Roanoke-based Luna Innovations Inc. is in danger of losing its place on the Nasdaq Stock Market due to transaction questions that led the company to withhold its annual report.
Luna, which makes and distributes fiber-optic sensing and monitoring technology, announced last month that it was indefinitely delaying its fourth quarter and annual reports after it discovered transaction discrepancies. Later in the month, its president and CEO, Scott Graeff, retired after 21 years there, seven at the helm.
[Disclosure: Quinn Graeff, who is married to Scott Graeff, is a member of the Cardinal Productions Inc. board of directors. The Graeffs are also contributors to Cardinal News. Neither board members nor donors have any influence or say in news decisions; see our policy.]
On Monday, the company announced on its website that Nasdaq on April 2 sent a written notice regarding its annual report. Lacking that document, called a 10-K, Luna is no longer in compliance with the stock market’s rule requiring companies to file reports in a timely manner to the federal Securities and Exchange Commission, according to the letter from Nasdaq’s Listing Qualifications Department.
The company, which was trading at $2.87 a share at the close of Tuesday business, will remain listed for at least 60 days from April 2. In that time, Luna must submit a plan to Nasdaq to regain compliance with its listing rule, according to the Luna release. If Nasdaq accepts that plan, then Luna will have up to 180 days, ending Sept. 30, to file its annual report and regain compliance.
If Nasdaq does not accept the company’s plan, Luna may appeal to a stock market hearings panel, according to Luna.
Company representatives did not immediately reply to a late Tuesday afternoon email on the subject.
“The Company is working diligently to complete its Form 10-K and will provide an update once more information is available,” Luna officials wrote on the website.
The company reported on March 12 that it had formed a committee with some of its board members, along with outside legal and financial advisers, to investigate “certain transactions for which revenue was recognized in the second and third quarters of 2023 that did not qualify for revenue recognition under U.S. generally accepted accounting principles.”
Luna expected to ultimately report “material weaknesses in internal controls related to evaluating customer arrangements for proper revenue recognition and other controls and will be working to remediate these issues.”
Graeff said at the time that the committee was looking at whether earned revenue was reported in an incorrect time period.
According to a document that Luna filed March 12 with the SEC, the independent review had not determined the full impact on the second and third quarter reports or whether the issue might impact statements from other periods. Reports to the SEC about the quarters that ended June 30 and Sept. 30, 2023, “should no longer be relied upon and should be restated,” according to the filing.
After Graeff’s March 24 retirement, Luna selected Richard Roedel, its board chairman since 2010, as interim executive chairman and interim president, the company said. Three months prior, a New York investor called White Hat Capital had put $50 million into Luna. White Hat’s co-founder and co-managing partner, David Chanley, joined Luna’s board of directors as part of the deal and is now on the board’s newly established operations committee.
The company’s next step is to figure out what happened and properly restate its income for the annual and fourth quarter reports, at least. From there, it must submit a plan to the Washington-based Financial Industry Regulatory Authority, Rob Warren, an assistant professor of accounting at Radford University, said Tuesday.
If that authority accepts Luna’s plan, “then they’re fine,” he said. “But the problem is if they can’t get into compliance with the Nasdaq, what happens then? They can be delisted, and once you’re delisted, your stock cannot be traded on Nasdaq. I don’t know what the ramifications of that are, but … if you can’t publicly trade your stock, and you’re a publicly traded stock, you’ve got a problem.”
Before early March, Luna had been trading at between $6 and $8 a share this year but had dropped by about half since then. The company, founded in 1990 and spun off from Virginia Tech, has grown to include offices and products worldwide, including Blacksburg. Its business offices are in Roanoke.
Luna develops and markets fiber-optic sensing and monitoring technology that can spot potential trouble in a range of items including automobiles, aircraft, dams and pipelines.
Among its customers is Dominion Energy, with which it contracted last year to provide monitoring services for its Coastal Virginia Offshore Wind project.
[Disclosure: Dominion is one of our donors, but donors have no say in news decisions; see our policy.]
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