ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 54-1560050 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
ITEM 1. | ||
ITEM 2. | ||
ITEM 3. | ||
ITEM 4. | ||
ITEM 1. | ||
ITEM 1A. | ||
ITEM 2. | ||
ITEM 3. | ||
ITEM 4. | ||
ITEM 5. | ||
ITEM 6. | ||
ITEM 1. | FINANCIAL STATEMENTS |
September 30, 2018 | December 31, 2017 | ||||||
(unaudited) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 47,144,719 | $ | 36,981,533 | |||
Accounts receivable, net | 9,110,713 | 5,929,042 | |||||
Receivable from sale of HSOR business | 4,002,342 | 4,000,976 | |||||
Contract assets | 2,611,122 | 1,778,142 | |||||
Inventory | 5,462,414 | 4,634,781 | |||||
Prepaid expenses and other current assets | 730,368 | 1,140,999 | |||||
Current assets held for sale | — | 4,336,105 | |||||
Total current assets | 69,061,678 | 58,801,578 | |||||
Long-term contract assets | 343,492 | 209,699 | |||||
Property and equipment, net | 2,678,411 | 2,854,641 | |||||
Intangible assets, net | 1,709,003 | 1,727,390 | |||||
Other assets | 1,995 | 1,995 | |||||
Non-current assets held for sale | — | 2,627,333 | |||||
Total assets | $ | 73,794,579 | $ | 66,222,636 | |||
Liabilities and stockholders’ equity | |||||||
Liabilities: | |||||||
Current liabilities: | |||||||
Current portion of long-term debt obligations | $ | 1,073,571 | $ | 1,833,333 | |||
Current portion of capital lease obligations | 39,748 | 43,665 | |||||
Accounts payable | 2,297,457 | 2,111,077 | |||||
Accrued liabilities | 6,589,310 | 6,547,230 | |||||
Contract liabilities | 1,548,371 | 3,318,379 | |||||
Current liabilities held for sale | — | 972,451 | |||||
Total current liabilities | 11,548,457 | 14,826,135 | |||||
Long-term deferred rent | 1,072,696 | 1,184,438 | |||||
Long-term debt obligations | — | 603,007 | |||||
Long-term capital lease obligations | 83,405 | 71,275 | |||||
Total liabilities | 12,704,558 | 16,684,855 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 1,322 | 1,322 | |||||
Common stock, par value $0.001, 100,000,000 shares authorized, 29,189,506 and 28,354,822 shares issued, 27,936,401 and 27,283,918 shares outstanding at September 30, 2018 and December 31, 2017, respectively | 30,081 | 29,186 | |||||
Treasury stock at cost, 1,253,105 and 1,070,904 shares at September 30, 2018 and December 31, 2017, respectively | (2,116,640 | ) | (1,649,746 | ) | |||
Additional paid-in capital | 85,353,909 | 83,563,208 | |||||
Accumulated deficit | (22,178,651 | ) | (32,406,189 | ) | |||
Total stockholders’ equity | 61,090,021 | 49,537,781 | |||||
Total liabilities and stockholders’ equity | $ | 73,794,579 | $ | 66,222,636 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Revenues: | |||||||||||||||
Technology development | $ | 5,315,861 | $ | 4,590,054 | $ | 15,418,919 | $ | 13,428,428 | |||||||
Products and licensing | 5,371,165 | 3,712,657 | 13,960,003 | 9,791,213 | |||||||||||
Total revenues | 10,687,026 | 8,302,711 | 29,378,922 | 23,219,641 | |||||||||||
Cost of revenues: | |||||||||||||||
Technology development | 3,918,666 | 3,491,840 | 11,131,965 | 10,045,261 | |||||||||||
Products and licensing | 2,079,749 | 1,469,961 | 5,381,333 | 3,994,044 | |||||||||||
Total cost of revenues | 5,998,415 | 4,961,801 | 16,513,298 | 14,039,305 | |||||||||||
Gross profit | 4,688,611 | 3,340,910 | 12,865,624 | 9,180,336 | |||||||||||
Operating expense: | |||||||||||||||
Selling, general and administrative | 3,233,485 | 2,831,493 | 9,898,064 | 8,983,016 | |||||||||||
Research, development and engineering | 873,629 | 662,142 | 2,513,497 | 1,961,770 | |||||||||||
Total operating expense | 4,107,114 | 3,493,635 | 12,411,561 | 10,944,786 | |||||||||||
Operating income/(loss) | 581,497 | (152,725 | ) | 454,063 | (1,764,450 | ) | |||||||||
Other income/(expense): | |||||||||||||||
Investment income | 171,896 | — | 350,976 | — | |||||||||||
Other income/(expense) | 8,319 | 13,733 | (16,001 | ) | 26,286 | ||||||||||
Interest expense | (28,029 | ) | (54,847 | ) | (103,208 | ) | (178,879 | ) | |||||||
Total other income/(expense) | 152,186 | (41,114 | ) | 231,767 | (152,593 | ) | |||||||||
Income/(loss) from continuing operations before income taxes | 733,683 | (193,839 | ) | 685,830 | (1,917,043 | ) | |||||||||
Income tax benefit | (559,093 | ) | (388,787 | ) | (674,329 | ) | (662,049 | ) | |||||||
Net income/(loss) from continuing operations | 1,292,776 | 194,948 | 1,360,159 | (1,254,994 | ) | ||||||||||
(Loss)/income from discontinued operations, net of income tax of $216,813, $(91,705), $235,312, and $249,184 | (56,418 | ) | 465,710 | 1,132,436 | 337,904 | ||||||||||
Gain on sale, net of income taxes of $1,866,232 and $1,508,373 | 7,612,044 | 15,096,666 | 7,571,810 | 15,096,666 | |||||||||||
Net income from discontinued operations | 7,555,626 | 15,562,376 | 8,704,246 | 15,434,570 | |||||||||||
Net income | 8,848,402 | 15,757,324 | 10,064,405 | 14,179,576 | |||||||||||
Preferred stock dividend | 63,235 | 33,699 | 190,895 | 97,331 | |||||||||||
Net income attributable to common stockholders | $ | 8,785,167 | $ | 15,723,625 | $ | 9,873,510 | $ | 14,082,245 | |||||||
Net income/(loss) per share from continuing operations: | |||||||||||||||
Basic | $ | 0.05 | $ | 0.01 | $ | 0.05 | $ | (0.05 | ) | ||||||
Diluted | $ | 0.04 | $ | 0.01 | $ | 0.04 | $ | (0.05 | ) | ||||||
Net income per share from discontinued operations: | |||||||||||||||
Basic | $ | 0.27 | $ | 0.56 | $ | 0.32 | $ | 0.56 | |||||||
Diluted | $ | 0.23 | $ | 0.48 | $ | 0.27 | $ | 0.56 | |||||||
Net income per share attributable to common stockholders: | |||||||||||||||
Basic | $ | 0.31 | $ | 0.57 | $ | 0.36 | $ | 0.51 | |||||||
Diluted | $ | 0.27 | $ | 0.48 | $ | 0.30 | $ | 0.51 | |||||||
Weighted average common shares and common equivalent shares outstanding: |
Basic | 27,901,631 | 27,692,539 | 27,547,955 | 27,611,905 | |||||||||||
Diluted | 33,055,881 | 32,714,389 | 32,721,860 | 27,611,905 |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
(unaudited) | |||||||
Cash flows (used in)/provided by operating activities | |||||||
Net income | $ | 10,064,405 | $ | 14,179,576 | |||
Adjustments to reconcile net income to net cash (used in)/provided by operating activities | |||||||
Depreciation and amortization | 898,215 | 2,241,867 | |||||
Share-based compensation | 345,582 | 476,428 | |||||
Bad debt expense | 6,000 | 40,753 | |||||
(Gain)/loss on disposal of fixed assets | (1,000 | ) | 3,640 | ||||
Gain on sale of discontinued operations | (7,571,810 | ) | (15,096,666 | ) | |||
Change in assets and liabilities | |||||||
Accounts receivable | (4,056,716 | ) | 2,127,794 | ||||
Contract assets | (957,012 | ) | — | ||||
Inventory | (992,075 | ) | (2,251,236 | ) | |||
Other current assets | 482,155 | 380,858 | |||||
Accounts payable and accrued expenses | 243,965 | (1,581,608 | ) | ||||
Contract liabilities | (1,906,117 | ) | — | ||||
Deferred revenue | — | 59,980 | |||||
Net cash (used in)/provided by operating activities | (3,444,408 | ) | 581,386 | ||||
Cash flows provided by investing activities | |||||||
Acquisition of property and equipment | (272,039 | ) | (893,698 | ) | |||
Intangible property costs | (277,068 | ) | (392,485 | ) | |||
Proceeds from sale of property and equipment | 1,000 | 3,000 | |||||
Proceeds from sales of discontinued operations | 14,775,541 | 28,026,528 | |||||
Net cash provided by investing activities | 14,227,434 | 26,743,345 | |||||
Cash flows used in financing activities | |||||||
Payments on capital lease obligations | (33,064 | ) | (38,753 | ) | |||
Payments of debt obligations | (1,375,000 | ) | (1,374,999 | ) | |||
Repurchase of common stock | (466,894 | ) | (228,020 | ) | |||
Proceeds from the exercise of options and warrants | 1,255,118 | 29,020 | |||||
Net cash used in financing activities | (619,840 | ) | (1,612,752 | ) | |||
Net increase in cash and cash equivalents | 10,163,186 | 25,711,979 | |||||
Cash and cash equivalents—beginning of period | 36,981,533 | 12,802,458 | |||||
Cash and cash equivalents—end of period | $ | 47,144,719 | $ | 38,514,437 | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid for interest | $ | 97,867 | $ | 173,275 | |||
Cash paid for income taxes | $ | 7,686 | $ | 41,131 | |||
Non-cash investing and financing activities | |||||||
Dividend on preferred stock, 59,469 shares of common stock issuable | $ | 190,895 | $ | 97,331 |
1. | Basis of Presentation and Significant Accounting Policies |
• | Level 1—Quoted prices for identical instruments in active markets |
• | Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets |
• | Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable |
Balance at | Adjustment for | Adjusted balance at | |||||||||
December 31, 2017 | Topic 606 | January 1, 2018 | |||||||||
Assets: | |||||||||||
Current assets held for sale | $ | 4,336,105 | $ | 379,891 | $ | 4,715,996 | |||||
Liabilities: | |||||||||||
Contract liabilities | $ | 3,318,379 | $ | 2,250 | $ | 3,320,629 | |||||
Current liabilities held for sale | $ | 862,205 | $ | 23,613 | $ | 885,818 | |||||
Stockholders' equity: | |||||||||||
Accumulated deficit | $ | (32,406,189 | ) | $ | 354,028 | $ | (32,052,161 | ) |
December 31, 2017 | ||||||
As Reported | As Adopted | |||||
Accounts receivables, net | $ | 9,857,009 | $ | 5,929,042 | ||
Contract assets | — | 1,778,142 | ||||
Current assets held for sale | — | 1,940,126 | ||||
Long-term contract assets | — | 209,699 | ||||
Accrued liabilities | 8,959,935 | 6,547,230 | ||||
Contract liabilities | — | 3,318,379 | ||||
Current liabilities held for sale | — | 120,665 | ||||
Deferred revenue | 1,026,339 | — |
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||
Technology Development | Products and Licensing | Total | Technology Development | Products and Licensing | Total | |||||||||||||||
Total Revenue by Geographic Location | ||||||||||||||||||||
United States | $ | 5,315,861 | $ | 3,251,602 | $ | 8,567,463 | $ | 15,418,919 | $ | 7,961,048 | $ | 23,379,967 | ||||||||
Asia | — | 1,143,767 | 1,143,767 | — | 3,280,348 | 3,280,348 | ||||||||||||||
Europe | — | 899,683 | 899,683 | — | 2,542,017 | 2,542,017 | ||||||||||||||
Canada, Central and South America | — | 1,330 | 1,330 | — | 99,807 | 99,807 | ||||||||||||||
All Others | — | 74,783 | 74,783 | — | 76,783 | 76,783 | ||||||||||||||
Total | $ | 5,315,861 | $ | 5,371,165 | $ | 10,687,026 | $ | 15,418,919 | $ | 13,960,003 | $ | 29,378,922 | ||||||||
Total Revenue by Major Customer Type | ||||||||||||||||||||
Sales to the U.S. government | $ | 5,216,389 | $ | 977,076 | $ | 6,193,465 | $ | 15,284,661 | $ | 1,364,755 | $ | 16,649,416 | ||||||||
U.S. direct commercial sales and other | 99,472 | 2,250,656 | 2,350,128 | 134,258 | 6,583,006 | 6,717,264 | ||||||||||||||
Foreign commercial sales & other | — | 2,143,433 | 2,143,433 | — | 6,012,242 | 6,012,242 | ||||||||||||||
Total | $ | 5,315,861 | $ | 5,371,165 | $ | 10,687,026 | $ | 15,418,919 | $ | 13,960,003 | $ | 29,378,922 | ||||||||
Total Revenue by Contract Type | ||||||||||||||||||||
Fixed-price contracts | $ | 2,004,166 | $ | 5,371,165 | $ | 7,375,331 | $ | 6,611,758 | $ | 13,960,003 | $ | 20,571,761 | ||||||||
Cost-type contracts | 3,311,695 | — | 3,311,695 | 8,807,161 | — | 8,807,161 | ||||||||||||||
Total | $ | 5,315,861 | $ | 5,371,165 | $ | 10,687,026 | $ | 15,418,919 | $ | 13,960,003 | $ | 29,378,922 | ||||||||
Total Revenue by Timing of Recognition | ||||||||||||||||||||
Goods transferred at a point in time | $ | — | $ | 5,190,830 | $ | 5,190,830 | $ | — | $ | 13,505,897 | $ | 13,505,897 | ||||||||
Goods/services transferred over time | 5,315,861 | 180,335 | 5,496,196 | 15,418,919 | 454,106 | 15,873,025 | ||||||||||||||
Total | $ | 5,315,861 | $ | 5,371,165 | $ | 10,687,026 | $ | 15,418,919 | $ | 13,960,003 | $ | 29,378,922 | ||||||||
Total Revenue by Major Products/Services | ||||||||||||||||||||
Technology development | $ | 5,315,861 | $ | — | $ | 5,315,861 | $ | 15,418,919 | $ | — | $ | 15,418,919 | ||||||||
Optical test and measurement systems | — | 4,469,677 | 4,469,677 | — | 12,129,197 | 12,129,197 | ||||||||||||||
Other | — | 901,488 | 901,488 | — | 1,830,806 | 1,830,806 | ||||||||||||||
Total | $ | 5,315,861 | $ | 5,371,165 | $ | 10,687,026 | $ | 15,418,919 | $ | 13,960,003 | $ | 29,378,922 |
Impact of changes in accounting policies | |||||||||||
As Reported | Adjustments | Balances without adoption of Topic 606 | |||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 47,144,719 | $ | — | $ | 47,144,719 | |||||
Accounts receivable, net | 9,110,713 | — | 9,110,713 | ||||||||
Receivable from sale of HSOR business | 4,002,342 | — | 4,002,342 | ||||||||
Contract assets | 2,611,122 | — | 2,611,122 | ||||||||
Inventory | 5,462,414 | — | 5,462,414 | ||||||||
Prepaid expenses and other current assets | 730,368 | — | 730,368 | ||||||||
Total current assets | 69,061,678 | — | 69,061,678 | ||||||||
Long-term contract assets | 343,492 | — | 343,492 | ||||||||
Property and equipment, net | 2,678,411 | — | 2,678,411 | ||||||||
Intangible assets, net | 1,709,003 | — | 1,709,003 | ||||||||
Other assets | 1,995 | — | 1,995 | ||||||||
Total assets | $ | 73,794,579 | $ | — | $ | 73,794,579 | |||||
Liabilities and stockholders’ equity | |||||||||||
Liabilities: | |||||||||||
Current liabilities: | |||||||||||
Current portion of long-term debt obligations | $ | 1,073,571 | $ | — | $ | 1,073,571 | |||||
Current portion of capital lease obligations | 39,748 | — | 39,748 | ||||||||
Accounts payable | 2,297,457 | — | 2,297,457 | ||||||||
Accrued liabilities | 6,589,310 | — | 6,589,310 | ||||||||
Contract liabilities | 1,548,371 | (3,880 | ) | 1,544,491 | |||||||
Total current liabilities | 11,548,457 | (3,880 | ) | 11,544,577 | |||||||
Long-term deferred rent | 1,072,696 | — | 1,072,696 | ||||||||
Long-term capital lease obligations | 83,405 | — | 83,405 | ||||||||
Total liabilities | 12,704,558 | (3,880 | ) | 12,700,678 | |||||||
Commitments and contingencies | |||||||||||
Stockholders’ equity: | |||||||||||
Preferred stock, par value $0.001, 1,321,514 shares authorized, issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 1,322 | — | 1,322 | ||||||||
Common stock, par value $0.001, 100,000,000 shares authorized, 29,189,506 and 28,354,822 shares issued, 27,936,401 and 27,283,918 shares outstanding at September 30, 2018 and December 31, 2017, respectively | 30,081 | — | 30,081 | ||||||||
Treasury stock at cost, 1,253,105 and 1,070,904 shares at September 30, 2018 and December 31, 2017, respectively | (2,116,640 | ) | — | (2,116,640 | ) | ||||||
Additional paid-in capital | 85,353,909 | — | 85,353,909 | ||||||||
Accumulated deficit | (22,178,651 | ) | 3,880 | (22,174,771 | ) | ||||||
Total stockholders’ equity | 61,090,021 | 3,880 | 61,093,901 | ||||||||
Total liabilities and stockholders’ equity | $ | 73,794,579 | $ | — | $ | 73,794,579 |
Impact of changes in accounting policies | |||||||||||||||||||||||
Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | ||||||||||||||||||||||
As reported | Adjustments | Balances without adoption of Topic 606 | As reported | Adjustments | Balances without adoption of Topic 606 | ||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Technology development | $ | 5,315,861 | $ | — | $ | 5,315,861 | $ | 15,418,919 | $ | — | $ | 15,418,919 | |||||||||||
Products and licensing | 5,371,165 | (2,790 | ) | 5,368,375 | 13,960,003 | 1,630 | 13,961,633 | ||||||||||||||||
Total revenues | 10,687,026 | (2,790 | ) | 10,684,236 | 29,378,922 | 1,630 | 29,380,552 | ||||||||||||||||
Cost of revenues: | |||||||||||||||||||||||
Technology development | 3,918,666 | — | 3,918,666 | 11,131,965 | — | 11,131,965 | |||||||||||||||||
Products and licensing | 2,079,749 | — | 2,079,749 | 5,381,333 | — | 5,381,333 | |||||||||||||||||
Total cost of revenues | 5,998,415 | — | 5,998,415 | 16,513,298 | — | 16,513,298 | |||||||||||||||||
Gross profit | 4,688,611 | (2,790 | ) | 4,685,821 | 12,865,624 | 1,630 | 12,867,254 | ||||||||||||||||
Operating expense: | |||||||||||||||||||||||
Selling, general and administrative | 3,233,485 | — | 3,233,485 | 9,898,064 | — | 9,898,064 | |||||||||||||||||
Research, development and engineering | 873,629 | — | 873,629 | 2,513,497 | — | 2,513,497 | |||||||||||||||||
Total operating expense | 4,107,114 | — | 4,107,114 | 12,411,561 | — | 12,411,561 | |||||||||||||||||
Operating income | 581,497 | (2,790 | ) | 578,707 | 454,063 | 1,630 | 455,693 | ||||||||||||||||
Other income: | |||||||||||||||||||||||
Investment income | 171,896 | — | 171,896 | 350,976 | — | 350,976 | |||||||||||||||||
Other income/(expense) | 8,319 | — | 8,319 | (16,001 | ) | — | (16,001 | ) | |||||||||||||||
Interest expense | (28,029 | ) | — | (28,029 | ) | (103,208 | ) | — | (103,208 | ) | |||||||||||||
Total other income | 152,186 | — | 152,186 | 231,767 | — | 231,767 | |||||||||||||||||
Income from continuing operations before income taxes | 733,683 | (2,790 | ) | 730,893 | 685,830 | 1,630 | 687,460 | ||||||||||||||||
Income tax benefit | (559,093 | ) | — | (559,093 | ) | (674,329 | ) | — | (674,329 | ) | |||||||||||||
Net income from continuing operations | $ | 1,292,776 | $ | (2,790 | ) | $ | 1,289,986 | $ | 1,360,159 | $ | 1,630 | $ | 1,361,789 |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
(unaudited) | (unaudited) | ||||||
Sale price | $ | 17,500,000 | $ | 33,500,000 | |||
Less: transition services payments | — | (1,500,000 | ) | ||||
17,500,000 | 32,000,000 | ||||||
Assets held for sale | (8,193,184 | ) | (16,851,540 | ) | |||
Liabilities held for sale | 989,453 | 2,330,052 | |||||
Transaction costs | (858,227 | ) | (873,473 | ) | |||
Income tax expense | (1,866,232 | ) | (1,508,373 | ) | |||
Gain on sale of discontinued operations | $ | 7,571,810 | $ | 15,096,666 |
December 31, 2017 | |||
Assets | |||
Current assets: | |||
Accounts receivable, net | $ | 1,940,125 | |
Inventory | 2,316,329 | ||
Prepaid expenses and other assets | 79,651 | ||
Total current assets | 4,336,105 | ||
Property and equipment, net | 599,102 | ||
Intangible assets, net | 1,510,203 | ||
Goodwill | 502,000 | ||
Other assets | 16,028 | ||
Total non-current assets | 2,627,333 | ||
Total assets held for sale | $ | 6,963,438 | |
Liabilities | |||
Current liabilities: | |||
Accounts payable | $ | 851,785 | |
Accrued liabilities | 120,666 | ||
Total current liabilities | 972,451 | ||
Total liabilities held for sale | $ | 972,451 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Net revenues | $ | 1,089,681 | $ | 4,380,747 | $ | 8,363,606 | $ | 16,158,672 | |||||||
Cost of revenues | 648,652 | 2,945,264 | 5,294,268 | 10,806,456 | |||||||||||
Operating expenses | 271,262 | 1,044,104 | 1,714,920 | 4,733,603 | |||||||||||
Other (expenses)/income | (9,372 | ) | (17,374 | ) | 13,330 | (31,525 | ) | ||||||||
Income before income taxes | 160,395 | 374,005 | 1,367,748 | 587,088 | |||||||||||
Allocated tax expense/(benefit) | 216,813 | (91,705 | ) | 235,312 | 249,184 | ||||||||||
Operating (loss)/income from discontinued operations | (56,418 | ) | 465,710 | 1,132,436 | 337,904 | ||||||||||
Gain on sale, net of related income taxes | 7,612,044 | 15,096,666 | 7,571,810 | 15,096,666 | |||||||||||
Net income from discontinued operations | $ | 7,555,626 | $ | 15,562,376 | $ | 8,704,246 | $ | 15,434,570 |
3. | Contract Balances |
Contract Assets | Contract Liabilities | ||||||
Opening Balance as of January 1, 2018 | $ | 1,987,841 | $ | 3,320,629 | |||
Revenue recognized that was included in the contract liabilities balance at the beginning of the period | — | (808,977 | ) | ||||
Transferred to payables from contract liabilities recognized at the beginning of the period | — | (2,052,955 | ) | ||||
Increases due to cash received or adjustment of estimates, excluding amounts recognized as revenue during the period | — | 1,089,674 | |||||
Transferred to receivables from contract assets recognized at the beginning of the period | (1,543,925 | ) | — | ||||
Increases as a result of cumulative catch-up adjustment arising from changes in the estimate of the stage of completion | 2,510,698 | — | |||||
Balance as of September 30, 2018 | $ | 2,954,614 | $ | 1,548,371 |
4. | Inventory |
September 30, 2018 | December 31, 2017 | ||||||
(unaudited) | |||||||
Finished goods | $ | 1,036,581 | $ | 762,394 | |||
Work-in-process | 389,801 | 288,165 | |||||
Raw materials | 4,036,032 | 3,584,222 | |||||
Total inventory | $ | 5,462,414 | $ | 4,634,781 |
September 30, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Accrued compensation | $ | 4,164,573 | $ | 5,274,005 | ||||
Income tax payable | 1,676,503 | 403,548 | ||||||
Accrued professional fees | 104,742 | 117,445 | ||||||
Deferred rent | 143,933 | 144,741 | ||||||
Royalties | 231,122 | 290,235 | ||||||
Accrued interest | 6,439 | — | ||||||
Accrued liabilities - other | 261,998 | 317,256 | ||||||
Total accrued liabilities | $ | 6,589,310 | $ | 6,547,230 |
6. | Debt |
September 30, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Silicon Valley Bank Term Loan | $ | 1,083,333 | $ | 2,458,333 | ||||
Less: unamortized debt issuance costs | 9,762 | 21,993 | ||||||
Less: current portion | 1,073,571 | 1,833,333 | ||||||
Total long-term debt | $ | — | $ | 603,007 |
2018 (remaining three months) | 458,333 | ||
2019 | 625,000 | ||
$ | 1,083,333 |
7. | Capital Stock and Share-Based Compensation |
Options Outstanding | Options Exercisable | ||||||||||||||||||||||
Number of Shares | Price per Share Range | Weighted Average Exercise Price | Aggregate Intrinsic Value (1) | Number of Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value (1) | |||||||||||||||||
Balance, January 1, 2018 | 2,714,561 | $0.61 - $6.55 | $ | 1.88 | $ | 2,098,195 | 2,590,030 | $ | 1.89 | $ | 2,013,034 | ||||||||||||
Granted | 273,212 | $2.46 - $3.27 | $ | 3.24 | |||||||||||||||||||
Exercised | (76,425 | ) | $0.65 - $2.46 | $ | 2.07 | ||||||||||||||||||
Canceled | (645,421 | ) | $1.21 - $6.55 | $ | 2.11 | ||||||||||||||||||
Balance, September 30, 2018 | 2,265,927 | $0.61 - $6.23 | $ | 1.83 | $ | 3,239,122 | 1,979,179 | $ | 1.81 | $ | 3,149,186 |
(1) | The intrinsic value of an option represents the amount by which the market value of the stock exceeds the exercise price of the option of in-the-money options only. The aggregate intrinsic value is based on the closing price of our common stock on the Nasdaq Capital Market, as applicable, on the respective dates. |
Number of Unvested Shares | Weighted Average Grant Date Fair Value | Aggregate Value of Unvested Shares | ||||||||
Balance, January 1, 2018 | 489,698 | $ | 1.51 | $ | 738,345 | |||||
Granted | 296,287 | $ | 3.07 | 909,600 | ||||||
Vested | (312,365 | ) | $ | 2.75 | (454,339 | ) | ||||
Forfeitures | (15,000 | ) | $ | 1.41 | (21,150 | ) | ||||
Balance, September 30, 2018 | 458,620 | $ | 2.56 | $ | 1,172,456 |
Number of Stock Units | Weighted Average Grant Date Fair Value per Share | Intrinsic Value Outstanding | |||||||
Balance, January 1, 2018 | 466,702 | $1.40 | $ | 1,134,086 | |||||
Granted | 80,006 | $3.00 | |||||||
Forfeitures | — | — | |||||||
Converted | — | — | |||||||
Balance, September 30, 2018 | 546,708 | $1.64 | $ | 1,765,867 |
Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||||
Shares | $ | Shares | $ | Shares | $ | $ | ||||||||||||||||||||
Balance at January 1, 2018, as previously reported | 1,321,514 | 1,322 | 27,283,918 | 29,186 | 1,070,904 | (1,649,746 | ) | 83,563,208 | (32,406,189 | ) | 49,537,781 | |||||||||||||||
Impact of change in accounting policy | — | — | — | — | — | — | — | 354,028 | 354,028 | |||||||||||||||||
As adjusted balance at January 1, 2018 | 1,321,514 | 1,322 | 27,283,918 | 29,186 | 1,070,904 | (1,649,746 | ) | 83,563,208 | (32,052,161 | ) | 49,891,809 | |||||||||||||||
Exercise of stock options | — | — | 442,425 | 442 | — | — | 1,054,412 | — | 1,054,854 | |||||||||||||||||
Share-based compensation | — | — | 262,394 | 262 | — | — | 345,582 | — | 345,844 | |||||||||||||||||
Non-cash compensation | — | — | 129,865 | 131 | — | — | 199,872 | — | 200,003 | |||||||||||||||||
Stock dividends to Carilion Clinic(1) | — | — | — | 60 | — | — | 190,835 | (190,895 | ) | — | ||||||||||||||||
Net Income | — | — | — | — | — | — | — | 10,064,405 | 10,064,405 | |||||||||||||||||
Purchase of treasury stock | — | — | (182,201 | ) | — | 182,201 | (466,894 | ) | — | — | (466,894 | ) | ||||||||||||||
Balance, September 30, 2018 | 1,321,514 | 1,322 | 27,936,401 | 30,081 | 1,253,105 | (2,116,640 | ) | 85,353,909 | (22,178,651 | ) | 61,090,021 |
(1) | The stock dividends payable in connection with Carilion Clinic’s Series A Preferred Stock will be issued subsequent to September 30, 2018. For the period from January 12, 2010, the original issue date of the Series A Preferred Stock, through September 30, 2018, the Series A Preferred Stock issued to Carilion has accrued $1,351,226 in dividends. The accrued and unpaid dividends as of September 30, 2018 will be paid by the issuance of 691,162 shares of our common stock upon Carilion’s written request. |
8. | Income Taxes |
9. | Operating Segments |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
(unaudited) | (unaudited) | ||||||||||||||||
Revenues: | |||||||||||||||||
Technology development | $ | 4,590,054 | $ | 5,315,861 | $ | 13,428,428 | $ | 15,418,919 | |||||||||
Products and licensing | 3,712,657 | 5,371,165 | 9,791,213 | 13,960,003 | |||||||||||||
Total revenues | $ | 10,687,026 | $ | 8,302,711 | $ | 29,378,922 | $ | 23,219,641 | |||||||||
Technology development operating income/(loss) | $ | 340,852 | $ | 182,776 | $ | 864,540 | $ | (77,323 | ) | ||||||||
Products and licensing operating income/(loss) | 240,645 | (335,501 | ) | (410,477 | ) | (1,687,127 | ) | ||||||||||
Total operating income/(loss) | $ | 581,497 | $ | (152,725 | ) | $ | 454,063 | $ | (1,764,450 | ) | |||||||
Depreciation, technology development | $ | 95,673 | $ | 87,389 | $ | 283,550 | $ | 267,282 | |||||||||
Depreciation, products and licensing | $ | 42,559 | $ | 117,219 | $ | 127,796 | $ | 688,700 | |||||||||
Amortization, technology development | $ | 43,708 | $ | 28,935 | $ | 121,770 | $ | 95,540 | |||||||||
Amortization, products and licensing | $ | 56,062 | $ | 247,522 | $ | 178,028 | $ | 1,178,113 |
September 30, 2018 | December 31, 2017 | ||||||
(unaudited) | |||||||
Total segment assets: | |||||||
Technology development | $ | 42,536,930 | $ | 32,011,084 | |||
Products and licensing | 31,257,649 | 34,211,552 | |||||
Total assets | $ | 73,794,579 | $ | 66,222,636 | |||
Property plant and equipment, and intangible assets, technology development | $ | 2,194,466 | $ | 1,762,561 | |||
Property plant and equipment, and intangible assets, products and licensing | $ | 2,192,948 | $ | 2,819,470 |
10. | Contingencies and Guarantees |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
2018 | 2019 | 2020 | 2021 | 2022 and beyond | Total | |||||||||||||
Products and Licensing | $ | 1,547,440 | $ | 151,681 | $ | 62,324 | $ | 23,126 | $ | 64,869 | $ | 1,849,440 |
Technology Development | 2018 | 2019 | 2020 | 2021 | 2022 and beyond | Total | ||||||||||||
Funded | $ | 6,582,679 | $ | 13,238,423 | $ | 3,745,951 | $ | 99,658 | $ | 754 | $ | 23,667,465 | ||||||
Unfunded | $ | 720,238 | $ | 2,286,629 | $ | 1,371,922 | $ | 500,921 | $ | 250,460 | $ | 5,130,170 |
Three Months Ended September 30, | ||||||||||||||
2018 | 2017 | $ Difference | % Difference | |||||||||||
Revenues: | ||||||||||||||
Technology development | $ | 5,315,861 | $ | 4,590,054 | $ | 725,807 | 16 | % | ||||||
Products and licensing | 5,371,165 | 3,712,657 | 1,658,508 | 45 | % | |||||||||
Total revenues | $ | 10,687,026 | $ | 8,302,711 | $ | 2,384,315 | 29 | % |
Three Months Ended September 30, | ||||||||||||||
2018 | 2017 | $ Difference | % Difference | |||||||||||
Cost of revenues: | ||||||||||||||
Technology development | $ | 3,918,666 | $ | 3,491,840 | $ | 426,826 | 12 | % | ||||||
Products and licensing | 2,079,749 | 1,469,961 | 609,788 | 41 | % | |||||||||
Total cost of revenues | 5,998,415 | 4,961,801 | 1,036,614 | 21 | % | |||||||||
Gross profit | $ | 4,688,611 | $ | 3,340,910 | $ | 1,347,701 | 40 | % |
Three Months Ended September 30, | ||||||||||||||
2018 | 2017 | $ Difference | % Difference | |||||||||||
Operating expense: | ||||||||||||||
Selling, general and administrative | $ | 3,233,485 | $ | 2,831,493 | $ | 401,992 | 14 | % | ||||||
Research, development and engineering | 873,629 | 662,142 | 211,487 | 32 | % | |||||||||
Total operating expense | $ | 4,107,114 | $ | 3,493,635 | $ | 613,479 | 18 | % |
Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | $ Difference | % Difference | |||||||||||
Revenues: | ||||||||||||||
Technology development | $ | 15,418,919 | $ | 13,428,428 | $ | 1,990,491 | 15 | % | ||||||
Products and licensing | 13,960,003 | 9,791,213 | 4,168,790 | 43 | % | |||||||||
Total revenues | $ | 29,378,922 | $ | 23,219,641 | $ | 6,159,281 | 27 | % |
Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | $ Difference | % Difference | |||||||||||
Cost of revenues: | ||||||||||||||
Technology development | 11,131,965 | $ | 10,045,261 | $ | 1,086,704 | 11 | % | |||||||
Products and licensing | 5,381,333 | 3,994,044 | 1,387,289 | 35 | % | |||||||||
Total cost of revenues | 16,513,298 | 14,039,305 | 2,473,993 | 18 | % | |||||||||
Gross profit | $ | 12,865,624 | $ | 9,180,336 | $ | 3,685,288 | 40 | % |
Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | $ Difference | % Difference | ||||||||||||
Operating expense: | |||||||||||||||
Selling, general and administrative | $ | 9,898,064 | $ | 8,983,016 | $ | 915,048 | 10 | % | |||||||
Research, development and engineering | 2,513,497 | 1,961,770 | 551,727 | 28 | % | ||||||||||
Total operating expense | $ | 12,411,561 | $ | 10,944,786 | $ | 1,466,775 | 13 | % |
Nine Months Ended September 30, | |||||||||||
2018 | 2017 | $ Difference | |||||||||
Net cash (used in)/provided by operating activities | $ | (3,444,408 | ) | $ | 581,386 | $ | (4,025,794 | ) | |||
Net cash provided by investing activities | 14,227,434 | 26,743,345 | (12,515,911 | ) | |||||||
Net cash used in financing activities | (619,840 | ) | (1,612,752 | ) | 992,912 | ||||||
Net increase in cash and cash equivalents | $ | 10,163,186 | $ | 25,711,979 | $ | (15,548,793 | ) |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
• | accurately anticipate customer needs; |
• | innovate and develop new technologies and applications; |
• | successfully commercialize new technologies in a timely manner; |
• | price products competitively and manufacture and deliver products in sufficient volumes and on time; and |
• | differentiate our product offerings from those of our competitors. |
• | we fail to successfully develop or integrate Micron's employees and historical business in order to achieve our strategic objectives; and |
• | our due diligence processes in connection with the acquisition fail to identify significant problems, liabilities or other shortcomings or challenges or Micron. |
• | complexities associated with managing the larger combined company with distant business locations; |
• | integrating personnel from the two companies; |
• | current and prospective employees may experience uncertainty regarding their future roles with our company, which might adversely affect our ability to retrain, recruit and motivate key personnel; |
• | lost sales and customers as a result of Micron's customers deciding not to do business with the combined company; |
• | potential unknown liabilities and unforeseen expenses associated with the acquisition; and |
• | performance shortfalls at one or both of the companies as a result of the diversion of management's attention caused by integrating the companies' operations. |
• | having to comply with U.S. export control regulations and policies that restrict our ability to communicate with non-U.S. employees and supply foreign affiliates and customers; |
• | changes in or interpretations of foreign regulations that may adversely affect our ability to sell our products, perform services or repatriate profits to the United States; |
• | the imposition of tariffs; |
• | hyperinflation or economic or political instability in foreign countries; |
• | imposition of limitations on, or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; |
• | conducting business in places where business practices and customs are unfamiliar and unknown; |
• | the imposition of restrictive trade policies; |
• | the imposition of inconsistent laws or regulations; |
• | the imposition or increase of investment and other restrictions or requirements by foreign governments; |
• | uncertainties relating to foreign laws and legal proceedings; |
• | having to comply with a variety of U.S. laws, including the Foreign Corrupt Practices Act ("FCPA"); and |
• | having to comply with licensing requirements. |
• | we or our licensors might not have been the first to make the inventions covered by each of our pending patent applications and issued patents; |
• | we or our licensors might not have been the first to file patent applications for these inventions; |
• | others may independently develop similar or alternative technologies or duplicate any of our technologies; |
• | it is possible that none of our pending patent applications or the pending patent applications of our licensors will result in issued patents; |
• | patents may issue to third parties that cover how we might practice our technology; |
• | our issued patents and issued patents of our licensors may not provide a basis for commercially viable technologies, may not provide us with any competitive advantages, or may be challenged and invalidated by third parties; and |
• | we may not develop additional proprietary technologies that are patentable. |
• | sales of our common stock by our significant stockholders, or the perception that such sales may occur; |
• | changes in earnings estimates, investors’ perceptions, recommendations by securities analysts or our failure to achieve analysts’ earnings estimates; |
• | changes in our status as an entity eligible to receive SBIR contracts and grants; |
• | quarterly variations in our or our competitors’ results of operations; |
• | general market conditions and other factors unrelated to our operating performance or the operating performance of our competitors; |
• | announcements by us, or by our competitors, of acquisitions, new products, significant contracts, commercial relationships or capital commitments; |
• | pending or threatened litigation; |
• | any major change in our board of directors or management or any competing proxy solicitations for director nominees; |
• | changes in governmental regulations or in the status of our regulatory approvals; |
• | announcements related to patents issued to us or our competitors; |
• | a lack of, limited or negative industry or securities analyst coverage; |
• | discussions of our company or our stock price by the financial and scientific press and online investor communities; and |
• | general developments in our industry. |
• | a classified board of directors serving staggered terms; |
• | advance notice requirements to stockholders for matters to be brought at stockholder meetings; |
• | a supermajority stockholder vote requirement for amending certain provisions of our amended and restated certificate of incorporation and bylaws; and |
• | the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit Number | Description | |
2.1(1)+ | ||
2.2(2)+ | ||
31.1 | ||
31.2 | ||
32.1* | ||
32.2* | ||
101 | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at September 30, 2018 and December 31, 2017, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 and (iv) Notes to Unaudited Consolidated Financial Statements. |
(1) | Incorporated by reference to the exhibit to the Registrant's Current Report on Form 8-K, Commission File No. 000-52008, filed on August 1, 2018. The number given in parentheses indicates the corresponding exhibit number in such Form 8-K. |
(2) | Incorporated by reference to the exhibit to the Registrant's Current Report on Form 8-K, Commission File No. 000-52008, filed on October 16, 2018. The number given in parentheses indicates the corresponding exhibit number in such Form 8-K. |
(3) | Incorporated by reference to the exhibit to the Registrant's Quarterly Report on Form 10-Q, Commission File No. 000-52008, filed on August 1, 2018. The number given in parentheses indicates the corresponding exhibit number in such Form 10-Q. |
+ | 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 Registrant hereby agrees to furnish supplementally to the SEC, upon its request, any or all of such omitted exhibits or schedules. |
† | Indicates management contract or compensatory plan. |
* | These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350 and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
Luna Innovations Incorporated | ||||
Date: | November 13, 2018 | By: | /s/ Dale Messick | |
Dale Messick | ||||
Chief Financial Officer (principal financial and accounting officer and duly authorized officer) |
Page | |||
ARTICLE I DEFINITIONS | 1 | ||
ARTICLE II PURCHASE AND SALE | 12 | ||
2.1 | Purchase and Sale of Assets | 12 | |
2.2 | Excluded Assets | 13 | |
2.3 | Assumed Liabilities | 14 | |
2.4 | Excluded Liabilities | 14 | |
2.5 | Purchase Price | 16 | |
2.6 | Purchase Price Adjustment | 16 | |
2.7 | Earn-Out | 18 | |
2.8 | Allocation of Purchase Price | 20 | |
2.9 | Withholding Tax | 21 | |
2.10 | Third Party Consents | 21 | |
ARTICLE III CLOSING | 22 | ||
3.1 | Closing | 22 | |
3.2 | Closing Deliverables | 22 | |
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS | 23 | ||
4.1 | Organization and Qualification of Seller | 23 | |
4.2 | Authority of Seller | 23 | |
4.3 | No Conflicts; Consents | 24 | |
4.4 | Financial Statements | 24 | |
4.5 | Undisclosed Liabilities | 25 | |
4.6 | Absence of Certain Changes, Events and Conditions | 25 | |
4.7 | Material Contracts | 27 | |
4.8 | Title to Purchased Assets | 29 | |
4.9 | Condition and Sufficiency of Assets | 29 | |
4.10 | Real Property | 30 | |
4.11 | Intellectual Property | 31 | |
4.12 | Inventory | 35 | |
4.13 | Products | 35 | |
4.14 | Accounts Receivable | 36 |
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Page | |||
4.15 | Customers and Suppliers | 36 | |
4.16 | Insurance | 37 | |
4.17 | Legal Proceedings; Governmental Orders | 37 | |
4.18 | Compliance with Laws; Permits | 37 | |
4.19 | Environmental Matters | 38 | |
4.20 | Employee Benefit Matters | 39 | |
4.21 | Employment Matters | 41 | |
4.22 | Taxes | 43 | |
4.23 | Brokers | 44 | |
4.24 | Interested Party Transactions | 44 | |
4.25 | Propriety of Past Payments | 44 | |
4.26 | 44 | ||
4.26 | International Trade | 45 | |
4.27 | Full Disclosure | 45 | |
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER | 46 | ||
5.1 | Organization of Buyer | 46 | |
5.2 | Authority of Buyer | 46 | |
5.3 | No Conflicts; Consents | 46 | |
5.4 | Brokers | 46 | |
5.5 | Legal Proceedings | 46 | |
5.6 | No Reliance | 46 | |
ARTICLE VI COVENANTS | 47 | ||
6.1 | Conduct of Business Prior to the Closing | 47 | |
6.2 | Access to Information | 47 | |
6.3 | No Solicitation of Other Bids | 48 | |
6.4 | Notice of Certain Events | 48 | |
6.5 | Employees and Employee Benefits | 49 | |
6.6 | Confidentiality | 50 | |
6.7 | Non-Competition; Non-Solicitation | 50 |
ii |
Page | |||
6.8 | Governmental Approvals and Consents | 51 | |
6.9 | Books and Records | 52 | |
6.10 | Closing Conditions | 53 | |
6.11 | Public Announcements | 53 | |
6.12 | Bulk Sales Laws | 53 | |
6.13 | Receivables | 53 | |
6.14 | Transfer Taxes | 53 | |
6.15 | Apportionment of Ad Valorem Taxes | 54 | |
6.16 | Tax Certificates | 54 | |
6.17 | Export Authorizations | 54 | |
6.18 | Insurance Claims | 54 | |
6.19 | Apportionment of CAMs | 55 | |
6.20 | Further Assurances | 55 | |
6.21 | API Corporate Name | 55 | |
6.22 | Data Room | 55 | |
ARTICLE VII CONDITIONS TO CLOSING | 55 | ||
7.1 | Conditions to Obligations of All Parties | 55 | |
7.2 | Conditions to Obligations of Buyer | 56 | |
7.3 | Conditions to Obligations of Sellers | 57 | |
ARTICLE VIII INDEMNIFICATION | 58 | ||
8.1 | Survival | 58 | |
8.2 | Indemnification By Sellers and Luna | 58 | |
8.3 | Indemnification By Buyer | 59 | |
8.4 | Certain Limitations | 60 | |
8.5 | Indemnification Procedures | 60 | |
8.6 | Payments | 62 | |
8.7 | Tax Treatment of Indemnification Payments | 63 | |
8.8 | Effect of Investigation | 63 | |
8.9 | Exclusive Remedies | 63 |
iii |
Page | |||
8.10 | Net of Insurance and Tax Benefits | 63 | |
ARTICLE IX TERMINATION | 64 | ||
9.1 | Termination | 64 | |
9.2 | Effect of Termination | 64 | |
ARTICLE X MISCELLANEOUS | 65 | ||
10.1 | Expenses | 65 | |
10.2 | Notices | 65 | |
10.3 | Interpretation | 66 | |
10.4 | Headings | 66 | |
10.5 | Severability | 66 | |
10.6 | Entire Agreement | 66 | |
10.7 | Successors and Assigns | 67 | |
10.8 | No Third-party Beneficiaries | 67 | |
10.9 | Amendment and Modification; Waiver | 67 | |
10.10 | Governing Law; Venue | 67 | |
10.11 | Specific Performance | 68 | |
10.12 | Counterparts | 68 |
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(i) | at least $22,080,000 (the “Earn-Out Event”) but less than $22,310,000, Buyer shall pay to Sellers the sum of $200,000; |
(ii) | if such Net Revenues are at least $22,310,000, but less than $22,540,000, Buyer shall pay to Sellers the sum of $400,000; |
(iii) | if such Net Revenues are at least $22,540,000, but less than $22,770,000, Buyer shall pay to Sellers the sum of $600,000; |
(iv) | if such Net Revenues are at least $22,770,000, but less than $23,000,000, Buyer shall pay to Sellers the sum of $800,000; or |
(v) | if such Net Revenues are at least $23,000,000, then Buyer shall pay to Sellers the sum of $1,000,000 (such payment or any of the payments under clauses (i) – (iv), the “Earn-Out Payment”). |
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If to any Seller or Luna: | c/o Luna Innovations Incorporated 301 1st Street, SW |
with a copy to: | Woods Rogers PLC |
If to Buyer: | OSI Optoelectronics, Inc. 12525 Chadron Avenue Hawthorne, CA 90250 E-mail: mmansouri@osi-systems.com Attention: Manoocher Mansouri |
with a copy to: | OSI Systems, Inc. – Legal Department |
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1. | Definitions and Usage |
1.1 | DEFINITIONS |
1.2 | USAGE |
2. | Sale and Transfer of Assets; Closing |
2.1 | ASSETS TO BE SOLD |
2.2 | EXCLUDED ASSETS |
2.3 | PURCHASE PRICE |
2.4 | LIABILITIES |
2.5 | ALLOCATION |
2.6 | CLOSING |
2.7 | CLOSING OBLIGATIONS |
2.8 | POST-CLOSING FINAL NET WORKING CAPITAL ADJUSTMENT |
2.9 | CONSENTS |
2.10 | ESCROW FUND |
3. | Representations and Warranties of Seller |
3.1 | ORGANIZATION AND GOOD STANDING |
3.2 | ENFORCEABILITY; AUTHORITY; NO CONFLICT |
3.3 | CAPITALIZATION |
3.4 | FINANCIAL STATEMENTS |
3.5 | BOOKS AND RECORDS |
3.6 | SUFFICIENCY OF ASSETS |
3.7 | ROYALTIES |
3.8 | REAL PROPERTY |
3.9 | TITLE TO ASSETS; ENCUMBRANCES |
3.10 | CONDITION OF PROPERTY |
3.11 | ACCOUNTS RECEIVABLE |
3.12 | INVENTORIES |
3.13 | NO UNDISCLOSED LIABILITIES |
3.14 | TAXES |
3.15 | NO MATERIAL ADVERSE EFFECT |
3.16 | EMPLOYEE BENEFITS |
3.17 | COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS |
3.18 | LEGAL PROCEEDINGS; ORDERS |
3.19 | ABSENCE OF CERTAIN CHANGES AND EVENTS |
3.20 | CONTRACTS; NO DEFAULTS |
3.21 | INSURANCE |
3.22 | ENVIRONMENTAL MATTERS |
3.23 | EMPLOYEES |
3.24 | LABOR DISPUTES; COMPLIANCE |
3.25 | INTELLECTUAL PROPERTY ASSETS |
3.26 | DATA PRIVACY AND SECURITY |
3.27 | CERTAIN BUSINESS PRACTICES |
3.28 | RELATIONSHIPS WITH RELATED PERSONS |
3.29 | BROKERS OR FINDERS |
3.30 | SOLVENCY |
3.31 | CUSTOMERS |
3.32 | SUPPLIERS |
3.33 | PRODUCT WARRANTIES; PRODUCT LIABILITY |
3.34 | DISCLOSURE |
3.35 | NO OTHER REPRESENTATIONS OR WARRANTIES |
4. | Representations and Warranties of Buyer |
4.1 | ORGANIZATION AND GOOD STANDING |
4.2 | AUTHORITY; NO CONFLICT |
4.3 | CERTAIN PROCEEDINGS |
4.4 | BROKERS OR FINDERS |
4.5 | SUFFICIENCY OF FUNDS |
5. | Covenants of Seller Prior to Closing |
5.1 | ACCESS AND INVESTIGATION |
5.2 | OPERATION OF THE BUSINESS OF SELLER |
5.3 | NEGATIVE COVENANT |
5.4 | REQUIRED APPROVALS |
5.5 | NOTIFICATION |
5.6 | NO NEGOTIATION |
5.7 | BEST EFFORTS |
5.8 | PAYMENT OF LIABILITIES |
6. | Covenants of Buyer Prior to Closing |
6.1 | REQUIRED APPROVALS |
6.2 | BEST EFFORTS |
7. | Conditions Precedent to Buyer’s Obligation to Close |
7.1 | ACCURACY OF REPRESENTATIONS |
7.2 | SELLER’S PERFORMANCE |
7.3 | CONSENTS |
7.4 | NO INJUNCTION |
7.5 | NO PROCEEDINGS |
7.6 | NO CONFLICT |
7.7 | GOVERNMENTAL AUTHORIZATIONS |
7.8 | NO MATERIAL ADVERSE EFFECT |
8. | Conditions Precedent to Seller’s Obligation to Close |
8.1 | ACCURACY OF REPRESENTATIONS |
8.2 | BUYER’S PERFORMANCE |
8.3 | NO INJUNCTION |
8.4 | NO PROCEEDINGS |
8.5 | NO CONFLICT |
9. | Termination |
9.1 | TERMINATION EVENTS |
9.2 | EFFECT OF TERMINATION |
10. | Additional Covenants |
10.1 | EMPLOYEES AND EMPLOYEE BENEFITS |
10.2 | PAYMENT OF ALL TAXES RESULTING FROM SALE OF ASSETS BY SELLER |
10.3 | PAYMENT OF OTHER RETAINED LIABILITIES |
10.4 | CHANGE OF NAME |
10.5 | RESTRICTIONS ON SELLER DISSOLUTION AND DISTRIBUTIONS |
10.6 | REMOVING EXCLUDED ASSETS |
10.7 | ASSISTANCE IN PROCEEDINGS |
10.8 | NONCOMPETITION, NONSOLICITATION AND NONDISPARAGEMENT |
10.9 | CUSTOMER AND OTHER BUSINESS RELATIONSHIPS |
10.10 | RETENTION OF AND ACCESS TO RECORDS |
10.11 | FURTHER ASSURANCES |
10.12 | INSURANCE CLAIMS |
11. | Indemnification; Remedies |
11.1 | SURVIVAL |
11.2 | INDEMNIFICATION BY SELLER |
11.3 | INDEMNIFICATION BY BUYER |
11.4 | CERTAIN LIMITATIONS |
11.5 | INDEMNIFICATION PROCEDURES |
11.6 | PAYMENTS |
11.7 | TAX TREATMENT OF INDEMNIFICATION PAYMENTS; NET OF INSURANCE |
11.8 | EXCLUSIVE REMEDIES; EFFECT OF INVESTIGATION |
12. | Confidentiality |
13. | General Provisions |
13.1 | EXPENSES |
13.2 | PUBLIC ANNOUNCEMENTS |
13.3 | NOTICES |
13.4 | JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL |
13.5 | ENFORCEMENT OF AGREEMENT |
13.6 | WAIVER; REMEDIES CUMULATIVE |
13.7 | ENTIRE AGREEMENT AND MODIFICATION |
13.8 | ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS |
13.9 | SEVERABILITY |
13.10 | CONSTRUCTION |
13.11 | TIME OF ESSENCE |
13.12 | GOVERNING LAW |
13.13 | EXECUTION OF AGREEMENT |
13.14 | BUYER GUARANTOR |
BUYER: | SELLER: | |
LUNA TECHNOLOGIES, INC. | MICRON OPTICS, INC. | |
By: /s/ Scott A. Graeff | By: /s/ Todd Harber | |
Name: Scott A. Graeff | Name: Todd Harber | |
Title: President | Title: CEO | |
LUNA INNOVATIONS INCORPORATED |
By: /s/ Scott A. Graeff |
Name: Scott A. Graeff |
Title: President & CEO |
1. | Seller has a 64% ownership stake (the “CMIWS Stake”) in CMIWS Co Ltd., a company organized under the laws of Japan (“CMIWS”). CMIWS is Seller’s distributor in Japan. The CMIWS financial statements are not consolidated with those of Seller. The CMIWS Stake is carried at the lower of cost or market on the balance sheet. The CMIWS Stake is a passive investment: Seller management takes no part in the day-to-day operations of CMIWS. The CMIWS Stake is an Excluded Asset. |
2. | Finished goods inventory value does not include manufacturing labor costs or overhead allocations. Manufacturing labor costs are expensed as incurred. The value of finished goods inventory is the sum of the individual component costs based on the bill of materials. |
3. | Prior to August 2018, Seller did not accrue earned but unused personal time off. At each year-end, carryover of accrued personal time off is capped at 40 hours per employee. |
4. | Seller does not account for income taxes in accordance with GAAP. Seller has significant net operating loss carryforwards (“NOLs”) and management has determined that it is appropriate to maintain a 100% valuation allowance against the deferred tax asset arising from the NOLs. Management has not performed a detailed analysis of the individual current and deferred tax assets and liabilities to confirm whether netting all current and long-term assets and liabilities against the valuation allowance is appropriate. |
5. | The Company accrues the costs of providing warranty services, but does not regularly analyze the accrual to determine whether or not it is adequate. For billable warranty extensions, revenue is recognized when billed, not deferred and recognized ratable over the warranty extension period. |
1. | Consent to assignment of the Supply Agreement between Hexagon (TESA SA) and Seller, as amended. |
2. | Consent to assignment of Seller’s Lease with Landlord, as amended (already obtained). |
1. | I have reviewed this quarterly report on Form 10-Q of Luna Innovations Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Scott A. Graeff | |
Scott A. Graeff | |
President and Chief Executive Officer (principal executive officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Luna Innovations Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Dale E. Messick | |
Dale E. Messick | |
Chief Financial Officer (principal financial officer) |
/s/ Scott A. Graeff | |
Scott A. Graeff | |
President and Chief Executive Officer (principal executive officer) |
/s/ Dale E. Messick | |
Dale E. Messick | |
Chief Financial Officer (principal financial officer) |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Nov. 07, 2018 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | LUNA | |
Entity Registrant Name | LUNA INNOVATIONS INC | |
Entity Central Index Key | 0001239819 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 27,936,401 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, authorized (in shares) | 1,321,514 | 1,321,514 |
Preferred stock, issued (in shares) | 1,321,514 | 1,321,514 |
Preferred stock, outstanding (in shares) | 1,321,514 | 1,321,514 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, issued (in shares) | 29,189,506 | 28,354,822 |
Common stock, outstanding (in shares) | 27,936,401 | 27,283,918 |
Treasury Stock (in shares) | 1,253,105 | 1,070,904 |
Consolidated Statements of Operations - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Revenues: | ||||
Total revenues | $ 10,687,026 | $ 8,302,711 | $ 29,378,922 | $ 23,219,641 |
Cost of revenues: | ||||
Total cost of revenues | 5,998,415 | 4,961,801 | 16,513,298 | 14,039,305 |
Gross profit | 4,688,611 | 3,340,910 | 12,865,624 | 9,180,336 |
Operating expense: | ||||
Selling, general and administrative | 3,233,485 | 2,831,493 | 9,898,064 | 8,983,016 |
Research, development and engineering | 873,629 | 662,142 | 2,513,497 | 1,961,770 |
Total operating expense | 4,107,114 | 3,493,635 | 12,411,561 | 10,944,786 |
Operating income/(loss) | 581,497 | (152,725) | 454,063 | (1,764,450) |
Other income/(expense): | ||||
Investment income | 171,896 | 0 | 350,976 | 0 |
Other income/(expense) | 8,319 | 13,733 | (16,001) | 26,286 |
Interest expense | (28,029) | (54,847) | (103,208) | (178,879) |
Total other income/(expense) | 152,186 | (41,114) | 231,767 | (152,593) |
Income/(loss) from continuing operations before income taxes | 733,683 | (193,839) | 685,830 | (1,917,043) |
Income tax benefit | (559,093) | (388,787) | (674,329) | (662,049) |
Net income/(loss) from continuing operations | 1,292,776 | 194,948 | 1,360,159 | (1,254,994) |
(Loss)/income from discontinued operations, net of income tax of $216,813, $(91,705), $235,312, and $249,184 | (56,418) | 465,710 | 1,132,436 | 337,904 |
Gain on sale, net of income taxes of $1,866,232 and $1,508,373 | 7,612,044 | 15,096,666 | 7,571,810 | 15,096,666 |
Net income from discontinued operations | 7,555,626 | 15,562,376 | 8,704,246 | 15,434,570 |
Net income | 8,848,402 | 15,757,324 | 10,064,405 | 14,179,576 |
Preferred stock dividend | 63,235 | 33,699 | 190,895 | 97,331 |
Net income attributable to common stockholders | $ 8,785,167 | $ 15,723,625 | $ 9,873,510 | $ 14,082,245 |
Net income/(loss) per share from continuing operations: | ||||
Basic (in dollars per share) | $ 0.05 | $ 0.01 | $ 0.05 | $ (0.05) |
Diluted (in dollars per share) | 0.04 | 0.01 | 0.04 | (0.05) |
Net income per share from discontinued operations: | ||||
Basic (in dollars per share) | 0.27 | 0.56 | 0.32 | 0.56 |
Diluted (in dollars per share) | 0.23 | 0.48 | 0.27 | 0.56 |
Net income per share attributable to common stockholders: | ||||
Basic (in dollars per share) | 0.31 | 0.57 | 0.36 | 0.51 |
Diluted (in dollars per share) | $ 0.27 | $ 0.48 | $ 0.30 | $ 0.51 |
Weighted average common shares and common equivalent shares outstanding: | ||||
Basic (in shares) | 27,901,631 | 27,692,539 | 27,547,955 | 27,611,905 |
Diluted (in shares) | 33,055,881 | 32,714,389 | 32,721,860 | 27,611,905 |
Technology development | ||||
Revenues: | ||||
Total revenues | $ 5,315,861 | $ 4,590,054 | $ 15,418,919 | $ 13,428,428 |
Cost of revenues: | ||||
Total cost of revenues | 3,918,666 | 3,491,840 | 11,131,965 | 10,045,261 |
Products and licensing | ||||
Revenues: | ||||
Total revenues | 5,371,165 | 3,712,657 | 13,960,003 | 9,791,213 |
Cost of revenues: | ||||
Total cost of revenues | $ 2,079,749 | $ 1,469,961 | $ 5,381,333 | $ 3,994,044 |
Consolidated Statements of Operations (Parenthetical) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Income Statement [Abstract] | ||||||
Allocated tax expense/(benefit) | $ 216,813 | $ (91,705) | $ 235,312 | $ 249,184 | ||
Gain on sale, related income taxes | $ 1,866,232 | $ 1,508,373 | $ 1,866,232 | $ 1,508,373 | $ 1,866,232 | $ 1,508,373 |
Consolidated Statements of Cash Flows (Parenthetical) - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Statement of Cash Flows [Abstract] | ||
Dividend on preferred stock, shares of common stock issuable (in shares) | 59,469 | 59,469 |
Basis of Presentation and Significant Accounting Policies |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Significant Accounting Policies | Basis of Presentation and Significant Accounting Policies Nature of Operations Luna Innovations Incorporated (“we,” “Luna Innovations” or the “Company”), headquartered in Roanoke, Virginia, was incorporated in the Commonwealth of Virginia in 1990 and reincorporated in the State of Delaware in April 2003. We are a leader in advanced optical technology, providing unique capabilities in high performance fiber optic test products for the telecommunications industry and distributed fiber optic sensing for the aerospace and automotive industries. Prior to the sale of our optoelectronics business in July 2018 (See Note 2), we also developed and manufactured custom optoelectronic components and sub-assemblies for various industrial applications. We are organized into two reportable segments, which work closely together to turn ideas into products: our Technology Development segment and our Products and Licensing segment. Our business model is designed to accelerate the process of bringing new and innovative technologies to market. Unaudited Interim Financial Information The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“U.S. GAAP”) for interim financial statements and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. The unaudited consolidated interim financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management reflect all adjustments, consisting of only normal recurring accruals considered necessary to present fairly our financial position at September 30, 2018, results of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017. The results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The consolidated balance sheet as of December 31, 2017 was derived from our audited consolidated financial statements. The consolidated interim financial statements, including our significant accounting policies, should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2017, included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 21, 2018. Reclassifications Certain amounts in the prior period have been reclassified to conform to current presentation. As a result of the adoption of Accounting Standards Codification ("ASC") 2014-09, Revenue from Contracts with Customers (Topic 606), we presented balances entitled contract assets and contract liabilities within the consolidated balance sheet as well as the impact of the changes in these balances within the consolidated statement of cash flows. We reclassified comparable balances within the December 31, 2017 consolidated balance sheet as well as the impact of changes in those balances within the consolidated statement of cash flows in order to enhance comparability. These reclassifications had no effect on our reported financial condition, results of operations, or cash flows. Any other reclassifications were immaterial to the consolidated interim financial statements taken as a whole. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants. Various valuation approaches can be used to determine fair value, each requiring different valuation inputs. The following hierarchy classifies the inputs used to determine fair value into three levels:
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. The carrying value of our debt approximates fair value, as we consider the floating interest rate on our credit facilities with Silicon Valley Bank ("SVB") to be at market for similar instruments. Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. This includes items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived asset groups measured at fair value for an impairment assessment. In general, non-financial assets including intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. Net Income/(Loss) Per Share Basic per share data is computed by dividing our net income/(loss) by the weighted average number of shares outstanding during the period. Diluted per share data is computed by dividing net income/(loss), if applicable, by the weighted average shares outstanding during the period increased to include, if dilutive, the number of additional common share equivalents that would have been outstanding if potential shares of common stock had been issued using the treasury stock method. Diluted per share data would also include the potential common share equivalents relating to convertible securities by application of the if-converted method. The effects of 5.2 million and 5.0 million common stock equivalents (which include outstanding warrants, preferred stock and stock options) are included for the diluted per share data for the three months ended September 30, 2018 and 2017, respectively. The effect of 5.2 million common stock equivalents are included for the diluted per share data for the nine months ended September 30, 2018. The effect of 4.9 million common stock equivalents are not included for the nine months ended September 30, 2017, as they are anti-dilutive to earnings per share due to our net loss from continuing operations. Recently Issued Accounting Pronouncements Effective January 1, 2018, we adopted Revenue from Contracts with Customers (Topic 606), using the modified retrospective transition method. Under the modified retrospective approach, we apply the standards to new contracts and those that were not completed as of January 1, 2018. For those contracts not completed as of January 1, 2018, this method resulted in a cumulative adjustment to decrease the accumulated deficit in the net amount of $0.4 million. Prior periods will not be retrospectively adjusted, but we will maintain dual reporting for the year of initial application in order to maintain comparability of the periods presented. The cumulative effect of the changes made to our January 1, 2018 unaudited consolidated balance sheet for the adoption of Topic 606 was as follows:
Contract assets were formerly reported as unbilled accounts receivable. Contract liabilities were formerly reported as accrued liabilities or deferred revenue. Inventory was also impacted by the adoption of the new guidance. The titles have been changed in the table below to be consistent with accounts currently used under the new standard.
Under the new standard, contracts in our Technology Development segment, which primarily provide research services, are not materially impacted upon the adoption of Topic 606 as revenue will continue to be recognized over time using an input model. Contracts in our Products and Licensing segment generally provide for the following revenue sources: standard product sales, custom product development and sales, product rental, extended warranties, training/service, and certain royalties. Revenues for this segment are recognized using either the “point in time” or “over time” methods of Topic 606, depending upon the revenue source. The major change in revenue recognition for the Products and Licensing segment related to custom optoelectronic products which changed from “point in time” to “over time” upon the adoption of Topic 606. This change results in the acceleration of revenue when compared to existing standards with the cumulative adjustment relating to contracts that are not complete as of December 31, 2017 recognized as an adjustment to opening accumulated deficit on January 1, 2018. The revenue received from our custom optoelectronic products segment is included as part of our discontinued operations section (Note 2) and shown above in the current assets and liabilities held for sale as of December 31, 2017. Our revenue for our standard products will continue to be recognized using the "point in time" model of Topic 606, and the timing of such revenue recognition is not expected to differ materially from our historical revenue recognition. Other immaterial adjustments related to the Products and Licensing segment that are sometimes offered to customers include discounts on future purchases related to rental agreements, customer rights of return, and volume discounts. Technology Development Revenues We perform research and development for U.S. Federal government agencies, educational institutions and commercial organizations. We account for a research contract when a contract has been executed, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of the contract price is considered probable. Revenue is earned under cost reimbursable, time and materials and fixed price contracts. Direct contract costs are expensed as incurred. Our contracts with agencies of the U.S. government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided. In evaluating the probability of funding for purposes of assessing collectability of the contract price, we consider our previous experience with our customers, communication with our customers regarding funding status and our knowledge of available funding for the contract or program. If funding is not assessed as probable, revenue recognition is deferred until realization is reasonably assured. Under the typical payment terms of our U.S. government contracts, the customer pays us either performance-based payments ("PBPs") or progress payments. PBPs, which are typically used in the firm fixed price contracts, are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments, which are typically used in our cost type contracts, are interim payments based on costs incurred as the work progresses. For our U.S. government cost-type contracts, the customer generally pays us during the performance period for 80%-90% of our actual costs incurred. Because the customer retains a small portion of the contract price until completion of the contract and audit of allowable costs, cost type contracts generally result in revenue recognized in excess of billings which we present as contract assets on the balance sheet. Amounts billed and due from our customers are classified as receivables on the balance sheet. For non-U.S. government contracts, we typically receive interim payments as work progresses, although for some contracts, we may be entitled to receive an advance payment. We recognize a liability for these advance payments and PBPs paid in advance which are in excess of the revenue recognized and present these amounts as contract liabilities on the balance sheet. To determine the proper revenue recognition method for research and development contracts, we evaluate whether two or more contracts should be combined and accounted for as one single modified contract and whether the combined or single contract should be accounted for as more than one performance obligation. For instances where a contract has options that were bid with the initial contract and awarded at a later date, we combine the options with the original contract when options are awarded. For most of our contracts, the customer contracts for research with multiple milestones that are interdependent. Consequently, the entire contract is accounted for as one performance obligation. The effect of the combined or modified contract on the transaction price and measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. Contract revenue recognition is measured over time as we perform because of continuous transfer of control to the customer. For U.S. government contracts which are typically subject to the Federal Acquisition Regulation ("FAR"), this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for cost incurred plus a reasonable profit and take control of any work in process. From time to time, as part of normal management processes, facts may change, causing revisions to estimated total costs or revenues expected. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known. Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. We generally use the input method, more specifically the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The underlying bases for estimating our contract research revenues are measurable expenses, such as labor, subcontractor costs and materials, and data that are updated on a regular basis for purposes of preparing our cost estimates. Our research contracts generally have a period of performance of six months to three years, and our estimates of contract costs have historically been consistent with actual results. Revisions in these estimates between accounting periods to reflect changing facts and circumstances have not had a material impact on our operating results, and we do not expect future changes in these estimates to be material. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known. Under cost reimbursable contracts, we are reimbursed for costs that are determined to be reasonable, allowable and allocable to the contract and paid a fixed fee representing the profit negotiated between us and the contracting agency. Revenue from cost reimbursable contracts is recognized as costs are incurred plus an estimate of applicable fees earned. We consider fixed fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract. Revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs. Fixed price contracts may include either a product delivery or specific service performance throughout a period. For fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables, we recognize revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements. For fixed price contracts that provide for the development and delivery of a specific prototype or product, revenue is recognized based upon the percentage of completion method. Whether certain costs under government contracts are allowable is subject to audit by the government. Certain indirect costs are charged to contracts using provisional or estimated indirect rates, which are subject to later revision based on government audits of those costs. Management is of the opinion that costs subsequently disallowed, if any, would not likely have a significant impact on revenues recognized for those contracts. Products and Licensing Revenues We produce standard and customized products for commercial organizations, educational institutions, and U.S. Federal government agencies. In addition we will also offer extended warranties, product rentals, and services which include testing, training, or repairs for specific products. Customers also pay royalties as agreed based on sales or usage. We account for product and related items when a contract has been executed, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of the contract price is considered probable. To determine the proper revenue recognition method for Products and Licensing contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. We recognize revenue when the performance obligation has been satisfied by transferring the control of the product or service to the customer. For tangible products that contain software that is essential to the tangible product’s functionality, we consider the product and software to be a single performance obligation and recognize revenue accordingly. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation based on their relative stand-alone selling prices. In such circumstances, we use the observable price of goods or services which are sold separately in similar circumstances to similar customers. If these prices are not observable, then we will estimate the stand-alone selling price using information that is reasonably available. For the majority of our standard products and services, price list and discount structures related to customer type are available. For products and services that do not have price list and discount structures, we may use one or more of the following: (i) adjusted market assessment approach, (ii) expected cost plus a margin approach, and (iii) residual approach. The adjusted market approach requires us to evaluate the market in which we sell goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services. The expected cost plus margin approach requires us to forecast our expected costs of satisfying the performance obligation and then add a reasonable margin for that good or service. The residual approach decreases the total transaction price by the sum of the observable standalone selling prices if either the company sells the same good or services to different customers for a broad range of amounts or the company has not established a price for the good or service and that good or service has not been sold on a standalone basis. Shipping and handling activities primarily occur after a customer obtains control and are considered fulfillment cost rather than separate performance obligations. Similarly, sales and similar taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer are excluded from the measurement of the transaction price. For standard products, we recognize revenue at a point in time when control passes to the customer. Absent substantial product acceptance clauses, this is based on the shipping terms. For custom products that require engineering and development based on customer requirements, we will recognize revenue over time using the output method for any items shipped and any finished goods or work in process that is produced for balances of open sales orders. For any finished goods or work in process that has been produced for the balance of open sales orders we recognize revenue by applying the average selling price for such open order to the lesser of the on hand balance in finished goods or open sales order quantity which we present as a contract asset on the balance sheet. Cost of sales is recognized based on the standard cost of the finished goods and work in process associated with this revenue and inventory balances are reduced accordingly. For extended warranties and product rentals, revenue is recognized over time using the output method based on the time elapsed for the warranty or service period. In the case of warranties, we record a contract liability for amounts billed but that are not recognized until subsequent period. A separate contract liability is recorded for the cost associated with warranty repairs based on our estimate of future expense. For testing services where we are performing testing on an asset the customer controls, revenue is recognized over time by the output method using the performance to date. For training where the customer is receiving the benefit of training as it is occurring and for repairs to a customer controlled asset, revenue is recognized over time by the output method using the performance to date. For royalty revenue, we apply the practical expedient “royalty exception” recognizing revenue based on the royalty agreement which specifies an amount based on sales or minimum amount, whichever is greater. In some product rental contracts, a customer may be offered a discount on the purchase of an item that would provide for a material right. When a material right has been provided to a customer, a separate performance obligation is established and a portion of the rental revenue will be deferred until the future product is purchased or the option expires. This deferred revenue is recognized as a contract liability on the balance sheet. In certain circumstances we may offer a "right of return" to a distributor of our products, in which case a contract liability is calculated based on the terms of the agreement and recorded as a reduction to revenue. In addition, a contract asset for the rights to recover products from customers and a reduction of cost of sales is also calculated and recorded. Unfulfilled performance obligations represent amounts expected to be earned on executed contracts. Indefinite delivery and quantity contracts and unexercised options are not reported in total unfulfilled performance obligations. Unfulfilled performance obligations include funded obligations, which is the amount for which money has been directly authorized by the U.S. government and for which a purchase order has been received by a commercial customer, and unfunded obligations, representing firm orders for which funding has not yet been appropriated. The approximate value of our Technology Development segment unfulfilled performance obligations was $28.8 million at September 30, 2018. We expect to satisfy 25% of the performance obligations in 2018, 54% in 2019 and the remaining by 2022. The approximate value of our Products and Licensing segment unfulfilled performance obligations was $1.8 million at September 30, 2018. We expect to satisfy 84% of the performance obligations in 2018, 8% in 2019 and the remaining by 2023. We disaggregate our revenue from contracts with customers by geographic locations, customer-type, contract type, timing of recognition, and major categories for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below.
The following tables summarize the impacts of adopting Topic 606 on our consolidated financial statements as of and for the three and nine months ended September 30, 2018.
Effective January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows (Topic 230), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how cash receipts and cash payments are presented in the statement of cash flows. The adoption of ASU No. 2016-15 did not have a significant impact on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize in its statement of financial position an asset and liability for most leases with a term greater than 12 months. Lessees should recognize a liability to make lease payments and a right-of-use asset representing the lessee's right to use the underlying asset for the lease term. This guidance is effective for us in our first quarter of fiscal 2019. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides lessees an additional, and optional, transition method to apply the new leasing standard to all open leases at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. We currently plan to elect this transition method, and as a result, we will not adjust our comparative period financial information or make the required lease disclosures for periods before the effective date. We are currently evaluating the impact the adoption of ASU 2016-02 and ASU 2018-11 will have on our consolidated financial statements and expect to have increases in the assets and liabilities of our consolidated balance sheet. In February 2018, the FASB issued ASU 2018-02: Income Statement – Reporting Comprehensive Income (Topic 220). Under current accounting guidance, the income tax effects for changes in income tax rates and certain other transactions are recognized in income from continuing operations resulting in income tax effects recognized in AOCI that do not reflect the current tax rate of the entity (“stranded tax effects”). The new guidance allows us the option to reclassify these stranded tax effects to accumulated deficit that relate to the change in the federal tax rate resulting from the passage of the Tax Cuts and Jobs Act. This update is effective for fiscal years beginning after December 15, 2018, including interim periods therein, and early adoption is permitted. We do not expect the adoption of this standard will have a significant impact on our consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update simplifies the subsequent measurement of goodwill. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The accounting standard will be effective for reporting periods beginning after December 15, 2019. We do not expect ASU 2017-04 will have a material impact on our financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. which amends the disclosure requirements in ASC 820 by adding, changing, or removing certain disclosures. The ASU applies to all entities that are required under this guidance to provide disclosures about recurring or nonrecurring fair value measurements. These amendments are effective for all entities for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. We do not expect ASU 2018-13 will have a material impact on our financial statements. |
Discontinued Operations |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations | Discontinued Operations On August 9, 2017, we completed the sale of our high speed optical receivers ("HSOR") business, which was part of our Products and Licensing segment, to an unaffiliated third party for an initial purchase price of $33.5 million, of which $29.5 million in cash has been received, and $4.0 million was placed into escrow until December 15, 2018 for potential satisfaction of certain post-closing indemnification obligations (the "Transaction"). The HSOR business was a component of the operations of Advanced Photonix, Inc., which we acquired in May 2015. The HSOR business accounted for 34.5% of revenues and 37.2% of our cost of revenues for the three months ended September 30, 2017 and 35.5% of revenues and 39.6% of our cost of revenues for the nine months ended September 30, 2017. On July 31, 2018 , we sold the assets and operations related to our optoelectronic components and subassemblies ("Opto") business, which was part of our Products and Licensing segment, to an unaffiliated third party for an initial purchase price up to $18.5 million, of which $17.5 million was received at closing and has been properly recorded in the financial statements with the remaining purchase price adjustment up to $1.0 million which is contingent upon the attainment of specified revenue targets during the eighteen months following the closing of the sale. The purchase price is subject to adjustment in the future based upon a determination of final working capital, as defined in the asset purchase agreement. The Opto business was a component of the operations of Advanced Photonix, Inc., which we acquired in May 2015, and represented all of our operations in our Camarillo, California and Montreal, Quebec facilities. We have reported the results of operations of both our HSOR and Opto businesses as discontinued operations in our consolidated interim financial statements. We allocated a portion of the consolidated tax expense to discontinued operations based on the ratio of the discontinued business's loss before allocations. The following table presents a summary of the transactions related to the sales of HSOR in the nine months ended September 30, 2017 and Opto in the nine months ended September 30, 2018:
Assets and liabilities held for sale associated with our Opto business as of December 31, 2017 were as follows:
The key components of net income from discontinued operations were as follows:
For the nine months ended September 30, 2018 and 2017, cash flows provided by/(used in) operating activities for discontinued operations were $0.1 million and $(0.3) million, respectively. For the nine months ended September 30, 2018 and 2017 cash flows provided by investing activities for discontinued operations were $16.6 million and $26.6 million, respectively. |
Contract Balances |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contract Balances | Contract Balances Our contract assets consist of unbilled amounts for technology development contracts as well as custom product contracts. Also included in contract assets are royalty revenue and carrying amounts of right of returned inventory. Long-term contract assets include the fee withholding on cost reimbursable contracts that will not be billed within a year. Contract liabilities include excess billings, subcontractor accruals, warranty expense, extended warranty revenue, right of return refund, and customer deposits. The following table shows the significant changes in contract balances for the nine month period ending September 30, 2018:
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Inventory |
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Inventory | Inventory Inventory consists of finished goods, work-in-process and raw materials valued at the lower of cost (determined on the first-in, first-out basis) or market. We write down inventory for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. Components of inventory were as follows:
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Accrued Liabilities |
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Accrued Liabilities | Accrued Liabilities Accrued liabilities at September 30, 2018 and December 31, 2017 consisted of the following:
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Debt |
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Debt | Debt Silicon Valley Bank Facility We currently have a Loan and Security Agreement with SVB (the "Credit Facility") under which, as amended on May 8, 2015, we have a term loan with an original borrowing amount of $6.0 million (the “Original Term Loan”). The Original Term Loan is repayable in 48 monthly installments of $125,000, plus accrued interest payable monthly in arrears, and unless earlier terminated, is scheduled to mature in May 2020. The Original Term Loan carries a floating annual interest rate equal to SVB’s prime rate then in effect plus 2%. We may prepay amounts due under the Original Term Loan at any time, subject to an early termination fee of up to 2% of the amount of prepayment. In September 2015, we entered into the Waiver and Seventh Loan Modification Agreement, which provided an additional $1.0 million of available financing for purchases of equipment through December 31, 2015, which we fully borrowed in December 2015 (the "Second Term Loan" and, together with the Original Term Loan, the "Term Loans"). The Second Term Loan also bears interest at a floating prime rate plus 2% and is to be repaid in 35 monthly installments of $27,778 plus accrued interest. The Credit Facility requires us to maintain a minimum cash balance of $4.0 million and to maintain at each month end a ratio of cash plus 60% of accounts receivable greater than or equal to 1.5 times the outstanding principal of the Term Loans. The Credit Facility also requires us to observe a number of additional operational covenants, including protection and registration of intellectual property rights, and certain customary negative covenants. As of September 30, 2018, we were in compliance with all covenants under the Credit Facility. Amounts due under the Credit Facility are secured by substantially all of our assets, including intellectual property, personal property and bank accounts. In addition, the Credit Facility contains customary events of default, including nonpayment of principal, interest or other amounts, violation of covenants, material adverse change, an event of default under any subordinated debt documents, incorrectness of representations and warranties in any material respect, bankruptcy, judgments in excess of a threshold amount, and violations of other agreements in excess of a threshold amount. If any event of default occurs SVB may declare due immediately all borrowings under the Credit Facility and foreclose on the collateral. Furthermore, an event of default under the Credit Facility would result in an increase in the interest rate on any amounts outstanding. As of September 30, 2018, there were no events of default on the Credit Facility. The aggregate balance under the Term Loans at September 30, 2018 and December 31, 2017, was $1.1 million and $2.5 million, respectively. One term loan, with a balance of $0.1 million and $0.3 million as of September 30, 2018 and December 31, 2017, respectively, matures on December 1, 2018. The other term loan, with a balance of $1.0 million and $2.1 million as of September 30, 2018 and December 31, 2017, respectively, matures on May 1, 2019. The effective rate of our Term Loan at September 30, 2018 was 7%. The following table presents a summary of debt outstanding as of September 30, 2018 and December 31, 2017:
The schedule of remaining principal payments under our Term Loans as of September 30, 2018 was as follows:
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Capital Stock and Share-Based Compensation |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital Stock and Share-Based Compensation | Capital Stock and Share-Based Compensation We recognize share-based compensation expense based upon the fair value of the underlying equity award on the date of the grant. For restricted stock awards and restricted stock units, we recognize expense based upon the price of our underlying stock at the date of the grant. We have elected to use the Black-Scholes-Merton option pricing model to value any option or warrant awards granted. We recognize share-based compensation for such awards on a straight-line basis over the requisite service period of the awards. The risk-free interest rate is based on U.S. Treasury interest rates, the terms of which are consistent with the expected life of the stock options. The expected life is based upon historical experience of homogeneous groups within our company. We also assume an expected dividend yield of zero for all periods, as we have never paid a dividend on our common stock and do not have any plans to do so in the future. Stock Options A summary of the stock option activity for the nine months ended September 30, 2018 is presented below:
At September 30, 2018, the outstanding stock options to purchase an aggregate of 2.3 million shares had a weighted-average remaining contractual term of 4.3 years, and the exercisable stock options to purchase an aggregate of 2.0 million shares had a weighted-average remaining contractual term of 3.5 years. The fair value of shares underlying vested options was $6.4 million at September 30, 2018. The fair value of shares underlying options exercised during the nine months ended September 30, 2018 was $255,102. For the nine months ended September 30, 2018 and 2017 we recognized $0.3 million and $0.5 million in share-based compensation expense, respectively, which is included in our selling, general and administrative expense in the accompanying consolidated interim financial statements. We expect to recognize $0.6 million in share-based compensation expense over the weighted-average remaining service period of 3.8 years for stock options outstanding as of September 30, 2018. Restricted Stock and Stock Units For the nine months ended September 30, 2018, we issued 280,000 shares of restricted stock to certain employees. Shares of restricted stock issued to employees vest in three equal annual installments on the anniversary dates of their grant. For the nine months ended September 30, 2018, 182,500 shares of restricted stock vested. For the nine months ended September 30, 2018, we issued 16,287 restricted stock units to certain non-employee members of our Board of Directors in respect of the annual equity grants pursuant to our non-employee director compensation policy. This amount represents the equity compensation to those non-employee directors who did not elect to defer the receipt of their equity compensation pursuant to our non-employee director deferred compensation plan described below. Restricted stock units issued to our directors vest at the earlier of the one year anniversary of their grant or the next annual stockholders' meeting. During the nine months ended September 30, 2018, 129,865 restricted stock units vested. The following table summarizes the value of our unvested restricted stock awards and restricted stock units:
Non-employee Director Deferred Compensation Plan We maintain a non-employee director deferred compensation plan (the “Deferred Compensation Plan”) that permits our non-employee directors to defer receipt of certain of the compensation that they receive for serving on our board and board committees. The Deferred Compensation Plan has historically permitted the participants to elect to defer cash fees to which they were entitled for board and committee service. For participating directors, in lieu of payment of cash fees, we credit their accounts under the Deferred Compensation Plan with a number of stock units based on the trading price of our common stock as of the date of the deferral. These stock units vest immediately, although the participating directors do not receive the shares represented by such units until a future qualifying event. In December 2017, we amended and restated our Deferred Compensation Plan to also permit participating non-employee directors to elect, beginning in 2018, to defer the receipt of some or all of the equity compensation that they receive for board and committee service. Stock units representing this equity compensation vest at the earlier of the one year anniversary of their grant or the next annual stockholders' meeting. The following is a summary of our stock unit activity under the Deferred Compensation Plan for the nine months ended September 30, 2018:
As of September 30, 2018, 48,859 of the outstanding stock units had not yet vested. The following table details our equity transactions during the nine months ended September 30, 2018:
Stock Repurchase Program In May 2016, our board of directors authorized us to repurchase up to $2.0 million of our common stock through May 31, 2017. As of May 31, 2017, we had repurchased a total of 205,500 shares for an aggregate purchase price of $0.2 million under this stock repurchase program, after which this stock repurchase program expired. In September 2017, our board of directors re-instituted the stock repurchase program and authorized us to repurchase up to $2.0 million of our common stock through September 19, 2018. Our stock repurchase program does not obligate us to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. As of September 19, 2018, we had repurchased a total of 565,629 shares for an aggregate purchase price of $1.1 million under this stock repurchase program, after which this stock repurchase program expired. We currently maintain all repurchased shares under these stock repurchase programs as treasury stock. |
Income Taxes |
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Sep. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes We and our subsidiaries file U.S. Federal income tax returns and income tax returns in various state, local and foreign jurisdictions. Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including the variability in accurately predicting our pre-tax and taxable income and the mix of jurisdictions to which they relate, changes in how we do business, changes in our stock price, tax law developments (including changes in statues, regulations, case law, and administrative practices), and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount if pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower. For 2018, the anticipated effective income tax rate is expected to continue to differ from the Federal statutory rate of 21% primarily because of the release of valuation allowance related to net operating loss carryfowards expected to be used to offset taxable income in the period and certain discrete items. We consider both positive and negative evidence when evaluating the recoverability of our deferred tax assets ("DTAs"). The assessment is required to determine whether based on all available evidence, it is more likely than not (i.e. greater than a 50% probability) that all or some portion of the DTAs will be realized in the future. As of September 30, 2018 management has concluded a full valuation allowance of the DTAs is necessary because of sufficient uncertainty in our ability to realize the benefit associated with such DTAs in the future. |
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Operating Segments | Operating Segments Our operations are divided into two operating segments—“Technology Development” and “Products and Licensing”. The Technology Development segment provides applied research to customers in our areas of focus. Our engineers and scientists collaborate with our network of government, academic and industry experts to identify technologies and ideas with promising market potential. We then compete to win fee-for-service contracts from government agencies and industrial customers who seek innovative solutions to practical problems that require new technology. The Technology Development segment derives its revenues primarily from services. The Products and Licensing segment derives its revenues from product sales, funded product development and technology licenses. Through September 30, 2018, our Chief Executive Officer and his direct reports collectively represented our chief operating decision makers, and they evaluated segment performance based primarily on revenues and operating income or loss. The accounting policies of our segments are the same as those described in the summary of significant accounting policies (see Note 1 to our Financial Statements, “Organization and Summary of Significant Accounting Policies,” presented in our Annual Report on Form 10-K as filed with the SEC on March 21, 2018). The table below presents revenues and operating income/(loss) for reportable segments:
Products and licensing depreciation includes amounts from discontinued operations of $0.6 million for the nine months ended September 30, 2017. Products and licensing amortization includes amounts from discontinued operations of $1.0 million for the nine months ended September 30, 2017. The table below presents assets for reportable segments:
The U.S. government accounted for 58% and 45% of total consolidated revenues for the three months ended September 30, 2018 and 2017, respectively and for 57% and 45% of total consolidated revenues for the nine months ended September 30, 2018 and 2017, respectively. International revenues (customers outside the United States) accounted for 20% and 19% of total consolidated revenues for the three months ended September 30, 2018 and 2017, respectively, and 20% of the total consolidated revenues for each of the nine months ended September 30, 2018 and 2017. No single country, outside of the United States, represented more than 10% of total revenues in the three and nine months ended September 30, 2018 and 2017. |
Contingencies and Guarantees |
9 Months Ended |
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Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contingencies and Guarantees | Contingencies and Guarantees We are from time to time involved in certain legal proceedings in the ordinary course of conducting our business. While the ultimate liability pursuant to these actions cannot currently be determined, we believe it is not reasonably possible that these legal proceedings will have a material adverse effect on our financial position or results of operations. In March 2018, we received a notice of claim (the "Claim") from Macom Technology Solutions, Inc. ("Macom"), who acquired our HSOR business in August 2017 pursuant to an asset purchase agreement. Under the asset purchase agreement, we agreed to indemnify Macom for certain matters, including, among other things, the collection of accounts receivable from certain major customers, and placed $4.0 million of the purchase price into an escrow account for the potential settlement of any valid indemnity claims. The notice of claim received from Macom totaled $2.0 million under various indemnity provisions. We have disputed Macom's assertion of right to payment for the matters described in the Claim. It is uncertain what amount, if any, will be owed in settlement of the Claim. On July 31, 2018, we sold the assets associated with our Opto components business to an unaffiliated third party. The asset purchase agreement provides for additional consideration of up to $1.0 million contingent upon the achievement of a specified revenue level by the sold business during the 18 months following the sale. In addition, the asset purchase agreement provides for a potential adjustment to the consideration paid, either positive or negative, to the extent that working capital transferred to the buyer is greater or less than a specified target amount. There have been no amounts recorded in reference to the above matter in the financial statements as of September 30, 2018. It is uncertain what amount, if any, will be received or paid with respect to each of these potential adjustments. We executed a non-cancelable purchase order totaling $0.5 million in the fourth quarter of 2017 and a non-cancelable purchase order totaling $1.1 million in the first quarter of 2018 for multiple shipments of tunable lasers to be delivered over an 18-month period. At September 30, 2018, approximately $0.4 million of these commitments remained and is expected to be delivered by July 30, 2019. We have entered into indemnification agreements with our officers and directors, to the extent permitted by law, pursuant to which we have agreed to reimburse the officers and directors for legal expenses in the event of litigation and regulatory matters. The terms of these indemnification agreements provide for no limitation to the maximum potential future payments. We have a directors and officers insurance policy that may, in certain instances, mitigate the potential liability and payments. |
Subsequent Event |
9 Months Ended |
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Sep. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Event | Subsequent Event On October 15, 2018, we acquired substantially all of the assets, other than cash, as well as specified liabilities of Micron Optics, Inc. ("Micron"), a leading provider of innovative optical components and laser-based measurement technology, whose sensing and measurement solutions are deployed in multiple industries, for total cash consideration of $5.0 million, including $4.0 million paid at closing and $1.0 million placed in escrow until the later of October 1, 2019 or the date that specified matters are resolved as agreed by us and Micron. The purchase price is subject to positive or negative adjustment based upon the final determination of working capital of Micron compared to a target working capital amount specified in the asset purchase agreement. Due to the timing of the acquisition, the initial accounting has not been finalized as we were drafting Micron's opening balance sheet and related preliminary purchase price allocation as of the date the financial statements were available for issuance. |
Basis of Presentation and Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||
Nature of Operations | Nature of Operations Luna Innovations Incorporated (“we,” “Luna Innovations” or the “Company”), headquartered in Roanoke, Virginia, was incorporated in the Commonwealth of Virginia in 1990 and reincorporated in the State of Delaware in April 2003. We are a leader in advanced optical technology, providing unique capabilities in high performance fiber optic test products for the telecommunications industry and distributed fiber optic sensing for the aerospace and automotive industries. Prior to the sale of our optoelectronics business in July 2018 (See Note 2), we also developed and manufactured custom optoelectronic components and sub-assemblies for various industrial applications. We are organized into two reportable segments, which work closely together to turn ideas into products: our Technology Development segment and our Products and Licensing segment. Our business model is designed to accelerate the process of bringing new and innovative technologies to market. |
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Unaudited Interim Financial Information | Unaudited Interim Financial Information The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America (“U.S. GAAP”) for interim financial statements and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. The unaudited consolidated interim financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management reflect all adjustments, consisting of only normal recurring accruals considered necessary to present fairly our financial position at September 30, 2018, results of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017. The results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The consolidated balance sheet as of December 31, 2017 was derived from our audited consolidated financial statements. The consolidated interim financial statements, including our significant accounting policies, should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2017, included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”) on March 21, 2018. |
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Reclassifications | Reclassifications Certain amounts in the prior period have been reclassified to conform to current presentation. As a result of the adoption of Accounting Standards Codification ("ASC") 2014-09, Revenue from Contracts with Customers (Topic 606), we presented balances entitled contract assets and contract liabilities within the consolidated balance sheet as well as the impact of the changes in these balances within the consolidated statement of cash flows. We reclassified comparable balances within the December 31, 2017 consolidated balance sheet as well as the impact of changes in those balances within the consolidated statement of cash flows in order to enhance comparability. These reclassifications had no effect on our reported financial condition, results of operations, or cash flows. Any other reclassifications were immaterial to the consolidated interim financial statements taken as a whole. |
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Fair Value Measurements | Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between marketplace participants. Various valuation approaches can be used to determine fair value, each requiring different valuation inputs. The following hierarchy classifies the inputs used to determine fair value into three levels:
The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. The carrying value of our debt approximates fair value, as we consider the floating interest rate on our credit facilities with Silicon Valley Bank ("SVB") to be at market for similar instruments. Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. This includes items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived asset groups measured at fair value for an impairment assessment. In general, non-financial assets including intangible assets and property and equipment are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. |
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Net Income/(Loss) Per Share | Net Income/(Loss) Per Share Basic per share data is computed by dividing our net income/(loss) by the weighted average number of shares outstanding during the period. Diluted per share data is computed by dividing net income/(loss), if applicable, by the weighted average shares outstanding during the period increased to include, if dilutive, the number of additional common share equivalents that would have been outstanding if potential shares of common stock had been issued using the treasury stock method. Diluted per share data would also include the potential common share equivalents relating to convertible securities by application of the if-converted method. |
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Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements Effective January 1, 2018, we adopted Revenue from Contracts with Customers (Topic 606), using the modified retrospective transition method. Under the modified retrospective approach, we apply the standards to new contracts and those that were not completed as of January 1, 2018. For those contracts not completed as of January 1, 2018, this method resulted in a cumulative adjustment to decrease the accumulated deficit in the net amount of $0.4 million. Prior periods will not be retrospectively adjusted, but we will maintain dual reporting for the year of initial application in order to maintain comparability of the periods presented. Contract assets were formerly reported as unbilled accounts receivable. Contract liabilities were formerly reported as accrued liabilities or deferred revenue. Inventory was also impacted by the adoption of the new guidance. The titles have been changed in the table below to be consistent with accounts currently used under the new standard. Under the new standard, contracts in our Technology Development segment, which primarily provide research services, are not materially impacted upon the adoption of Topic 606 as revenue will continue to be recognized over time using an input model. Contracts in our Products and Licensing segment generally provide for the following revenue sources: standard product sales, custom product development and sales, product rental, extended warranties, training/service, and certain royalties. Revenues for this segment are recognized using either the “point in time” or “over time” methods of Topic 606, depending upon the revenue source. The major change in revenue recognition for the Products and Licensing segment related to custom optoelectronic products which changed from “point in time” to “over time” upon the adoption of Topic 606. This change results in the acceleration of revenue when compared to existing standards with the cumulative adjustment relating to contracts that are not complete as of December 31, 2017 recognized as an adjustment to opening accumulated deficit on January 1, 2018. The revenue received from our custom optoelectronic products segment is included as part of our discontinued operations section (Note 2) and shown above in the current assets and liabilities held for sale as of December 31, 2017. Our revenue for our standard products will continue to be recognized using the "point in time" model of Topic 606, and the timing of such revenue recognition is not expected to differ materially from our historical revenue recognition. Other immaterial adjustments related to the Products and Licensing segment that are sometimes offered to customers include discounts on future purchases related to rental agreements, customer rights of return, and volume discounts. Technology Development Revenues We perform research and development for U.S. Federal government agencies, educational institutions and commercial organizations. We account for a research contract when a contract has been executed, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of the contract price is considered probable. Revenue is earned under cost reimbursable, time and materials and fixed price contracts. Direct contract costs are expensed as incurred. Our contracts with agencies of the U.S. government are subject to periodic funding by the respective contracting agency. Funding for a contract may be provided in full at inception of the contract or ratably throughout the contract as the services are provided. In evaluating the probability of funding for purposes of assessing collectability of the contract price, we consider our previous experience with our customers, communication with our customers regarding funding status and our knowledge of available funding for the contract or program. If funding is not assessed as probable, revenue recognition is deferred until realization is reasonably assured. Under the typical payment terms of our U.S. government contracts, the customer pays us either performance-based payments ("PBPs") or progress payments. PBPs, which are typically used in the firm fixed price contracts, are interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments, which are typically used in our cost type contracts, are interim payments based on costs incurred as the work progresses. For our U.S. government cost-type contracts, the customer generally pays us during the performance period for 80%-90% of our actual costs incurred. Because the customer retains a small portion of the contract price until completion of the contract and audit of allowable costs, cost type contracts generally result in revenue recognized in excess of billings which we present as contract assets on the balance sheet. Amounts billed and due from our customers are classified as receivables on the balance sheet. For non-U.S. government contracts, we typically receive interim payments as work progresses, although for some contracts, we may be entitled to receive an advance payment. We recognize a liability for these advance payments and PBPs paid in advance which are in excess of the revenue recognized and present these amounts as contract liabilities on the balance sheet. To determine the proper revenue recognition method for research and development contracts, we evaluate whether two or more contracts should be combined and accounted for as one single modified contract and whether the combined or single contract should be accounted for as more than one performance obligation. For instances where a contract has options that were bid with the initial contract and awarded at a later date, we combine the options with the original contract when options are awarded. For most of our contracts, the customer contracts for research with multiple milestones that are interdependent. Consequently, the entire contract is accounted for as one performance obligation. The effect of the combined or modified contract on the transaction price and measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. Contract revenue recognition is measured over time as we perform because of continuous transfer of control to the customer. For U.S. government contracts which are typically subject to the Federal Acquisition Regulation ("FAR"), this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for cost incurred plus a reasonable profit and take control of any work in process. From time to time, as part of normal management processes, facts may change, causing revisions to estimated total costs or revenues expected. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known. Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the services to be provided. We generally use the input method, more specifically the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The underlying bases for estimating our contract research revenues are measurable expenses, such as labor, subcontractor costs and materials, and data that are updated on a regular basis for purposes of preparing our cost estimates. Our research contracts generally have a period of performance of six months to three years, and our estimates of contract costs have historically been consistent with actual results. Revisions in these estimates between accounting periods to reflect changing facts and circumstances have not had a material impact on our operating results, and we do not expect future changes in these estimates to be material. The cumulative impact of any revisions to estimates and the full impact of anticipated losses on any type of contract are recognized in the period in which they become known. Under cost reimbursable contracts, we are reimbursed for costs that are determined to be reasonable, allowable and allocable to the contract and paid a fixed fee representing the profit negotiated between us and the contracting agency. Revenue from cost reimbursable contracts is recognized as costs are incurred plus an estimate of applicable fees earned. We consider fixed fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the contract. Revenue from time and materials contracts is recognized based on direct labor hours expended at contract billing rates plus other billable direct costs. Fixed price contracts may include either a product delivery or specific service performance throughout a period. For fixed price contracts that are based on the proportional performance method and involve a specified number of deliverables, we recognize revenue based on the proportion of the cost of the deliverables compared to the cost of all deliverables included in the contract as this method more accurately measures performance under these arrangements. For fixed price contracts that provide for the development and delivery of a specific prototype or product, revenue is recognized based upon the percentage of completion method. Whether certain costs under government contracts are allowable is subject to audit by the government. Certain indirect costs are charged to contracts using provisional or estimated indirect rates, which are subject to later revision based on government audits of those costs. Management is of the opinion that costs subsequently disallowed, if any, would not likely have a significant impact on revenues recognized for those contracts. Products and Licensing Revenues We produce standard and customized products for commercial organizations, educational institutions, and U.S. Federal government agencies. In addition we will also offer extended warranties, product rentals, and services which include testing, training, or repairs for specific products. Customers also pay royalties as agreed based on sales or usage. We account for product and related items when a contract has been executed, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of the contract price is considered probable. To determine the proper revenue recognition method for Products and Licensing contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. We recognize revenue when the performance obligation has been satisfied by transferring the control of the product or service to the customer. For tangible products that contain software that is essential to the tangible product’s functionality, we consider the product and software to be a single performance obligation and recognize revenue accordingly. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation based on their relative stand-alone selling prices. In such circumstances, we use the observable price of goods or services which are sold separately in similar circumstances to similar customers. If these prices are not observable, then we will estimate the stand-alone selling price using information that is reasonably available. For the majority of our standard products and services, price list and discount structures related to customer type are available. For products and services that do not have price list and discount structures, we may use one or more of the following: (i) adjusted market assessment approach, (ii) expected cost plus a margin approach, and (iii) residual approach. The adjusted market approach requires us to evaluate the market in which we sell goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services. The expected cost plus margin approach requires us to forecast our expected costs of satisfying the performance obligation and then add a reasonable margin for that good or service. The residual approach decreases the total transaction price by the sum of the observable standalone selling prices if either the company sells the same good or services to different customers for a broad range of amounts or the company has not established a price for the good or service and that good or service has not been sold on a standalone basis. Shipping and handling activities primarily occur after a customer obtains control and are considered fulfillment cost rather than separate performance obligations. Similarly, sales and similar taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer are excluded from the measurement of the transaction price. For standard products, we recognize revenue at a point in time when control passes to the customer. Absent substantial product acceptance clauses, this is based on the shipping terms. For custom products that require engineering and development based on customer requirements, we will recognize revenue over time using the output method for any items shipped and any finished goods or work in process that is produced for balances of open sales orders. For any finished goods or work in process that has been produced for the balance of open sales orders we recognize revenue by applying the average selling price for such open order to the lesser of the on hand balance in finished goods or open sales order quantity which we present as a contract asset on the balance sheet. Cost of sales is recognized based on the standard cost of the finished goods and work in process associated with this revenue and inventory balances are reduced accordingly. For extended warranties and product rentals, revenue is recognized over time using the output method based on the time elapsed for the warranty or service period. In the case of warranties, we record a contract liability for amounts billed but that are not recognized until subsequent period. A separate contract liability is recorded for the cost associated with warranty repairs based on our estimate of future expense. For testing services where we are performing testing on an asset the customer controls, revenue is recognized over time by the output method using the performance to date. For training where the customer is receiving the benefit of training as it is occurring and for repairs to a customer controlled asset, revenue is recognized over time by the output method using the performance to date. For royalty revenue, we apply the practical expedient “royalty exception” recognizing revenue based on the royalty agreement which specifies an amount based on sales or minimum amount, whichever is greater. In some product rental contracts, a customer may be offered a discount on the purchase of an item that would provide for a material right. When a material right has been provided to a customer, a separate performance obligation is established and a portion of the rental revenue will be deferred until the future product is purchased or the option expires. This deferred revenue is recognized as a contract liability on the balance sheet. In certain circumstances we may offer a "right of return" to a distributor of our products, in which case a contract liability is calculated based on the terms of the agreement and recorded as a reduction to revenue. In addition, a contract asset for the rights to recover products from customers and a reduction of cost of sales is also calculated and recorded. Unfulfilled performance obligations represent amounts expected to be earned on executed contracts. Indefinite delivery and quantity contracts and unexercised options are not reported in total unfulfilled performance obligations. Unfulfilled performance obligations include funded obligations, which is the amount for which money has been directly authorized by the U.S. government and for which a purchase order has been received by a commercial customer, and unfunded obligations, representing firm orders for which funding has not yet been appropriated. The approximate value of our Technology Development segment unfulfilled performance obligations was $28.8 million at September 30, 2018. We expect to satisfy 25% of the performance obligations in 2018, 54% in 2019 and the remaining by 2022. The approximate value of our Products and Licensing segment unfulfilled performance obligations was $1.8 million at September 30, 2018. We expect to satisfy 84% of the performance obligations in 2018, 8% in 2019 and the remaining by 2023. We disaggregate our revenue from contracts with customers by geographic locations, customer-type, contract type, timing of recognition, and major categories for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the tables below. Effective January 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows (Topic 230), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how cash receipts and cash payments are presented in the statement of cash flows. The adoption of ASU No. 2016-15 did not have a significant impact on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires a lessee to recognize in its statement of financial position an asset and liability for most leases with a term greater than 12 months. Lessees should recognize a liability to make lease payments and a right-of-use asset representing the lessee's right to use the underlying asset for the lease term. This guidance is effective for us in our first quarter of fiscal 2019. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides lessees an additional, and optional, transition method to apply the new leasing standard to all open leases at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. We currently plan to elect this transition method, and as a result, we will not adjust our comparative period financial information or make the required lease disclosures for periods before the effective date. We are currently evaluating the impact the adoption of ASU 2016-02 and ASU 2018-11 will have on our consolidated financial statements and expect to have increases in the assets and liabilities of our consolidated balance sheet. In February 2018, the FASB issued ASU 2018-02: Income Statement – Reporting Comprehensive Income (Topic 220). Under current accounting guidance, the income tax effects for changes in income tax rates and certain other transactions are recognized in income from continuing operations resulting in income tax effects recognized in AOCI that do not reflect the current tax rate of the entity (“stranded tax effects”). The new guidance allows us the option to reclassify these stranded tax effects to accumulated deficit that relate to the change in the federal tax rate resulting from the passage of the Tax Cuts and Jobs Act. This update is effective for fiscal years beginning after December 15, 2018, including interim periods therein, and early adoption is permitted. We do not expect the adoption of this standard will have a significant impact on our consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update simplifies the subsequent measurement of goodwill. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The accounting standard will be effective for reporting periods beginning after December 15, 2019. We do not expect ASU 2017-04 will have a material impact on our financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. which amends the disclosure requirements in ASC 820 by adding, changing, or removing certain disclosures. The ASU applies to all entities that are required under this guidance to provide disclosures about recurring or nonrecurring fair value measurements. These amendments are effective for all entities for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. We do not expect ASU 2018-13 will have a material impact on our financial statements. |
Basis of Presentation and Significant Accounting Policies (Tables) |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Disaggregation of Revenue | See details in the tables below.
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Schedules of Impacts of Adopting Topic 606 | The cumulative effect of the changes made to our January 1, 2018 unaudited consolidated balance sheet for the adoption of Topic 606 was as follows:
The titles have been changed in the table below to be consistent with accounts currently used under the new standard.
The following tables summarize the impacts of adopting Topic 606 on our consolidated financial statements as of and for the three and nine months ended September 30, 2018.
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Discontinued Operations (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Discontinued Operations | The following table presents a summary of the transactions related to the sales of HSOR in the nine months ended September 30, 2017 and Opto in the nine months ended September 30, 2018:
Assets and liabilities held for sale associated with our Opto business as of December 31, 2017 were as follows:
The key components of net income from discontinued operations were as follows:
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Contract Balances (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Significant Changes in Contract Balances | The following table shows the significant changes in contract balances for the nine month period ending September 30, 2018:
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Inventory (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Inventory | Components of inventory were as follows:
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Accrued Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued Liabilities | Accrued liabilities at September 30, 2018 and December 31, 2017 consisted of the following:
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Debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Debt Outstanding | The following table presents a summary of debt outstanding as of September 30, 2018 and December 31, 2017:
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Schedule of Remaining Principal Payments Under the Term Loan | The schedule of remaining principal payments under our Term Loans as of September 30, 2018 was as follows:
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Capital Stock and Share-Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Option Activity | A summary of the stock option activity for the nine months ended September 30, 2018 is presented below:
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Summary of Restricted Stock Awards and Units | The following is a summary of our stock unit activity under the Deferred Compensation Plan for the nine months ended September 30, 2018:
The following table summarizes the value of our unvested restricted stock awards and restricted stock units:
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Details of Equity Transactions | The following table details our equity transactions during the nine months ended September 30, 2018:
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Operating Segments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenues, Operating Income (Loss) and Assets for Reportable Segments | The table below presents assets for reportable segments:
The table below presents revenues and operating income/(loss) for reportable segments:
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Basis of Presentation and Significant Accounting Policies - Recent Accounting Pronouncements - Effect on Balance Sheet Items (Details) - USD ($) |
Sep. 30, 2018 |
Jan. 01, 2018 |
Dec. 31, 2017 |
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Assets | |||
Current assets held for sale | $ 0 | $ 4,715,996 | $ 4,336,105 |
Liabilities: | |||
Contract liabilities | 1,548,371 | 3,320,629 | 3,320,629 |
Current liabilities held for sale | 0 | 885,818 | 972,451 |
Stockholders’ equity: | |||
Accumulated deficit | (22,178,651) | $ (32,052,161) | (32,406,189) |
Adjustments | Accounting Standards Update 2014-09 | |||
Assets | |||
Current assets held for sale | 379,891 | ||
Liabilities: | |||
Contract liabilities | 2,250 | ||
Current liabilities held for sale | 23,613 | ||
Stockholders’ equity: | |||
Accumulated deficit | 3,880 | 354,028 | |
As Reported | |||
Assets | |||
Current assets held for sale | 4,336,105 | ||
Liabilities: | |||
Contract liabilities | 3,318,379 | ||
Current liabilities held for sale | 862,205 | ||
Stockholders’ equity: | |||
Accumulated deficit | $ (22,174,771) | $ (32,406,189) |
Basis of Presentation and Significant Accounting Policies - Recent Accounting Pronouncements - Effect on Contract Assets and Liabilities (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||
Accounts receivable, net | $ 9,110,713 | $ 5,929,042 |
Contract assets | 2,611,122 | 1,778,142 |
Current assets held for sale | 1,940,126 | |
Long-term contract assets | 343,492 | 209,699 |
Accrued liabilities | 6,589,310 | 6,547,230 |
Contract liabilities | 1,548,371 | 3,318,379 |
Current liabilities held for sale | 120,665 | |
Deferred revenue | 0 | |
As Reported | ||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||
Accounts receivable, net | 9,110,713 | 9,857,009 |
Contract assets | 2,611,122 | 0 |
Current assets held for sale | 0 | |
Long-term contract assets | 343,492 | 0 |
Accrued liabilities | 6,589,310 | 8,959,935 |
Contract liabilities | $ 1,544,491 | 0 |
Current liabilities held for sale | 0 | |
Deferred revenue | $ 1,026,339 |
Discontinued Operations - Summary of Transactions Related to Sale (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||
---|---|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Discontinued Operations and Disposal Groups [Abstract] | |||||||
Sale price | $ 17,500,000 | $ 33,500,000 | $ 17,500,000 | $ 33,500,000 | $ 17,500,000 | $ 33,500,000 | |
Less: transition services payments | 0 | (1,500,000) | 0 | (1,500,000) | 0 | (1,500,000) | |
Adjusted purchase price | 17,500,000 | 32,000,000 | 17,500,000 | 32,000,000 | 17,500,000 | 32,000,000 | |
Assets held for sale | (8,193,184) | (16,851,540) | (8,193,184) | (16,851,540) | (8,193,184) | (16,851,540) | $ (6,963,438) |
Liabilities held for sale | 989,453 | 2,330,052 | 989,453 | 2,330,052 | 989,453 | 2,330,052 | $ 972,451 |
Transaction costs | (858,227) | (873,473) | |||||
Income tax expense | (1,866,232) | (1,508,373) | (1,866,232) | (1,508,373) | (1,866,232) | (1,508,373) | |
Gain on sale, net of related income taxes | $ 7,571,810 | $ 15,096,666 | $ 7,612,044 | $ 15,096,666 | $ 7,571,810 | $ 15,096,666 |
Discontinued Operations - Assets and Liabilities Held For Sale (Details) - USD ($) |
Sep. 30, 2018 |
Jan. 01, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
---|---|---|---|---|
Current assets: | ||||
Accounts receivable, net | $ 1,940,125 | |||
Inventory | 2,316,329 | |||
Prepaid expenses and other assets | 79,651 | |||
Total current assets | $ 0 | $ 4,715,996 | 4,336,105 | |
Property and equipment, net | 599,102 | |||
Intangible assets, net | 1,510,203 | |||
Goodwill | 502,000 | |||
Other assets | 16,028 | |||
Total non-current assets | 0 | 2,627,333 | ||
Total assets held for sale | 8,193,184 | 6,963,438 | $ 16,851,540 | |
Current liabilities: | ||||
Accounts payable | 851,785 | |||
Accrued liabilities | 120,666 | |||
Total current liabilities | 0 | $ 885,818 | 972,451 | |
Total liabilities held for sale | $ 989,453 | $ 972,451 | $ 2,330,052 |
Discontinued Operations - Components of Income from Discontinued Operations (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Discontinued Operations and Disposal Groups [Abstract] | ||||||
Net revenues | $ 1,089,681 | $ 4,380,747 | $ 8,363,606 | $ 16,158,672 | ||
Cost of revenues | 648,652 | 2,945,264 | 5,294,268 | 10,806,456 | ||
Operating expenses | 271,262 | 1,044,104 | 1,714,920 | 4,733,603 | ||
Other (expenses)/income | (9,372) | (17,374) | (31,525) | |||
Other (expenses)/income | 13,330 | |||||
Income before income taxes | 160,395 | 374,005 | 1,367,748 | 587,088 | ||
Allocated tax expense/(benefit) | 216,813 | (91,705) | 235,312 | 249,184 | ||
Operating (loss)/income from discontinued operations | (56,418) | 465,710 | 1,132,436 | 337,904 | ||
Gain on sale, net of related income taxes | $ 7,571,810 | $ 15,096,666 | 7,612,044 | 15,096,666 | 7,571,810 | 15,096,666 |
Net income from discontinued operations | $ 7,555,626 | $ 15,562,376 | $ 8,704,246 | $ 15,434,570 |
Contract Balances (Details) |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
| |
Contract Assets | |
Opening Balance as of January 1, 2018 | $ 1,987,841 |
Transferred to receivables from contract assets recognized at the beginning of the period | (1,543,925) |
Increases as a result of cumulative catch-up adjustment arising from changes in the estimate of the stage of completion | 2,510,698 |
Balance as of September 30, 2018 | 2,954,614 |
Contract Liabilities | |
Opening Balance as of January 1, 2018 | 3,320,629 |
Revenue recognized that was included in the contract liabilities balance at the beginning of the period | (808,977) |
Transferred to payables from contract liabilities recognized at the beginning of the period | (2,052,955) |
Increases due to cash received or adjustment of estimates, excluding amounts recognized as revenue during the period | 1,089,674 |
Balance as of September 30, 2018 | $ 1,548,371 |
Inventory (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Finished goods | $ 1,036,581 | $ 762,394 |
Work-in-process | 389,801 | 288,165 |
Raw materials | 4,036,032 | 3,584,222 |
Total inventory | $ 5,462,414 | $ 4,634,781 |
Accrued Liabilities (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Payables and Accruals [Abstract] | ||
Accrued compensation | $ 4,164,573 | $ 5,274,005 |
Income tax payable | 1,676,503 | 403,548 |
Accrued professional fees | 104,742 | 117,445 |
Deferred rent | 143,933 | 144,741 |
Royalties | 231,122 | 290,235 |
Accrued interest | 6,439 | 0 |
Accrued liabilities - other | 261,998 | 317,256 |
Total accrued liabilities | $ 6,589,310 | $ 6,547,230 |
Debt - Summary of Debt Outstanding (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Debt Disclosure [Abstract] | ||
Silicon Valley Bank Term Loan | $ 1,083,333 | $ 2,458,333 |
Less: unamortized debt issuance costs | 9,762 | 21,993 |
Less: current portion | 1,073,571 | 1,833,333 |
Long-term debt obligations | $ 0 | $ 603,007 |
Debt - Remaining Principal Payments Under the Term Loan (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Debt Disclosure [Abstract] | ||
2018 (remaining three months) | $ 458,333 | |
2019 | 625,000 | |
Silicon Valley Bank Term Loan | $ 1,083,333 | $ 2,458,333 |
Capital Stock and Share-Based Compensation - Summary of Restricted Awards (Details) |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
$ / shares
shares
| |
Number of Unvested Shares | |
Beginning balance (in shares) | shares | 489,698 |
Granted (in shares) | shares | 296,287 |
Vested (in shares) | shares | (312,365) |
Forfeitures (in shares) | shares | (15,000) |
Ending balance (in shares) | shares | 458,620 |
Weighted Average Grant Date Fair Value | |
Beginning balance (in usd per share) | $ / shares | $ 1.51 |
Granted (in usd per share) | $ / shares | 3.07 |
Vested (in usd per share) | $ / shares | 2.75 |
Forfeitures (in usd per share) | $ / shares | 1.41 |
Ending balance (in usd per share) | $ / shares | $ 2.56 |
Aggregate Value of Unvested Shares | |
Aggregate value of shares, Beginning balance | $ | $ 738,345 |
Aggregate value of shares, Granted | $ | 909,600 |
Aggregate value of shares, Vested | $ | (454,339) |
Aggregate value of shares, Forfeitures | $ | (21,150) |
Aggregate value of shares, Ending balance | $ | $ 1,172,456 |
Capital Stock and Share-Based Compensation - Summary of Restricted Stock Units (Details) - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Dec. 31, 2017 |
|
Weighted Average Grant Date Fair Value | ||
Beginning balance (in usd per share) | $ 1.51 | |
Granted (in usd per share) | 3.07 | |
Forfeitures (in usd per share) | 1.41 | |
Ending balance (in usd per share) | $ 2.56 | |
Intrinsic value, outstanding | $ 1,172,456 | $ 738,345 |
Restricted Stock Units (RSUs) | Employee Director Compensation Plan | ||
Number of Stock Units | ||
Beginning balance (in shares) | 466,702 | |
Granted (in shares) | 80,006 | |
Forfeitures (in shares) | 0 | |
Converted (in shares) | 0 | |
Ending balance (in shares) | 546,708 | |
Weighted Average Grant Date Fair Value | ||
Beginning balance (in usd per share) | $ 1.40 | |
Granted (in usd per share) | 3.00 | |
Forfeitures (in usd per share) | 0.00 | |
Converted (in usd per share) | 0.00 | |
Ending balance (in usd per share) | $ 1.64 | |
Intrinsic value, outstanding | $ 1,765,867 | $ 1,134,086 |
Capital Stock and Share-Based Compensation - Stock Repurchase Program (Details) - USD ($) |
1 Months Ended | 13 Months Ended | ||
---|---|---|---|---|
Sep. 19, 2018 |
May 31, 2017 |
Sep. 30, 2017 |
May 31, 2016 |
|
Equity [Abstract] | ||||
Authorized share repurchase amount | $ 2,000,000.0 | $ 2,000,000 | ||
Treasury shares repurchased (in shares) | 565,629 | 205,500 | ||
Amount of stock repurchased | $ 1,100,000 | $ 200,000 |
Operating Segments - Additional Information (Details) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2018
USD ($)
segment
|
Sep. 30, 2017
USD ($)
|
|
Segment Reporting [Abstract] | ||||
Number of operating segments | segment | 2 | |||
Revenues | Government Contracts Concentration Risk | U.S. Government | ||||
Segment Reporting Information [Line Items] | ||||
Percentage of total consolidated revenues by customer | 58.00% | 45.00% | 57.00% | 45.00% |
Revenues | Geographic Concentration Risk | Outside of the United States | ||||
Segment Reporting Information [Line Items] | ||||
Percentage of total consolidated revenues by customer | 20.00% | 19.00% | 20.00% | 20.00% |
Products and licensing | ||||
Segment Reporting Information [Line Items] | ||||
Depreciation | $ 42,559 | $ 117,219 | $ 127,796 | $ 688,700 |
Amortization | $ 56,062 | $ 247,522 | $ 178,028 | 1,178,113 |
Products and licensing | Discontinued Operations | ||||
Segment Reporting Information [Line Items] | ||||
Depreciation | 600,000 | |||
Amortization | $ 1,000,000 |
Operating Segments - Revenues and Operating Income (Loss) for Reportable Segments Not Including Discontinued Operations (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Revenues: | ||||
Total revenues | $ 10,687,026 | $ 8,302,711 | $ 29,378,922 | $ 23,219,641 |
Total operating income (loss) | 581,497 | (152,725) | 454,063 | (1,764,450) |
Technology development | ||||
Revenues: | ||||
Total revenues | 5,315,861 | 15,418,919 | ||
Total operating income (loss) | 340,852 | 182,776 | 864,540 | (77,323) |
Depreciation | 95,673 | 87,389 | 283,550 | 267,282 |
Amortization | 43,708 | 28,935 | 121,770 | 95,540 |
Products and licensing | ||||
Revenues: | ||||
Total revenues | 5,371,165 | 13,960,003 | ||
Total operating income (loss) | 240,645 | (335,501) | (410,477) | (1,687,127) |
Depreciation | 42,559 | 117,219 | 127,796 | 688,700 |
Amortization | 56,062 | 247,522 | 178,028 | 1,178,113 |
Technology development | ||||
Revenues: | ||||
Total revenues | 5,315,861 | 4,590,054 | 15,418,919 | 13,428,428 |
Technology development | Technology development | ||||
Revenues: | ||||
Total revenues | 4,590,054 | 5,315,861 | 13,428,428 | 15,418,919 |
Products and licensing | ||||
Revenues: | ||||
Total revenues | 5,371,165 | 3,712,657 | 13,960,003 | 9,791,213 |
Products and licensing | Products and licensing | ||||
Revenues: | ||||
Total revenues | $ 3,712,657 | $ 5,371,165 | $ 9,791,213 | $ 13,960,003 |
Operating Segments - Assets for Reportable Segments (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Total segment assets: | ||
Total assets | $ 73,794,579 | $ 66,222,636 |
Property plant and equipment, and intangible assets | 2,678,411 | 2,854,641 |
Technology development | ||
Total segment assets: | ||
Total assets | 42,536,930 | 32,011,084 |
Property plant and equipment, and intangible assets | 2,194,466 | 1,762,561 |
Products and licensing | ||
Total segment assets: | ||
Total assets | 31,257,649 | 34,211,552 |
Property plant and equipment, and intangible assets | $ 2,192,948 | $ 2,819,470 |
Contingencies and Guarantees (Details) - USD ($) $ in Millions |
3 Months Ended | ||||
---|---|---|---|---|---|
Jul. 31, 2018 |
Mar. 31, 2018 |
Sep. 30, 2018 |
Dec. 31, 2017 |
Aug. 09, 2017 |
|
Loss Contingencies [Line Items] | |||||
Non-cancelable purchase order delivery period | 18 months | ||||
Tunable Lasers | |||||
Loss Contingencies [Line Items] | |||||
Non-cancelable purchase order commitment | $ 1.1 | $ 0.5 | |||
Non-cancelable purchase order commitment remaining | $ 0.4 | ||||
Customer Concentration Risk | Macom | |||||
Loss Contingencies [Line Items] | |||||
Accounts receivable | 2.0 | ||||
Disposed of by Sale | High Speed Optical Receivers Business | |||||
Loss Contingencies [Line Items] | |||||
Escrow deposits related to indemnity claims | $ 4.0 | ||||
Disposed of by Sale | High Speed Optical Receivers Business | Macom | |||||
Loss Contingencies [Line Items] | |||||
Escrow deposits related to indemnity claims | $ 4.0 | ||||
Disposed of by Sale | Optoelectronic Components and Subassemblies | |||||
Loss Contingencies [Line Items] | |||||
Contingent consideration on discontinued operation | $ 1.0 | ||||
Non-cancelable purchase order delivery period | 18 months |
Subsequent Event (Details) - Subsequent Event - Micron Optics, Inc. $ in Millions |
Oct. 15, 2018
USD ($)
|
---|---|
Subsequent Event [Line Items] | |
Cash consideration | $ 5.0 |
Cash paid at closing | 4.0 |
Amount at closing placed in escrow | $ 1.0 |
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