|
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Item 9.01.
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Financial Statements and Exhibits.
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(b)
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Pro Forma Financial Information
|
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On August 9, 2017, Luna Innovations Incorporated (the “Company”), through its wholly owned subsidiaries Advanced Photonix, Inc. (“API”) and Picometrix, LLC (“Picometrix”), completed the sale of its high speed optical receivers (“HSOR”) assets and operations to MACOM Technology Solutions Holdings, Inc. (“MACOM”). The assets sold primarily consisted of the accounts receivable, inventories, and equipment utilized by Picometrix in the development, manufacture, and sale of HSOR products in the Company’s Ann Arbor, Michigan location for a sale price of $33.5 million (the “Transaction”). MACOM also assumed the lease of the building in Ann Arbor and certain other specified liabilities. In addition, following the closing, it is expected that approximately 49 of
the Company’s employees will transfer to MACOM. Assets, operations, and employees associated with the Picometrix Terahertz product line were not included in the Transaction and remain a part of the Company.
Of the $33.5 million purchase price, the Company received $29.5 million at closing with the remainder placed in an escrow account until December 15, 2018, for possible working capital adjustments to the purchase price and potential satisfaction of certain post-closing indemnification obligations. The purchase price is subject to adjustment in the future based upon a determination of final working capital.
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, 2017 is presented as if the Transaction had occurred on June 30, 2017. 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, 2015.
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, 2017, or as of January 1, 2015, 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, 2016 and its Quarterly Report on Form 10-Q for the three months ended June 30, 2017.
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, 2017 and historical results of operations for the six months ended June 30, 2017, and for the years ended December 31, 2016 and 2015, prior to any adjustment for the Transaction described above and related pro forma adjustments described herein.
Transferred HSOR
This column reflects the assets of the HSOR business sold and liabilities assumed by MACOM in the Transaction and the results of operations of the HSOR business, as reflected in the Company’s historical financial statements as of June 30, 2017 and for the six months ended June 30, 2017 and for the years ended December 31, 2016 and 2015, prior to pro forma adjustments. The results of operations of the HSOR business included in the pro forma adjustments for the year ended December 31, 2015, include such results for the period from the date of our merger with API on May 8, 2015, through December 31, 2015.
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.
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Luna Innovations Incorporated
|
Unaudited Pro Forma Consolidated Balance Sheet
|
As of June 30, 2017
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|
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Consolidated
|
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|
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|
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Luna
|
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Transferred
|
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Other Pro Forma
|
|
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|
Pro Forma
|
|
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Historical
|
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HSOR
|
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Note
|
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Adjustments
|
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Note
|
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Luna
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents
|
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$
|
10,291,255
|
|
|
—
|
|
|
|
|
$
|
29,500,000
|
|
|
c
|
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$
|
39,791,255
|
|
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Accounts receivable, net
|
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13,150,291
|
|
|
(4,263,448
|
)
|
|
a
|
|
4,000,000
|
|
|
c
|
|
12,886,843
|
|
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Inventory
|
|
9,540,754
|
|
|
(2,262,316
|
)
|
|
a
|
|
—
|
|
|
|
|
7,278,438
|
|
|
Prepaid expenses and other current assets
|
|
1,266,090
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|
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(122,599
|
)
|
|
a
|
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—
|
|
|
|
|
1,143,491
|
|
|
|
Total current assets
|
|
34,248,390
|
|
|
(6,648,363
|
)
|
|
|
|
33,500,000
|
|
|
|
|
61,100,027
|
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Property and equipment, net
|
|
6,882,576
|
|
|
(3,667,273
|
)
|
|
a
|
|
—
|
|
|
|
|
3,215,303
|
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Intangible assets, net
|
|
8,003,009
|
|
|
(4,673,792
|
)
|
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a
|
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—
|
|
|
|
|
3,329,217
|
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Goodwill
|
|
2,348,331
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|
|
(2,348,331
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)
|
|
e
|
|
—
|
|
|
|
|
—
|
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Other assets
|
|
68,778
|
|
|
(50,754
|
)
|
|
a
|
|
—
|
|
|
|
|
18,024
|
|
|
|
|
Total assets
|
|
$
|
51,551,084
|
|
|
$
|
(17,388,513
|
)
|
|
|
|
$
|
33,500,000
|
|
|
|
|
$
|
67,662,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
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|
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Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
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Current portion of long-term debt obligations
|
|
$
|
1,833,333
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
$
|
1,833,333
|
|
|
Current portion of capital lease obligations
|
|
52,404
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|
|
—
|
|
|
|
|
—
|
|
|
|
|
52,404
|
|
|
Accounts payable
|
|
3,958,144
|
|
|
(1,149,062
|
)
|
|
b
|
|
—
|
|
|
|
|
2,809,082
|
|
|
Accrued liabilities
|
|
8,131,316
|
|
|
(781,849
|
)
|
|
b
|
|
3,550,000
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|
|
d
|
|
10,899,467
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|
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Deferred revenue
|
|
946,146
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
946,146
|
|
|
|
Total current liabilities
|
|
14,921,343
|
|
|
(1,930,911
|
)
|
|
|
|
3,550,000
|
|
|
|
|
16,540,432
|
|
Long-term deferred rent
|
|
1,337,893
|
|
|
(77,719
|
)
|
|
b
|
|
—
|
|
|
|
|
1,260,174
|
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Long-term debt obligations
|
|
1,511,520
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,511,520
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Long-term capital lease obligations
|
|
89,054
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|
|
—
|
|
|
|
|
—
|
|
|
|
|
89,054
|
|
|
Total liabilities
|
|
17,859,810
|
|
|
(2,008,630
|
)
|
|
|
|
3,550,000
|
|
|
|
|
19,401,180
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
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Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
1,322
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
1,322
|
|
|
Common stock
|
|
28,878
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|
|
—
|
|
|
|
|
—
|
|
|
|
|
28,878
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|
|
Treasury stock
|
|
(661,253
|
)
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(661,253
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)
|
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Additional paid-in capital
|
|
82,837,888
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|
|
—
|
|
|
|
|
—
|
|
|
|
|
82,837,888
|
|
|
Accumulated deficit
|
|
(48,515,561
|
)
|
|
—
|
|
|
|
|
14,570,117
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|
|
f
|
|
(33,945,444
|
)
|
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Total stockholders equity
|
|
33,691,274
|
|
|
—
|
|
|
|
|
14,570,117
|
|
|
|
|
48,261,391
|
|
|
|
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Total liabilities and stockholders' equity
|
|
$
|
51,551,084
|
|
|
$
|
(2,008,630
|
)
|
|
|
|
$
|
18,120,117
|
|
|
|
|
$
|
67,662,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
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|
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|
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|
|
|
|
|
|
Luna Innovations Incorporated
|
Unaudited Pro Forma Consolidated Statement of Operations
|
For the Six Months Ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Luna
|
|
Pro Forma
|
|
|
|
Pro Forma
|
|
|
|
|
Historical
|
|
Adjustments
|
|
Note
|
|
Luna
|
Revenues
|
|
|
|
|
|
|
|
|
|
Technology development
|
|
$
|
8,901,624
|
|
|
$
|
(63,249
|
)
|
|
g
|
|
$
|
8,838,375
|
|
|
Product & licensing
|
|
17,793,232
|
|
|
(5,251,678
|
)
|
|
h
|
|
12,541,554
|
|
|
|
Total revenues
|
|
26,694,856
|
|
|
(5,314,927
|
)
|
|
|
|
21,379,929
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
Technology development
|
|
6,661,474
|
|
|
(108,051
|
)
|
|
g
|
|
6,553,423
|
|
|
Product & licensing
|
|
10,277,225
|
|
|
(3,693,312
|
)
|
|
h
|
|
6,583,913
|
|
|
|
Total cost of revenues
|
|
16,938,699
|
|
|
(3,801,363
|
)
|
|
|
|
13,137,336
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
9,756,157
|
|
|
(1,513,564
|
)
|
|
|
|
8,242,593
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
Research, development & engineering
|
|
2,708,738
|
|
|
(961,077
|
)
|
|
i
|
|
1,747,661
|
|
|
Selling, general & administrative
|
|
8,431,911
|
|
|
(1,487,378
|
)
|
|
j
|
|
6,944,533
|
|
|
|
Total operating expense
|
|
11,140,649
|
|
|
(2,448,455
|
)
|
|
|
|
8,692,194
|
|
Operating loss
|
|
(1,384,492
|
)
|
|
934,891
|
|
|
|
|
(449,601
|
)
|
Other income/(expense)
|
|
|
|
|
|
|
|
|
Other expense
|
|
(869
|
)
|
|
—
|
|
|
|
|
(869
|
)
|
Interest expense
|
|
(124,760
|
)
|
|
—
|
|
|
|
|
(124,760
|
)
|
|
Total other expense
|
|
(125,629
|
)
|
|
—
|
|
|
|
|
(125,629
|
)
|
Loss before income taxes
|
|
(1,510,121
|
)
|
|
934,891
|
|
|
|
|
(575,230
|
)
|
Income tax expense
|
|
67,627
|
|
|
|
|
|
|
67,627
|
|
Net loss
|
|
(1,577,748
|
)
|
|
934,891
|
|
|
|
|
(642,857
|
)
|
Preferred stock dividend
|
|
63,632
|
|
|
—
|
|
|
|
|
63,632
|
|
Net loss attributable to common stockholders
|
|
$
|
(1,641,380
|
)
|
|
$
|
934,891
|
|
|
|
|
$
|
(706,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
27,570,919
|
|
|
|
|
|
|
27,570,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luna Innovations Incorporated
|
Unaudited Pro Forma Consolidated Statement of Operations
|
For the Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
Luna
|
|
Pro Forma
|
|
|
|
Pro Forma
|
|
|
|
|
Historical
|
|
Adjustments
|
|
Note
|
|
Luna
|
Revenues
|
|
|
|
|
|
|
|
|
|
Technology development
|
|
$
|
16,825,157
|
|
|
$
|
(544,575
|
)
|
|
g
|
|
$
|
16,280,582
|
|
|
Product & licensing
|
|
42,385,839
|
|
|
(16,798,652
|
)
|
|
h
|
|
25,587,187
|
|
|
|
Total revenues
|
|
59,210,996
|
|
|
(17,343,227
|
)
|
|
|
|
41,867,769
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
Technology development
|
|
12,711,447
|
|
|
(238,235
|
)
|
|
g
|
|
12,473,212
|
|
|
Product & licensing
|
|
24,764,788
|
|
|
(11,174,930
|
)
|
|
h
|
|
13,589,858
|
|
|
|
Total cost of revenues
|
|
37,476,235
|
|
|
(11,413,165
|
)
|
|
|
|
26,063,070
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
21,734,761
|
|
|
(5,930,062
|
)
|
|
|
|
15,804,699
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
Research, development & engineering
|
|
5,532,130
|
|
|
(1,991,904
|
)
|
|
i
|
|
3,540,226
|
|
|
Selling, general & administrative
|
|
18,139,966
|
|
|
(3,901,535
|
)
|
|
j
|
|
14,238,431
|
|
|
|
Total operating expense
|
|
23,672,096
|
|
|
(5,893,439
|
)
|
|
|
|
17,778,657
|
|
Operating loss
|
|
(1,937,335
|
)
|
|
(36,623
|
)
|
|
|
|
(1,973,958
|
)
|
Other income/(expense)
|
|
|
|
|
|
|
|
|
Other (expense)/income, net
|
|
(35,849
|
)
|
|
50,527
|
|
|
i
|
|
14,678
|
|
Interest expense
|
|
(320,942
|
)
|
|
—
|
|
|
|
|
(320,942
|
)
|
|
Total other expense
|
|
(356,791
|
)
|
|
50,527
|
|
|
|
|
(306,264
|
)
|
Loss before income taxes
|
|
(2,294,126
|
)
|
|
13,904
|
|
|
|
|
(2,280,222
|
)
|
Income tax expense
|
|
75,366
|
|
|
—
|
|
|
|
|
75,366
|
|
Net loss
|
|
(2,369,492
|
)
|
|
13,904
|
|
|
|
|
(2,355,588
|
)
|
Preferred stock dividend
|
|
105,258
|
|
|
—
|
|
|
|
|
105,258
|
|
Net loss attributable to common stockholders
|
|
$
|
(2,474,750
|
)
|
|
$
|
13,904
|
|
|
|
|
$
|
(2,460,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
27,547,217
|
|
|
|
|
|
|
27,547,217
|
|
|
|
|
|
|
|
|
|
|
|
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Luna Innovations Incorporated
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Unaudited Pro Forma Consolidated Statement of Operations
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For the Year Ended December 31, 2015
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Consolidated
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Luna
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Pro Forma
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Pro Forma
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Historical
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Adjustments
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Note
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Luna
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Revenues
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Technology development
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$
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13,599,048
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—
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$
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13,599,048
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Product & licensing
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30,421,310
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(9,569,500
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)
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h
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20,851,810
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Total revenues
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44,020,358
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(9,569,500
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)
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34,450,858
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Cost of revenues
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Technology development
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10,378,616
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—
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10,378,616
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Product & licensing
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17,141,079
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(6,545,853
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)
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h
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10,595,226
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Total cost of revenues
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27,519,695
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(6,545,853
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)
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20,973,842
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Gross profit
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16,500,663
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(3,023,647
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)
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13,477,016
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Operating expense
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Research, development & engineering
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4,268,988
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(1,764,389
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)
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i
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2,504,599
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Selling, general & administrative
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18,481,270
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(2,145,442
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)
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j
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16,335,828
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Total operating expense
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22,750,258
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(3,909,831
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)
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18,840,427
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Operating loss
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(6,249,595
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)
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886,184
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(5,363,411
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)
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Other income/(expense)
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Other expense
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(9,967
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)
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—
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(9,967
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)
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Interest expense
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(220,403
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)
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—
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(220,403
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Total other expense
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(230,370
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)
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—
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(230,370
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)
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Loss from continuing operations before income taxes
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(6,479,965
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)
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886,184
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(5,593,781
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)
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Income tax benefit
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(470,605
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)
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—
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(470,605
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)
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Loss from continuing operations, net of income taxes
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$
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(6,009,360
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)
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$
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886,184
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$
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(5,123,176
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)
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Loss from continuing operations per common share
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Basic and diluted
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$
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(0.26
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)
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$
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(0.22
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)
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Weighted average shares outstanding
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Basic and diluted
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23,026,494
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23,026,494
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Notes to Unaudited Pro Forma Consolidated Financial Statements
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1.
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Basis of Pro Forma Presentation
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On August 9, 2017, Luna Innovations Incorporated (the “Company”), through its wholly owned subsidiaries Advanced Photonix, Inc. (“API”) and Picometrix, LLC (“Picometrix”), completed the sale of its high speed optical receivers (“HSOR”) assets and operations to MACOM Technology Solutions Holdings, Inc. (“MACOM”). The assets sold primarily consisted of the accounts receivable, inventories, and equipment utilized by Picometrix in the development, manufacture, and sale of HSOR products in the Company’s Ann Arbor, Michigan location for a sale price of $33.5 million (the “Transaction”). MACOM also assumed the lease of the building in Ann Arbor and certain other specified liabilities. In addition, following the closing, it is expected that approximately 49 of the Company’s employees will transfer to MACOM. Assets, operations, and employees associated with the Picometrix Terahertz product line were not included in the Transaction and remain a part of the Company.
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, 2015 in the Unaudited Pro Forma Consolidated Statements of Operations.
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2.
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Adjustments to Unaudited Pro Forma Consolidated Balance Sheet
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a.
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Reflects the value of assets associated with the HSOR operations and the selling, general and administrative resources transferred in the Transaction.
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b.
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Reflects the value of the Company’s liabilities assumed by MACOM in the Transaction.
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c.
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Reflects gross proceeds of $33.5 million, including $4.0 million placed into escrow, less estimated transaction fees of $250,000, and estimated income taxes of $2.8 million on the taxable gain realized in the Transaction.
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d.
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Reflects estimated transaction fees of $250,000 plus estimated tax liability of $2.8 million on the taxable gain realized in the Transaction.
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e.
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Reflects the expected reduction to goodwill resulting from the Transaction.
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f.
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Reflects the estimated book gain recognized for the Transaction.
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3.
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Adjustments to Unaudited Pro Forma Consolidated Statements of Operations
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a.
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Reflects the revenue and costs associated with HSOR contract research for the period.
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b.
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Reflects the revenue and costs associated with HSOR product sales for the period.
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c.
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Reflects the expenses of HSOR research, development and engineering for the period.
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d.
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Reflects the costs of HSOR selling, general and administrative expenses for the period as follows:
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For the six months
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For the year ended
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For the year ended
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ended June 30, 2017
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December 31, 2016
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December 31, 2015
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General and administrative costs of HSOR operations
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$
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231,285
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$
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830,965
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$
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413,453
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Sales and marketing of HSOR
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341,937
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956,786
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443,980
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Finance, human resources, and information systems
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211,452
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581,463
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516,622
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Facilities to be vacated by Luna
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142,122
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289,409
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196,118
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Rent payable to seller
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(150,000
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)
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(300,000
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)
|
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(200,000
|
)
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Amortization of acquisition intangible assets
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710,582
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|
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1,542,912
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775,269
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$
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1,487,378
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$
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3,901,535
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|
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$
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2,145,442
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|
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4.
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In connection with the Transition Services Agreement entered into between the Company and the Buyer, the Company agreed to pay to the Buyer $1.5 million in five monthly installments of $300,000 each. As these payments are considered material non-recurring transaction related costs, such payments are not reflected in the Unaudited Pro Forma Consolidated Statements of Operations.
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