
 
7,298,628

 
Products & licensing
 
7,968,605

 
(4,645,616
)
 
a
 
3,322,989

 
 
Total cost of revenues
 
15,267,233

 
(4,645,616
)
 
 
 
10,621,617

 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
10,698,586

 
(2,628,309
)
 
 
 
8,070,277

Operating expenses
 
 
 
 
 
 
 
 
 
Research, development & engineering
 
2,105,352

 
(465,484
)
 
b
 
1,639,868

 
Selling, general & administrative
 
7,577,072

 
(978,174
)
 
b
 
6,598,898

 
 
Total operating expense
 
9,682,424

 
(1,443,658
)
 
 
 
8,238,766

 
 
 
 
 
 
 
 
 
 
 
Operating income/(loss)
 
1,016,162

 
(1,184,651
)
 
 
 
(168,489
)
Other income/(expense):
 
 
 
 
 
 
 
 
 
Investment income
 
175,756

 
—

 
 
 
175,756

 
Other income
 
2,583

 
22,806

 
b
 
25,389

 
Interest expense
 
(75,234
)
 
(103
)
 
b
 
(75,337
)
 
 
Total other income
 
103,105

 
22,703

 
 
 
125,808

Income/(loss) before income taxes
 
1,119,267

 
(1,161,948
)
 
 
 
(42,681
)
Income tax expense
 
(96,736
)
 
(18,499
)
 
 
 
(115,235
)
 
Net income from continuing operations
 
1,216,003

 
(1,143,449
)
 
 
 
72,554

 
 
 
 
 
 
 
 
 
 
 
Net income per share from continuing operations
 
 
 
 
 
 
 
 
attributable to common stockholders
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.04

 
 
 
 
 
$
0.00

 
 
Diluted
 
$
0.04

 
 
 
 
 
$
0.00

 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
 
Basic
 
27,368,185

 
 
 
 
 
27,368,185

 
 
Diluted
 
        31,257,277

 
 
 
 
 
        31,257,277




Luna Innovations Incorporated
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2017

 
 
 
 
Luna
 
Pro Forma
 
 
 
Pro Forma
 
 
 
 
Historical
 
Adjustments
 
Note
 
Luna
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Technology development
 
$
18,576,383

 
$
—

 
 
 
$
18,576,383

 
Products & licensing
 
27,660,891

 
(13,155,409
)
 
a
 
14,505,482

 
 
Total revenues
 
46,237,274

 
(13,155,409
)
 
 
 
33,081,865

 
 
 
 
 
 
 
 
 
 
 
Cost of revenues:
 
 
 
 
 
 
 
 
 
Technology development
 
13,988,378

 
—

 
 
 
13,988,378

 
Products & licensing
 
14,120,071

 
(8,395,614
)
 
a
 
5,724,457

 
 
Total cost of revenues
 
28,108,449

 
(8,395,614
)
 
 
 
19,712,835

 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
18,128,825

 
(4,759,795
)
 
 
 
13,369,030

Operating expenses
 
 
 
 
 
 
 
 
 
Research, development & engineering
 
3,469,193

 
(815,856
)
 
b
 
2,653,337

 
Selling, general & administrative
 
14,770,986

 
(1,847,146
)
 
b
 
12,923,840

 
 
Total operating expense
 
18,240,179

 
(2,663,002
)
 
 
 
15,577,177

 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
(111,354
)
 
(2,096,793
)
 
 
 
(2,208,147
)
Other income/(expense):
 
 
 
 
 
 
 
 
 
Other (expense)/income
 
(4,498
)
 
30,604

 
b
 
26,106

 
Interest expense
 
(218,506
)
 
1,154

 
b
 
(217,352
)
 
 
Total other (expense)
 
(223,004
)
 
31,758

 
 
 
(191,246
)
Loss before income taxes
 
(334,358
)
 
(2,065,035
)
 
 
 
(2,399,393
)
Income tax benefit
 
295,753

 
852,826

 
 
 
1,148,579

 
Net loss from continuing operations
 
(185,494
)
 
(1,212,209
)
 
 
 
(1,397,703
)
 
 
 
 
 
 
 
 
 
 
 
Net loss per share from continuing operations
 
 
 
 
 
 
 
 
attributable to common stockholders
 
$
(0.01
)
 
 
 
 
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
Basic and diluted
 
27,579,988

 
 
 
 
 
27,579,988




Luna Innovations Incorporated
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2016

 
 
 
 
Luna
 
Pro Forma
 
 
 
Pro Forma
 
 
 
 
Historical
 
Adjustments
 
Note
 
Luna
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
Technology development
 
$
16,280,582

 
$
—

 
 
 
$
16,280,582

 
Products & licensing
 
25,587,187

 
(12,263,839
)
 
a
 
13,323,348

 
 
Total revenues
 
41,867,769

 
(12,263,839
)
 
 
 
29,603,930

 
 
 
 
 
 
 
 
 
 
 
Cost of revenues:
 
 
 
 
 
 
 
 
 
Technology development
 
12,473,211

 
 
 
 
 
12,473,211

 
Products & licensing
 
13,589,858

 
(8,173,345
)
 
a
 
5,416,513

 
 
Total cost of revenues
 
26,063,069

 
(8,173,345
)
 
 
 
17,889,724

 
 
 
 
 
 
 
 
 
 
 
Gross profit
 
15,804,700

 
(4,090,494
)
 
 
 
11,714,206

Operating expenses
 
 
 
 
 
 
 
 
 
Research, development & engineering
 
3,540,227

 
(574,630
)
 
b
 
2,965,597

 
Selling, general & administrative
 
14,763,709

 
(1,889,555
)
 
b
 
12,874,154

 
 
Total operating expense
 
18,303,936

 
(2,464,185
)
 
 
 
15,839,751

 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
(2,499,236
)
 
(1,626,309
)
 
 
 
(4,125,545
)
Other income/(expense):
 
 
 
 
 
 
 
 
 
Other income
 
13,071

 
15,099

 
b
 
28,170

 
Interest expense
 
(319,334
)
 
2,371

 
b
 
(316,963
)
 
 
Total other (expense)
 
(306,263
)
 
17,470

 
 
 
(288,793
)
Loss before income taxes
 
(2,805,499
)
 
(1,608,839
)
 
 
 
(4,414,338
)
Income tax benefit
 
135,567

 
743,944

 
 
 
879,511

 
Net loss from continuing operations
 
(2,775,190
)
 
(864,895
)
 
 
 
(3,640,085
)
 
 
 
 
 
 
 
 
 
 
 
Net loss per share from continuing operations
 
 
 
 
 
 
 
 
attributable to common stockholders
 
$
(0.10
)
 
 
 
 
 
$
(0.13
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
Basic and diluted
 
27,547,217

 
 
 
 
 
27,547,217






Notes to Unaudited Pro Forma Consolidated Financial Statements

1.
Basis of Pro Forma Presentation
On July 31, 2018, Luna Innovations Incorporated (the “Company”), through its wholly owned subsidiaries Advanced Photonix, Inc. and Advanced Photonix Canada, Inc., completed the sale of its optoelectronic components and subassemblies (“Optoelectronics”) assets and operations to OSI Optoelectronics, Inc. (“OSI”). The assets sold primarily consisted of the accounts receivable, inventories, and equipment utilized by the Company in the development, manufacture, and sale of optoelectronic devices in the Company’s Camarillo, California and Montreal, Quebec locations for a sale price of up to $18.5 million (the “Transaction”). The sale price includes $17.5 million paid at the closing of the transaction and up to $1.0 million in contingent consideration subject to the achievement of specified revenue targets for the 18 month period following the closing of the Transaction. The purchase price is subject to positive or negative adjustment based upon the final determination of working capital of the Optoelectronics business as of the closing date compared to a target working capital amount specified in the Asset Purchase Agreement. OSI also assumed the lease of the buildings in Camarillo, California and Montreal, Quebec and certain other specified liabilities.

The unaudited pro forma consolidated financial statements have been derived from the historical consolidated financial statements of the Company adjusted to give effect to the estimated impact that the Transaction would have had if completed on the date of the balance sheet or on January 1, 2016 in the Unaudited Pro Forma Consolidated Statements of Operations.

2.
Adjustments to the Unaudited Pro Forma Consolidated Balance Sheet
a.
Reflects the value of assets associated with the Optoelectronics operations transferred in the Transaction
b.
Reflects the value of the Company’s liabilities assumed by OSI in the Transaction
c.
Reflects gross proceeds of $17.5 million received at closing of the Transaction, less estimated transaction fees of $0.6 million, estimated tax liability of $1.5 million on the taxable gain realized in the transaction, and $0.4 million in settlement of certain liabilities as of the balance sheet date not assumed by OSI.
d.
Reflects the value of certain prepaid expenses not transferred to OSI and the settlement of certain liabilities as of the balance sheet date not assumed by OSI in the Transaction.
e.
Reflects the expected reduction to goodwill resulting from the Transaction.
f.
Reflects the estimated book gain recognized for the Transaction.

3.
Adjustments to Unaudited Pro Forma Consolidated Statements of Operations
a.
Reflects the revenues and costs associated with Optoelectronics product sales for the period.
b.
Reflects the operating expenses of Optoelectronics for the period.

(d)    Exhibits.

Exhibit
 
Description
2.1+
 
+
 
Pursuant to Item 601(b)(2) of Regulation S-K promulgated by the SEC, certain exhibits and schedules to this agreement have been omitted. The Company hereby agrees to furnish supplementally to the SEC, upon its request, any or all of such omitted exhibits or schedules.










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/ Scott A. Graeff
 
 
Scott A. Graeff
President and Chief Executive Officer
Date: August 1, 2018