As filed with the Securities and Exchange Commission on February 17,March 24, 2015

Registration No. 333-201956

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 13

To

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

LUNA INNOVATIONS INCORPORATED

(Exact name of registrant as specified in its charter)

One Riverside Circle, Suite 400

Roanoke, Virginia 24016

Telephone: (540) 769-8400

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Talfourd H. Kemper, Jr.

General Counsel

One Riverside Circle, Suite 400

Roanoke, Virginia 24016

Telephone: (540) 769-8400

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement and the satisfaction or waiver of all other conditions to the Merger described in the joint proxy statement/prospectus.

If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issue Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer  ¨

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Information contained herein is subject to completion or amendment. A registration statement relating to the Luna Innovations common shares to be issued in the Merger has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

SUBJECT TO COMPLETION, DATED FEBRUARY 17,MARCH 24, 2015

JOINT PROXY STATEMENT FOR ANNUAL MEETING OF THE STOCKHOLDERS OF LUNA INNOVATIONS INCORPORATED AND SPECIAL MEETING OF THE STOCKHOLDERS OF EACHADVANCED PHOTONIX, INC. AND PROSPECTUS OF LUNA INNOVATIONS INCORPORATED AND ADVANCED PHOTONIX, INC. PROSPECTUS FOR UP TO 12,961,602 SHARES OF COMMON STOCK OF LUNA INNOVATIONS INCORPORATED

PROPOSED MERGER

To the stockholders of each of Luna Innovations Incorporated and Advanced Photonix, Inc.:

The boards of directors of each of Luna Innovations Incorporated (“Luna”) and Advanced Photonix, Inc. (“API”) have approved a merger transaction (“Merger”) in which the businesses of Luna and API will be combined under the terms of a merger agreement (“Merger Agreement”). Luna and API are sending the accompanying joint proxy statement/prospectus to you to ask you to vote in favor of the adoption of the Merger Agreement and approval of the transactions contemplated thereby.

Luna is holding a specialan annual meeting of its stockholders in order to elect directors and to obtain the stockholder approval necessary to complete the Merger with API and certain relatedother matters. At the Luna specialannual meeting, which will be held at 9:00 a.m., local time, on March 31,May 8, 2015, at the Roanoke Higher Education Center, 108 N. Jefferson St., Roanoke, Virginia, 24016, unless postponed or adjourned to a later date, Luna will ask its stockholders to elect two directors and to approve, among other items, the issuance of shares of Luna common stock to the securityholders of API in connection with the Merger, as described in the accompanying joint proxy statement/prospectus.

Luna’s board of directors has approved the Merger, the Merger Agreement and the related issuance of shares of Luna common stock, par value $0.001, and has determined that the Merger, the Merger Agreement and such issuance of shares is in the best interests of Luna and its stockholders.Accordingly, Luna’s board of directors unanimously recommends that the Luna stockholders vote FOR each of the proposals submitted to the Luna stockholders at the Luna specialannual meeting, including, without limitation, the issuance of shares of Luna common stock to the securityholders of API in connection with the Merger.

Luna directors and executive officers, and their affiliates, who in the aggregate own approximately 6.6% of the outstanding shares of Luna common stock, have entered into Voting Agreements whereby they have agreed to vote in favor of the issuance of Luna common stock to be issued under the terms of the Merger Agreement.

API is holding a special meeting of its stockholders in order to obtain the stockholder approval necessary to complete the Merger with Luna. At the API special meeting, which will be held at 9:00 a.m., local time, on March 31,May 8, 2015, at API’s corporate headquarters located at 2925 Boardwalk Drive, Ann Arbor, Michigan 48104, unless postponed or adjourned to a later date, API will ask its stockholders to approve, among other items, the Merger and adoption of the Merger Agreement, as described in the accompanying joint proxy statement/prospectus.

API’s board of directors has approved the Merger and the Merger Agreement and has determined that the Merger and the Merger Agreement are advisable and in the best interests of API and its stockholders.Accordingly, API’s board of directors unanimously recommends that the API stockholders vote FOR each of the proposals submitted to the API stockholders at the API special meeting, including, without limitation, adoption of the Merger Agreement and approval of the transactions contemplated thereby.

Certain API directors and executive officers, and their affiliates, who in the aggregate own approximately 10.8% of the outstanding shares of API common stock, have entered into Voting Agreements whereby they have agreed to vote in favor of the adoption of the Merger Agreement and approval of the transactions contemplated thereby.

Luna’s common stock is currently listed on the NASDAQ Capital Market under the symbol “LUNA.” On             February 13,, 2015, the last trading day before the date of this joint proxy statement/prospectus, the closing sale price of Luna common stock was $1.48$             per share.

API’s common stock is currently listed on the NYSE MKT under the symbol “API.” On             February 13,, 2015, the last trading day before the date of this joint proxy statement/prospectus, the closing sale price of API common stock was $0.41$             per share.

More information about Luna, API and the proposed Merger is contained in the accompanying joint proxy statement/prospectus.Luna and API urge you to read the accompanying joint proxy statement/prospectus carefully and in its entirety. In particular, you should carefully consider the matters discussed in the section entitled “Risk Factors,” beginning on page 2021 of the accompanying joint proxy statement/prospectus.

Your vote is very important, regardless of the number of shares of Luna or API you own. Please read the accompanying joint proxy statement/prospectus carefully and submit your proxy to have your shares voted as promptly as possible.

Luna and API are excited about the opportunities the proposed Merger may bring to the stockholders of Luna and API, and thank you for your consideration and continued support.

My E. Chung		Richard D. Kurtz
President and Chief Executive Officer		President and Chief Executive Officer
Luna Innovations Incorporated		Advanced Photonix, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the Merger or the securities of Luna to be issued in connection with the Merger, or determined if this joint proxy statement/prospectus is adequate or accurate. Any representation to the contrary is a criminal offense.

The accompanying joint proxy statement/prospectus is dated             February 17,, 2015, and is first being mailed to the stockholders of Luna and API on or about             February 20,, 2015.

Luna Innovations Incorporated

One Riverside Circle, Suite 400

Roanoke, Virginia 24016

NOTICE OF SPECIALANNUAL MEETING OF STOCKHOLDERS

To Be Held On March 31,May 8, 2015

To Luna Innovations Incorporated Stockholders:

NOTICE IS HEREBY GIVEN that a specialan annual meeting of stockholders of Luna Innovations Incorporated, a Delaware corporation (“Luna”), will be held at the Roanoke Higher Education Center, 108 N. Jefferson Street, Roanoke, Virginia 24016 on March 31,May 8, 2015 at 9:00 a.m., local time for the following purposes:

1. To consider and vote upon a proposal to approve the issuance of shares of Luna common stock, par value $0.001 per share, to securityholders of Advanced Photonix, Inc. (“API”), in connection with the Merger contemplated by the Agreement and Plan of Merger and Reorganization, dated as of January 30, 2015, by and among Luna, API, and API Merger Sub, Inc., a wholly owned subsidiary of Luna, as amended from time to time, pursuant to which API will become a wholly owned subsidiary of Luna through the Merger;

2. To consider and vote upon an adjournment of the Luna specialannual meeting from time to time, if necessary or appropriate (as determined by Luna), to solicit additional proxies if there are not sufficient votes to approve the proposal described immediately above;

3. To elect My E. Chung and Neil D. Wilkin, Jr., as Class III members of the board of directors, to serve until Luna’s 2018 annual meeting of stockholders and until their successors are duly elected and qualified; provided, however, that, if the Merger is completed, the board of directors of Luna will be reconstituted as described in this joint proxy statement/prospectus;

4. To approve, on a non-binding, advisory basis, the compensation of Luna’s named executive officers, as disclosed in this joint proxy statement/prospectus;

5. To ratify the selection, by the Audit Committee of Luna’s board of directors, of Grant Thornton LLP as Luna’s independent registered public accounting firm for the fiscal year ending December 31, 2015; and

3.6. To transact such other business as may be properly brought before the specialannual meeting, or any adjournment or postponement thereof, by or at the direction of the board of directors of Luna.

The foregoing proposals and the Agreement and Plan of Merger and Reorganization are more fully described in the joint proxy statement/prospectus accompanying this Notice. Only Luna stockholders of record at the close of business on February 13,March 23, 2015, the record date for the Luna specialannual meeting, will be entitled to notice of, and a vote at, the Luna specialannual meeting or any adjournment or postponement thereof. At the close of business on February 13,March 23, 2015, Luna had 15,094,80815,095,017 shares of common stock outstanding and entitled to vote. A list of Luna stockholders entitled to vote at the Luna specialannual meeting will be available for inspection at Luna’s principal executive offices in Roanoke, Virginia, at least 10 days before the date of the specialannual meeting.

The board of directors of Luna has determined that the Agreement and Plan of Merger and Reorganization and the Merger are advisable and fair to, and in the best interests of, Luna and its stockholders, and recommends that Luna’s stockholders vote to approve the issuance of shares of Luna common stock pursuant to the Merger Agreement.

All Luna stockholders are cordially invited to attend the Luna specialannual meeting in person.Whether or not you plan to attend the Luna specialannual meeting in person, please sign and return the enclosed proxy card, or submit your proxy over the telephone or the internet as instructed in these materials, to ensure that your Luna shares will be represented at the Luna specialannual meeting. Voting instructions are included with your Luna proxy card. You may revoke your Luna proxy card at any time prior to the Luna specialannual meeting by following the instructions in the accompanying joint proxy statement/prospectus. If you attend the Luna specialannual meeting and vote by ballot, then your proxy vote will be revoked automatically and only your vote by ballot at the Luna specialannual meeting will be counted.Regardless of the number of shares of Luna that you own or whether or not you plan to attend the Luna specialannual meeting, it is important that your Luna shares be represented and voted.No postage need be affixed if your proxy card is mailed in the United States.

By Order of the Luna Board of Directors,

My E. Chung

President and Chief Executive Officer

Roanoke, Virginia

February 17,            , 2015

LUNA’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSALS 1, AND 2.2, 3, 4 and 5.

Important Notice Regarding the Availability of Proxy Materials for the Meeting of Stockholders to be held on May 8, 2015: This Joint Proxy Statement/Prospectus is available at www.proxyvote.com.

ADVANCED PHOTONIX, INC.

2925 Boardwalk Drive

Ann Arbor, MI 48104

            NOTICE OF SPECIAL MEETING OF STOCKHOLDERS            

To Be Held On March 31,May 8, 2015

Dear Advanced Photonix, Inc. Stockholders:

You are cordially invited to attend a special meeting of the stockholders of Advanced Photonix, Inc., a Delaware corporation (“API”). The meeting will be held at API’s corporate headquarters located at 2925 Boardwalk Drive, Ann Arbor, MI 48104 on March 31,May 8, 2015 at 9:00 a.m. local time for the following purposes:

1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger and Reorganization, dated January 30, 2015, by and among API, Luna Innovations Incorporated, a Delaware corporation (“Luna”), and API Merger Sub, Inc., a wholly owned subsidiary of Luna, as amended from time to time, and approve the transactions contemplated thereby;

2. To consider and vote upon an adjournment of the API special meeting from time to time, if necessary or appropriate (as determined by API), to solicit additional proxies if there are not sufficient votes in favor of the adoption and approval of the foregoing Proposal No. 1; and

3. To transact such other business as may be properly brought before the special meeting, or any adjournment or postponement thereof, by or at the direction of the board of directors of API.

These proposals are more fully described in the accompanying joint proxy statement/prospectus, which API urges you to read very carefully. API has included a copy of the Agreement and Plan of Merger and Reorganization as Annex A to the accompanying joint proxy statement/prospectus. Only API stockholders of record at the close of business on February 13,March 23, 2015, the record date for the API special meeting, are entitled to notice of and to vote at the API special meeting or any adjournment or postponement of the API special meeting. At the close of business on February 13,March 23, 2015, API had 37,381,413 shares of common stock outstanding and entitled to vote. A list of API stockholders entitled to vote at the API special meeting will be available for inspection at API’s principal executive offices in Ann Arbor, Michigan at least 10 days before the date of the special meeting.

The board of directors of API has determined that the Agreement and Plan of Merger and Reorganization, sometimes referred to as the Merger Agreement, and the Merger are advisable and fair to, and in the best interests of, API and its stockholders and recommends that the API stockholders vote in favor of the adoption of the Merger Agreement.

The board of directors of API unanimously recommends that you vote FOR Proposal No. 1 to adopt the Merger Agreement and approve the transactions contemplated thereby and FOR Proposal No. 2 for an adjournment of the API special meeting from time to time, if necessary or appropriate (as determined by API), to solicit additional proxies if there are not sufficient votes in favor of the adoption and approval of the foregoing Proposal No. 1.

Even if you plan to attend the API special meeting in person, API requests that you sign and return the enclosed API proxy card, or submit your proxy by telephone or over the internet as instructed in these materials, to ensure that your API shares will be represented at the API special meeting if you are unable to attend.

By Order of the API Board of Directors,

Richard D. Kurtz

President and Chief Executive Officer

Ann Arbor, MI

February 17,            , 2015

PLEASE DO NOT SEND IN ANY API STOCK CERTIFICATES AT THIS TIME; FURTHER DOCUMENTATION FOR SUCH PURPOSE WILL BE SENT TO API STOCKHOLDERS AFTER APPROVAL AND COMPLETION OF THE MERGER.

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to be held on May 8, 2015: This Joint Proxy Statement/Prospectus is available at http://www.cstproxy.com/advancedphotonix/sm2015

REFERENCE TO ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about Luna and API from documents that are not included in or delivered with this joint proxy statement/prospectus. You can obtain such documents by requesting them in writing or by telephone from Luna or API, as the case may be, at the following addresses:

You will not be charged for any documents that you request. If you would like to request documents, please do so at least ten days before the meeting. See the section entitled “Where You Can Find More Information” for a detailed description of how to find additional documents related to this joint proxy statement/prospectus.

To ensure timely delivery of additional documents, you must request the information no later than five business days before the date of the special meeting.meeting for API or annual meeting for Luna. The last date to make a request is March 26,May 1, 2015.

ABOUT THIS DOCUMENT

This joint proxy statement/prospectus forms a part of a registration statement on Form S-4 (RegistrationNo. 333-201956), filed by Luna Innovations Incorporated with the U.S. Securities and Exchange Commission, and constitutes a prospectus of Luna under Section 5 of the Securities Act of 1933, as amended, and the rules thereunder, with respect to the shares of Luna common stock to be issued to securityholders of Advanced Photonix, Inc.API in connection with the proposed Merger Agreement and the transactions contemplated thereby.

In addition, this joint proxy statement/prospectus constitutes:

NOTE REGARDING TRADEMARKS

This joint proxy statement/prospectus may also include trademarks and trade names owned by other parties, and all other such trademarks and trade names mentioned in this joint proxy statement/prospectus are the property of their respective owners.

TABLE OF CONTENTS

ANNEXES

i

QUESTIONS AND ANSWERS ABOUT THE MERGER,

THE LUNA SPECIALANNUAL MEETING AND THE API SPECIAL MEETING

The following section provides answers to certain frequently asked questions about the proposed acquisition and the special meetingsannual meeting of the stockholders of Luna and the special meeting of the stockholders of API. Please note that this section may not address all issues that may be important to you as a Luna or API stockholder. To better understand these matters, and for a description of the legal terms governing the proposed transaction, Luna and API urge you to read carefully and in its entirety this joint proxy statement/prospectus, including the Annexes to this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 228.250.

About the Merger

In exchange for shares of API Class A common stock, par value $0.001, API’s only class of common stock outstanding (“API common stock”), the securityholders of API will receive shares of Luna common stock.

Should that occur, neither Luna nor API will be under any obligation to make or consider any alternative proposal regarding the combination of Luna and API. In certain circumstances, however, Luna or API may be obligated to pay the other party a termination fee or reimburse the other party for certain expenses, as further described in the section entitled “The Merger Agreement—Termination Fee” in this joint proxy statement/prospectus.

certain strategic and financial benefits, including the following: a reduction in costs and other synergies; an increase in product development capabilities; greater depth of relationships with customers and a broader portfolio of complementary products; and enhanced opportunities for growth and innovation.

In addition, certain stockholders of Luna have entered into Voting Agreements with API. Under the terms of these agreements, each party signing one of these agreements has agreed that (solely in his capacity as a

Luna stockholder), among other things, to vote all of his shares of Luna common stock in favor of the issuance of Luna common stock to be issued under the terms of the Merger Agreement and against any other action or agreement that is intended, or could reasonably be expected to, impede, interfere with, delay, postpone, or materially adversely affect the Merger or any of the other transactions contemplated by the Merger Agreement. These Voting Agreements also grant Donald Pastor, API’s chairman of the board of directors, and API an irrevocable proxy to vote the Luna shares subject to the agreements in accordance with the terms of the agreements. As of January 30,March 23, 2015, existing Luna stockholders owning in the aggregate 992,283992,783 shares of Luna common stock, representing approximately 6.6% of the Luna common stock, had entered into these Voting Agreements.

For a more complete description of the Voting Agreements, see the sections entitled “Certain Agreements Related to the Merger—Luna Voting Agreements” and “Certain Agreements Related to the Merger—API Voting Agreements” in this joint proxy statement/prospectus.

the terms set forth in the Merger Agreement. For more information regarding the treatment of the API restricted common stock, see the section entitled “The Merger Agreement—Merger Consideration” in this joint proxy statement/prospectus.

In the Merger Agreement, Luna has also agreed to take specified actions to nominate Mr. Pastor for election at the 2015 annual meeting of stockholders for a term expiring at Luna’s 2018 annual meeting of stockholders.

qualification. Assuming the Merger qualifies as a reorganization, API stockholders will not recognize gain or loss for U.S. federal income tax purposes upon the exchange of their shares of API common stock for shares of Luna common stock in connection with the Merger, except with respect to cash received in lieu of fractional shares of Luna common stock.

Tax matters are very complicated, and the tax consequences of the Merger to a particular stockholder will depend on such stockholder’s circumstances. Accordingly, Luna and API urge you to consult your tax advisor for a full understanding of the tax consequences of the Merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For a more complete discussion of the material U.S. federal income tax consequences of the Merger, see the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 107.112.

Proposal No. 1 to consider and vote upon a proposal to approve the issuance of shares of Luna common stock to securityholders of API, in connection with the Merger contemplated by the Merger Agreement, pursuant to which API will become a wholly owned subsidiary of Luna through the Merger; and

Proposal No. 2 to consider and vote upon an adjournment of the Luna annual meeting from time to time, if necessary or appropriate (as determined by Luna), to solicit additional proxies if there are not sufficient votes to approve the proposal described immediately above.

Proposal No. 1 and No. 2 are collectively referred to as the “Luna Merger Proposals.” Only holders of record of shares of Luna common stock at the close of business on the record date are entitled to notice of, and to vote at, the annual meeting. At the close of business on the record date, Luna had 15,095,017 shares of common stock outstanding and entitled to vote.

Proposal No. 4 to approve, on a non-binding, advisory basis, the compensation of Luna’s named executive officers, as disclosed in this joint proxy statement/prospectus; and

Proposal No. 5 to ratify the selection, by the Audit Committee of Luna’s board of directors, of Grant Thornton LLP as Luna’s independent registered public accounting firm for the fiscal year ending December 31, 2015.

The approval of Proposals No. 3, No. 4, and No. 5 are not conditions to the Merger.

Q.	As a Luna stockholder, how does the Luna board of directors recommend that I vote?

FOR Proposal No. 1 to approve the issuance of the shares of Luna common stock in connection with the Merger; and

FOR Proposal No. 2 to adjourn the Luna specialannual meeting from time to time, if necessary or appropriate (as determined by Luna), to solicit additional proxies if there are not sufficient votes to approve Proposal No. 1.1;

FOR Proposal No. 3 to elect My E. Chung and Neil D. Wilkin, Jr., as Class III members of the board of directors, to serve until Luna’s 2018 annual meeting of stockholders and until their successors are duly elected and qualified; provided, however, that, if the Merger is completed, the board of directors of Luna will be reconstituted as described in this joint proxy statement/prospectus;

FOR Proposal No. 4 to approve, on a non-binding, advisory basis, the compensation of Luna’s named executive officers, as disclosed in this joint proxy statement/prospectus; and

FOR Proposal No. 5 to ratify the selection, by the Audit Committee of Luna’s board of directors, of Grant Thornton LLP as Luna’s independent registered public accounting firm for the fiscal year ending December 31, 2015.

FOR Proposal No. 1 to adopt the Merger Agreement and approve the transactions contemplated thereby; and

FOR Proposal No. 2 to adjourn the API special meeting from time to time, if necessary or appropriate (as determined by API), to solicit additional proxies if there are not sufficient votes to adopt and approve Proposal No. 1.

of the closing conditions is that the required approvals are obtained at the Luna specialannual meeting to be held on March 31,May 8, 2015 and the API special meeting to be held on March 31,May 8, 2015. For more information regarding timing, see the section entitled “The Merger Agreement—Conditions to the Merger” in this joint proxy statement/prospectus.

If you are an API stockholder and your shares are held in “street name” by your broker or bank, your broker or bank will vote your shares only if you provide instructions on how to vote. You should follow the directions provided by your broker or bank regarding how to instruct your broker or bank to vote your shares.

If you are a Luna stockholder and your shares are held in “street name” by your broker or bank, and you do not instruct your broker, bank, or other agent how to vote your shares, your broker or bank may not vote your shares on Proposals No. 1, No. 3 or No. 4, but may vote your shares on Proposals No. 2 and No. 5. Please see the section labeled “Required Vote for Approval of Proposals at Luna Annual Meeting; Broker Non-Votes; Abstentions” on page 239 for more information. You should follow the directions provided by your broker or bank regarding how to instruct your broker or bank to vote your shares.

If you are a Luna stockholder of record and you do not submit a proxy and you do not attend the specialannual meeting in person, there will be no effect on the determination of whether the proposals have received the affirmative vote of a majority of the shares of common stock present or represented by proxy and entitled to vote on the subject matter at the meeting. If you submit a signed proxy without specifying the manner in which you would like your shares to be voted, your shares will be voted “FOR” the proposals. However, if your shares are held in “street name” and you do not instruct your broker how to vote your shares, your broker will not vote your shares (other than on Proposals No. 2 and No. 5), such failure to vote being referred to as a broker non-vote, in which case your shares will be counted for purposes of determining the presence or absence of a quorum for the approval of the proposals, but will have no effect on the outcome of the vote on the proposals.Proposals No. 1, No. 3 and No. 4. If you submit a proxy card or provide proxy instructions by telephone or over the internet and affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining the presence of a quorum for the Luna specialannual meeting, but will not be voted at the Luna specialannual meeting. As a result, your abstention will have the same effect as voting “AGAINST” the proposals.Proposals No. 1, No. 2, No. 4 and No. 5. Please follow the directions provided by your broker regarding how to instruct your broker to vote your shares in order to ensure that your shares will be voted at the specialannual meeting.

If you are an API stockholder of record and you do not submit a proxy, and you do not vote in person at the special meeting, the effect will be the same as if you voted “AGAINST” the adoption of the Merger Agreement. If you submit a signed proxy without specifying the manner in which you would like your shares to be voted, your shares will be voted “FOR” the adoption of the Merger Agreement. If your API shares are held in “street name” and you do not instruct your broker how to vote your shares, your broker will not vote your shares, such failure to vote being referred to as a broker non-vote, which will have the same effect as voting “AGAINST” the proposal to adopt the Merger Agreement. If you submit a proxy card or provide proxy instructions by telephone or over the internet and affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining the presence of a quorum for the API special meeting, but will not be voted at the API special meeting. As a result, your abstention will

have the same effect as voting “AGAINST” the proposals. Please follow the directions provided by your broker regarding how to instruct your broker to vote your shares in order to ensure that your shares will be voted at the special meeting.

About the Luna specialannual meeting and the API special meeting

If you are an API stockholder, if you fail to return your proxy or vote your shares in person, the effect will be the same as if you voted “AGAINST” the adoption of the Merger Agreement and your shares will not be counted for purposes of determining whether a quorum is present at the API special meeting. In the event that a quorum is not reached or the necessary votes are not received, the API special meeting may be adjourned to provide more time to obtain a quorum or the necessary votes.

If you are a Luna stockholder of record, you may attend the Luna specialannual meeting and vote your shares in person. However, even if you plan to attend the Luna specialannual meeting in person, Luna requests that you sign and return the enclosed Luna proxy card to vote your shares. If your shares of Luna common stock are held in a brokerage account or by another nominee, then you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card to return to your broker or other nominee to direct them to vote on your behalf. As the beneficial owner, you are also invited to attend the Luna specialannual meeting. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Luna specialannual meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

would like to revoke your proxy. You may also change your vote by attending the API special meeting or the Luna annual meeting and voting in person, although your attendance alone will not revoke your proxy. However, if you elect to vote in person at the API special meeting or Luna annual meeting and your shares are held by a broker, bank or other nominee, you must bring to the meeting a legal proxy from the broker, bank or other nominee authorizing you to vote the shares.

Please complete, sign, date and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this joint proxy statement/prospectus in the section entitled “The Luna Innovations Incorporated SpecialAnnual Meeting of Stockholders.”

Please complete, sign, date and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this joint proxy statement/prospectus in the section entitled “The Advanced Photonix, Inc. Special Meeting of Stockholders.”

Luna Innovations Incorporated

Attn: Secretary

One Riverside Circle, Suite 400

Roanoke, Virginia 24016

Telephone: (540) 769-8400

Email: ir@lunainc.com

If you are an API stockholder, and would like additional copies, without charge, of this joint proxy statement/prospectus, or if you have questions about the Merger, including the procedures for voting your shares, you should contact:

Advanced Photonix, Inc.

Attn: President

2925 Boardwalk

Ann Arbor, MI 48104

Telephone: (734) 864-5647

Email: Rkurtz@advancedphotonix.com

                         or

API’s proxy solicitation agent

The Proxy Advisory Group, LLC^®

18 East 41^st Street, New York, NY 10017

Telephone: (888) 557-7699 or (888) 55-PROXY (toll free) or (212) 610-2181

RISK FACTORS

The Merger involves risks for Luna stockholders and API stockholders. Luna stockholders will be choosing to permit dilution of their percentage ownership of Luna by voting in favor of the issuance of additional shares of Luna common stock in order to complete the Merger. API stockholders will be choosing to no longer control 100% of API and to become stockholders of Luna by voting in favor of the adoption of the Merger Agreement and approval of the transactions contemplated thereby. In addition to the risks that their respective businesses currently face, after the Merger, Luna will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. These risk factors are not intended to represent a complete list of risks that may affect Luna, API and the combined business, and these risk factors may not be exhaustive. You should carefully consider the risks described below and the other information contained in this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Concerning Forward-Looking Statements,” before deciding how to vote your shares of common stock.

Risks Relating to the Merger

API stockholders will receive a fixed ratio of 0.31782 shares of Luna common stock for each share of API common stock they own regardless of any changes in market value of API common stock or Luna common stock before the completion of the Merger.

At the Effective Time of the Merger, each share of API common stock will be converted into the right to receive 0.31782 shares of Luna common stock and cash in lieu of any fractional shares of Luna common stock that would be issued. There will be no adjustment to the exchange ratio (except for adjustments to reflect the effect of any stock split, reverse stock split, stock dividend, reorganization, recapitalization, reclassification or other like change with respect to Luna common stock or API common stock), and the parties do not have a right to terminate the Merger Agreement based upon changes in the market price of either Luna common stock or API common stock. Accordingly, the dollar value of Luna common stock that API stockholders will receive upon completion of the Merger will depend upon the market value of Luna common stock at the time of completion of the Merger, which may be different from, and lower or higher than, the closing price of Luna common stock on January 30, 2015, the last full trading day preceding the public announcement of the Merger, on                 January 30,, 2015, that Luna and API, the last full trading day prior to the date of this joint proxy statement/prospectus, or May 7, 2015, the last full trading day prior to the date of the stockholder meetings. Moreover, completion of the Merger may occur sometime after the requisite stockholder approvals have been obtained. The market values of Luna common stock and API common stock have varied since Luna and API entered into the Merger Agreement and will continue to vary in the future due to changes in the business, operations or prospects of Luna and API, market assessments of the Merger, regulatory considerations, market and economic considerations, and other factors both within and beyond the control of Luna and API.

The issuance of shares of Luna common stock to API stockholders in the Merger will substantially reduce the percentage interests of Luna stockholders.

If the Merger is completed, Luna and API expect that (i) approximately 11,880,560 shares of Luna common stock would be issued to existing API common stockholders (including holders of shares subject to a repurchase option or obligation, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with API) and (ii) upon exercise or settlement of assumed options and warrants, up to approximately 1,081,042 shares will be issued to holders of assumed options and warrants.

Existing Luna common stockholders on the one hand, and former API common stockholders on the other hand, are expected to own approximately 56% and 44%, respectively, of the outstanding shares of Luna common stock following the completion of the Merger based on each of Luna’s and API’s outstanding common shares as of January 30, 2015. Upon attributing ownership to the former API stockholders of the shares of common stock that may be issued upon exercise of the options or warrants to purchase Luna common stock issued as a result of the

Merger, and attributing ownership of the shares of Luna common stock issuable upon exercise of outstanding Luna options and restricted stock units (but excluding, for this purpose, the shares of Luna common stock issuable upon conversion of Luna’s outstanding Series A convertible preferred stock and upon payment of accrued dividends thereon), existing Luna securityholders would own approximately 57% of the common stock of Luna on a fully diluted basis and the former API securityholders would own approximately 43% of the common stock of Luna on a fully diluted basis.basis, before giving effect to the potential exercise of put rights by the holders of certain API warrants. The issuance of shares of Luna common stock to API stockholders in the Merger and the assumption by Luna of API options and warrants will cause a significant reduction in the relative percentage interest of current Luna securityholders in earnings, voting, liquidation value and book and market value.

Certain directors and executive officers of Luna and API have interests in the Merger that may be different from, or in addition to, the interests of Luna stockholders and API stockholders.

Executive officers of Luna and API negotiated the terms of the Merger Agreement under the direction of the board of directors of Luna and API, respectively. The board of directors of Luna approved the Merger Agreement and unanimously recommended that Luna stockholders vote in favor of the issuance of shares of Luna common stock in connection with the Merger, and the board of API unanimously approved the Merger Agreement and the transactions contemplated thereby and unanimously recommended that API stockholders vote in favor of the adoption of the Merger Agreement and approval of the transactions contemplated thereby. These directors and executive officers may have interests in the Merger that are different from, or in addition to, or may be deemed to conflict with, yours. These interests include the continued employment of certain executive officers of Luna by Luna, the continued positions of certain directors of Luna and API as directors of the combined company and the indemnification of former Luna and API directors and officers by the combined company. Certain of API’s president and chief executive officersofficer, Richard D. Kurtz, will not be continuing employment with the combined company and, as a result, will be entitled to severance payments under thehis employment agreementsagreement with API. Additionally, the Luna executive officers will be entitled to receive certain bonuses as a result of the completion of the Merger under the terms of the 2014 senior management incentive plan. Luna stockholders should be aware of these interests when they consider the Luna board of directors’ recommendation that Luna stockholders vote in favor of the proposal to issue shares of Luna common stock in the Merger, and API stockholders should be aware of these interests when they consider the API board of directors’ recommendation that they vote in favor of the adoption of the Merger Agreement and approval of the transactions contemplated thereby. For a more detailed discussion of these and other interests of Luna and API directors and executive officers in the Merger, see “Interests of Directors, Executive Officers and Affiliates of Luna” and “Interests of Directors, Executive Officers and Affiliates of API” beginning on page 106 and page 105, respectively,109 of this joint proxy statement/prospectus.

Provisions of the Merger Agreement may deter alternative business combinations and could negatively impact the stock prices of Luna and API if the Merger Agreement is terminated in certain circumstances.

In connection with the execution and delivery of the Merger Agreement, API and Luna agreed to refrain from soliciting, initiating, or knowingly encouraging or facilitating certain acquisition proposals with any third party, subject to exceptions set forth in the Merger Agreement. The Merger Agreement also provides for the payment by Luna or API of a nonrefundable reimbursement fee of up to $250,000 or termination fee of $750,000 if the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement. See the section entitled “The Merger Agreement—Termination Fee” and “The Merger Agreement—Expenses” beginning on pages 120 and 121, respectively,page 126 of this joint proxy statement/prospectus. These provisions limit Luna’s and API’s ability to pursue offers from third parties that could result in greater value to Luna stockholders or API stockholders, as the case may be. The obligation to pay the termination fee or reimbursement fee also may discourage a third party from pursuing an acquisition proposal. If the Merger is terminated and Luna or API determine to seek another business combination, neither Luna nor API can assure its stockholders that they will be able to negotiate a transaction with another company on terms comparable to the terms of the Merger, or that they will avoid incurrence of any fees associated with the termination of the Merger Agreement.

In the event the Merger is terminated by Luna or API in circumstances that obligate either party to pay the termination fee or reimbursement fee to the other party, including where either party terminates the Merger Agreement because the other party’s board of directors withdraws its support of the Merger, Luna’s and/or API’s stock prices may decline.

If the proposed Merger is not completed, Luna and API will have incurred substantial costs that may adversely affect Luna’s and API’s financial results and operations and the market price of Luna and API common stock.

If the Merger is not completed, the prices of Luna common stock and API common stock may decline to the extent that the current market prices of Luna common stock and API common stock reflect a market assumption that the Merger will be completed. In addition, Luna and API have incurred and will incur substantial costs in connection with the proposed Merger. These costs are primarily associated with the fees of attorneys, accountants and Luna’s and API’s financial advisors. In addition, Luna and API have each diverted significant management resources in an effort to complete the Merger and are each subject to restrictions contained in the Merger Agreement on the conduct of their respective businesses during the pendency of the Merger. If the Merger is not completed, Luna and API will have received little or no benefit in respect of such costs incurred. Also, if the Merger is not completed under certain circumstances specified in the Merger Agreement, Luna or API may be required to pay a termination fee to the other of $750,000 or a reimbursement fee to the other of up to $250,000. See the section entitled “The Merger Agreement—Termination Fee” and “The Merger Agreement—Expenses” beginning on pages 120 and 121, respectively,page 126 of this joint proxy statement/prospectus.

Further, if the Merger is not completed, Luna and API may experience negative reactions from the financial markets and Luna’s and API’s suppliers, customers and employees. Each of these factors may adversely affect the trading price of Luna and/or API common stock and Luna’ and/or API’s financial results and operations.

Risks Relating to the Combined Company

The failure to integrate successfully the businesses of Luna and API in the expected timeframe would adversely affect the combined company’s future results and the market price of the combined company’s common stock following the completion of the Merger.

The success of the Merger will depend, in large part, on sales of the combined company’s products and on the ability of the combined company following the completion of the Merger to realize the anticipated benefits, including annual net operating synergies and cost reductions from combining the businesses of Luna and API. To realize these anticipated benefits, the combined company must successfully integrate Luna’s and API’s respective businesses. This integration will be complex and time-consuming.

The failure to successfully integrate and manage the challenges presented by the integration process may result in the combined company’s failure to achieve some or all of the anticipated benefits of the Merger.

Potential difficulties that may be encountered in the integration process include the following:

If any of these events were to occur, the ability of the combined company to maintain relationships with customers, suppliers and employees or the combined company’s ability to achieve the anticipated benefits of the Merger could be adversely affected, or could reduce the combined company’s earnings or otherwise adversely affect its business and financial results after the Merger and, as a result, adversely affect the market price of the combined company’s common stock.

The market price for shares of the combined company’s common stock may be affected by factors different from those affecting the market price for shares of Luna common stock and API common stock prior to the Merger.

The risks associated with the combined company may affect the results of operations of the combined company differently than they could affect the results of operations of each of Luna and API as separate companies. Additionally, the results of operations of the combined company may be affected by additional or different factors than those that currently affect the results of operations of Luna and API, including, but not limited to: complexities associated with managing the larger, more complex, combined business; integrating personnel from the two companies while maintaining focus on providing products and services; and potential performance shortfalls resulting from the diversion of management’s attention caused by integrating the companies’ operations.

Failure to develop, introduce and sell new products or failure to develop and implement new technologies could adversely impact the financial results of the combined company.

Success of the combined company will depend on its ability to develop and introduce new products and software platforms that customers choose to buy. The new products the market requires tend to be increasingly complex, incorporating more functions and operating at faster speeds than old products. If the combined company fails to introduce new product designs or technologies in a timely manner or if customers do not successfully introduce new systems or products incorporating products of the combined company, the business, financial condition and results of operations of the combined company could be materially harmed.

The Merger will result in changes to the Luna board of directors that may affect the combined company’s operations.

If the parties complete the Merger, the composition of the Luna board of directors will change in accordance with the Merger Agreement. This new composition of the board of directors may affect the business strategy and operating decisions of the combined company upon completion of the Merger.

If API stockholders sell the shares of Luna common stock received in the Merger, they could cause a decline in the market price of the combined company’s common stock.

Luna’s issuance of common stock in the Merger will be registered with the SEC. As a result, those shares will be immediately available for resale in the public market following the completion of the Merger. As of January 30,February 28, 2015, if the Merger occurred on such date, the number of shares of Luna common stock to be issued to existing API common stockholders, collectively, in connection with the Merger and immediately available for resale would have equaled approximately 44% of the number of outstanding shares of Luna common stock as of such date prior to giving effect to such issuance. API stockholders may sell the stock they receive commencing immediately after the Merger. If this occurs, or if there is a perception in the market that such sales may occur, the market price of the combined company’s common stock may decline.

The unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus may not be indicative of what the combined company’s actual financial position or results of operations would have been.

The unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus is presented solely for illustrative purposes and is not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the Merger been completed on the dates indicated. This unaudited pro forma condensed combined financial information reflects adjustments that were developed using preliminary estimates based on available information and various assumptions, and may be revised as additional information becomes available. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus.

Customer uncertainties related to the Merger could adversely affect the businesses, revenues and gross margins of Luna, API and the combined company.

In response to the announcement of the Merger or due to ongoing uncertainty about the Merger, customers of Luna or API may delay or defer purchasing decisions or elect to switch to other suppliers. In particular, prospective customers could be reluctant to purchase the products and services of Luna, API or the combined company due to uncertainty about the direction of the combined company’s offerings and willingness to support existing products. To the extent that the Merger creates uncertainty among those persons and organizations contemplating purchases such that customers delay, defer or change purchase decisions in connection with the planned Merger, the revenues of Luna, API or the combined company would be adversely affected. Customer assurances may be made by Luna and API to address their customers’ uncertainty about the direction of the combined company’s product and related support offerings, which may result in additional obligations of Luna, API or the combined company. As a result of any of these actions, quarterly revenues and net earnings of Luna, API or the combined company could be substantially below market expectations and a decline in the companies’ respective stock prices could result.

The combined company must continue to retain, recruit and motivate executive officers and other key employees, and failure to do so could negatively affect the combined company.

The combined company must be successful at retaining, recruiting, and motivating key employees following the completion of the Merger in order for the benefits of the transaction to be fully realized. Employees of both Luna and API may experience uncertainty about their future roles with the combined company until, or even after, strategies with regard to the combined company are announced and executed. The potential distractions related to the Merger may adversely affect the ability of the combined company to keep executives and other key employees focused on business strategies and goals, to address other important personnel matters and to retain them at all. A failure by the combined company to attract, retain, and motivate executives and other key employees during the period prior to or after the completion of the Merger could have a negative impact on their respective businesses.

TheLuna and API have been named as parties to securities class action litigation. In the future, the combined company may become involved in securities class action litigation that could divert management’s attention and harm the combined company’s business and insurance coverage may not be sufficient to cover all costs and damages.

InAfter the past, securitiesannouncement of the Merger, three separate putative class action complaints were filed in Michigan and Delaware, alleging claims of breach of fiduciary duty against API and the API board of directors and naming Luna as a defendant for aiding and abetting the alleged breach of fiduciary duty, and seeking injunctive relief and unspecified damages. Although API and Luna have entered into a memorandum of understanding, or MOU, with counsel of each of the plaintiffs in these actions providing for the settlement of this litigation often follows certain significant business transactions, such asand a release of claims against API, Luna and the saleother defendants, the MOU and the settlement are contingent upon, among other things, court approval and consummation of the Merger. It is possible that the MOU may not be approved

or that other conditions of the settlement are not satisfied, in which case API and Luna would continue to be subject to these claims. An adverse judgment for monetary damages could have a business divisionmaterial adverse effect on the operations and liquidity of the combined company. A preliminary injunction could delay or a merger. jeopardize the completion of the Merger, and an adverse judgment granting permanent injunctive relief could indefinitely enjoin completion of the Merger. It is also possible that Luna and API could be subject to additional litigation in connection with the Merger.

The combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the combined company’s business. Moreover, insurance coverage may not be sufficient to cover all costs and damages the combined company incurs in connection with the litigation.

Risks Relating to Luna’s Business

Luna’s technology is subject to a license from Intuitive Surgical, Inc., which is revocable in certain circumstances. Without this license, Luna cannot continue to market, manufacture or sell Luna’s fiber-optic products.

As a part of the sale of Luna’s assets to Intuitive Surgical, Inc., or Intuitive, Luna entered into a license agreement with Intuitive pursuant to which Luna received rights to use all of Luna’s transferred technology outside the field of medicine and in respect of Luna’s existing non-shape sensing products in certain non-robotic medical fields. This license back to Luna is revocable if after notice and certain time periods, Luna were to (i) challenge the validity or enforceability of the transferred patents and patent applications, (ii) commercialize Luna’s fiber optical shape sensing and localization technology in the field of medicine (except to perform on a development and supply project for Hansen)Hansen Medical Inc.), (iii) violate Luna’s obligations related Luna’s ability to sublicense in the field of medicine or (iv) violate Luna’s confidentiality obligations in a manner that advantages a competitor in the field of medicine and not cure such violation. Maintaining this license is necessary for Luna to conduct Luna’s fiber-optic products business, both for Luna’s telecom products and Luna’s ODiSI sensing products. If this license were to be revoked by Intuitive, Luna would no longer be able to market, manufacture or sell these products which would severely limit Luna’s ability to continue operations.

If there are substantial sales of Luna’s common stock, or the perception that such sales may occur, Luna’s stock price could decline.

If any of Luna’s stockholders were to sell substantial amounts of Luna’s common stock, the market price of Luna’s common stock may decline, which might make it more difficult for Luna to sell equity or equity-related securities in the future at a time and price that Luna deems appropriate. Substantial sales of Luna’s common stock, or the perception that such sales may occur, may have a material adverse effect on the prevailing market price of Luna’s common stock.

Pursuant to an Investor Rights Agreement, Luna filed a Form S-3 registration statement earlier in 2014 registering the potential resale of an aggregate of up to approximately 6.3 million shares of Luna’s common stock by Luna’s then two largest stockholders, Carilion Clinic, or Carilion and Dr. Kent Murphy. This registration statement has been declared effective by the Securities and Exchange Commission, and Dr. Murphy has sold substantially all of his approximately 2.8 million shares included in the registration statement. Carilion continues to hold its approximately 3.5 million shares covered by the registration statement (including approximately 1.3 million shares issuable to Carilion upon conversion of shares of Series A Convertible Preferred Stock that Carilion holds). Because the registration statement is effective, these shares may be sold freely in the public market. Any sales of these shares, or the perception that future sales of shares may occur by Carilion or any of Luna’s other significant stockholders, may have a material adverse effect on the market price of Luna’s stock. Any such continuing material adverse effect on the market price of Luna’s stock could impair Luna’s ability to comply with NASDAQ’s continuing listing standards in respect of Luna’s minimum stock price, as further described below.

Luna’s narrowed scope and focus may make it more difficult for Luna to achieve or maintain operating profitability.

Through the recent sales of SCC to Mac-B and of Luna’s medical shape sensing business to Intuitive, Luna has reduced Luna’s overall size and narrowed Luna’s focus to one key growth objective: to become the leading provider of fiber optic strain & temperature sensing solutions and standard test methods for composite, as well as non-composite, materials, structures and systems. There can be no guarantee that Luna will be successful in pursuing this objective. Although Luna anticipates realizing cost savings as a result of the sale of assets to Mac-B and Intuitive, Luna will continue to incur significant operating expenses associated with Luna’s public company infrastructure. Accordingly, Luna will need to significantly increase the revenues Luna generates from Luna’s remaining operations in order to achieve or maintain operating profitability, and there can be no guarantee that Luna will be able to do so.

Luna depends on third-party vendors for specialized components in Luna’s manufacturing operations, making Luna vulnerable to supply shortages and price fluctuations that could harm Luna’s business.

Luna primarily relies on third-party vendors for the manufacture of the specialized components used in Luna’s products. The highly specialized nature of Luna’s supply requirements poses risks that Luna may not be able to locate additional sources of the specialized components required in Luna’s business. For example, there are few manufacturers who produce the special lasers used in Luna’s optical test equipment. Luna’s reliance on these vendors subjects Luna to a number of risks that could negatively affect Luna’s ability to manufacture Luna’s products and harm Luna’s business, including interruption of supply. Although Luna is now manufacturing tunable lasers in low-rate initial production, Luna expects an overall reliance on third-party vendors to continue. Any significant delay or interruption in the supply of components, or Luna’s inability to obtain substitute components or materials from alternate sources at acceptable prices and in a timely manner could impair Luna’s ability to meet the demand of Luna’s customers and could harm Luna’s business.

As a provider of contract research to the U.S. government, Luna is subject to federal rules, regulations, audits and investigations, the violation or failure of which could adversely affect Luna’s business.

Luna must comply with and is affected by laws and regulations relating to the award, administration and performance of U.S. government contracts. Government contract laws and regulations affect how Luna does business with Luna’s government customers and, in some instances, impose added costs on Luna’s business. A violation of a specific law or regulation could result in the imposition of fines and penalties, termination of Luna’s contracts or debarment from bidding on contracts. In some instances, these laws and regulations impose terms or rights that are more favorable to the government than those typically available to commercial parties in negotiated transactions. For example, the U.S. government may terminate any of Luna’s government contracts and, in general, subcontracts, at their convenience, as well as for default based on performance.

In addition, U.S. government agencies, including the Defense Contract Audit Agency and the Department of Labor, routinely audit and investigate government contractors. These agencies review a contractor’s performance under its contracts, cost structure and compliance with applicable laws, regulations and standards. The U.S. government also may review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, while such costs already reimbursed must be refunded. If an audit uncovers the inclusion of certain claimed costs deemed to be expressly unallowable, as with the preliminary audit report Luna received in September 2014 from the Defense Contract Audit Agency, or improper or illegal activities, Luna may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. In addition, Luna’s reputation could suffer serious harm if allegations of impropriety were made against Luna.

In addition to the risk of government audits and investigations, U.S. government contracts and grants impose requirements on contractors and grantees relating to ethics and business practices, which carry civil and criminal penalties including monetary fines, assessments, loss of the ability to do business with the U.S. government and certain other criminal penalties.

Luna may also be prohibited from commercially selling certain products that Luna develops under Luna’s Technology Development segment or related products based on the same core technologies if the U.S. government determines that the commercial availability of those products could pose a risk to national security. For example, certain of Luna’s wireless technologies have been classified as secret by the U.S. government and as a result Luna cannot sell them commercially. Any of these determinations would limit Luna’s ability to generate product sales and license revenues.

Luna’s failure to attract, train and retain skilled employees or members of Luna’s senior management and to obtain necessary security clearances for such persons or maintain a facility security clearance would adversely affect Luna’s business and operating results.

The availability of highly trained and skilled technical and professional personnel is critical to Luna’s future growth and profitability. Competition for scientists, engineers, technicians and professional personnel is intense and Luna’s competitors aggressively recruit key employees. In the past, Luna has experienced difficulties in recruiting and hiring these personnel as a result of the tight labor market in certain fields. Any difficulty in hiring or retaining qualified employees, combined with Luna’s growth strategy and future needs for additional experienced personnel, particularly in highly specialized areas such as nanomaterial manufacturing and fiber optic sensing technologies, may make it more difficult to meet all of Luna’s needs for these employees in a timely manner. Although Luna intends to continue to devote significant resources to recruit, train and retain qualified employees, Luna may not be able to attract and retain these employees, especially in technical fields in which the supply of experienced qualified candidates is limited, or at the senior management level. Any failure to do so would have an adverse effect on Luna’s business. Any loss of key personnel could have a material adverse effect on Luna’s ability to meet key operational objectives, such as timely and effective project milestones and product introductions, which in turn could adversely affect Luna’s business, results of operations and financial condition.

Luna provides certain services to the U.S. government that require Luna to maintain a facility security clearance and for certain of Luna’s employees and Luna’s board chairman to hold security clearances. In general, the failure for necessary persons to obtain or retain sufficient security clearances, any loss by Luna of a facility security clearance or any public reprimand related to security matters could result in a U.S. government customer terminating an existing contract or choosing not to renew a contract or prevent Luna from bidding on or winning certain new government contracts.

In addition, Luna’s future success depends in a large part upon the continued service of key members of Luna’s senior management team. Luna does not maintain any key-person life insurance policies on Luna’s officers. The loss of any members of Luna’s management team or other key personnel could seriously harm Luna’s business.

Luna relies and will continue to rely on contracts and grants awarded under the SBIR program for a significant portion of Luna’s revenues. A finding by the SBA that Luna no longer qualifies to receive SBIR awards could adversely affect Luna’s business.

Luna competes as a small business for some of Luna’s government contracts. Luna’s revenues derived from the Small Business Innovation Research, or SBIR, program account for a significant portion of Luna’s consolidated total revenues, and contract research, including SBIR contracts, will remain a significant portion of Luna’s consolidated total revenues for the foreseeable future. For the year ended December 31, 2013, approximately 54% of Luna’s total revenues were generated under the SBIR program, compared to 47% in 2014.

Luna may not continue to qualify to participate in the SBIR program or to receive new SBIR awards from federal agencies. In order to qualify for SBIR contracts and grants, Luna must meet certain size and ownership eligibility criteria. These eligibility criteria are applied as of the time of the award of a contract or grant. A company can be declared ineligible for a contract award as a result of a size challenge filed with the SBA by a competitor or a federal agency.

In order to be eligible for SBIR contracts and grants, under current SBA rules Luna must be more than 50% owned and controlled by individuals who are U.S. citizens or permanent resident aliens, and/or other small business concerns (each of which is more than 50% owned and controlled by individuals who are U.S. citizens or permanent resident aliens) or certain qualified investment companies. In the event Luna’s institutional ownership significantly increases, either because of increased buying by institutions or selling by individuals, Luna could lose eligibility for new SBIR contracts and grants.

Also, in order to be eligible for SBIR contracts and grants, the number of Luna’s employees, including those of any entities that are considered to be affiliated with us,Luna, cannot exceed 500. As of January 30, 2015, Luna had approximately 117 employees. In determining whether Luna is affiliated with any other entity, the SBA may analyze whether another entity controls or has the power to control us.Luna. Carilion is Luna’s largest institutional stockholder. Since early 2011, a formal size determination by the SBA that focused on whether or not Carilion is or was Luna’s affiliate has been outstanding. Although Luna does not believe that Carilion has or had the power to control Luna, it cannot assure you that the SBA will interpret its regulations in Luna’s favor on this question. If the SBA were to make a determination that Luna is or was affiliated with Carilion, Luna would exceed the size limitations, as Carilion has over 500 employees. In that case, Luna would lose eligibility for new SBIR contracts and grants and other awards that are set aside for small businesses based on the criterion of number of employees, and the relevant government agency would have the discretion to suspend performance on existing SBIR grants. The loss of Luna’s eligibility to receive SBIR awards would have a material adverse impact on Luna’s revenues, cash flows and Luna’s ability to fund Luna’s growth.

Moreover, as Luna’s business grows, it is foreseeable that Luna will eventually exceed the SBIR size limitations, in which case Luna may be required to seek alternative sources of revenues or capital.

A decline in government research contract awards or government funding for existing or future government research contracts, including SBIR contracts, could adversely affect Luna’s revenues, cash flows and ability to fund Luna’s growth.

Technology development revenues, which consist primarily of government-funded research, accounted for approximately 57%62% and 67%57% of Luna’s consolidated total revenues for the three monthsyears ended September 30,December 31, 2013 and 2014, and 2013, respectively. As a result, Luna is vulnerable to adverse changes in Luna’s revenues and cash flows if a significant number of Luna’s research contracts and subcontracts were to be simultaneously delayed or canceled for budgetary, performance or other reasons. For example, the U.S. government may cancel these contracts at any time without cause and without penalty or may change its requirements, programs or contract budget, any of which could reduce Luna’s revenues and cash flows from U.S. government research contracts. Luna’s revenues and cash flows from U.S. government research contracts and subcontracts could also be reduced by declines or other changes in U.S. defense, homeland security and other federal agency budgets. In addition, Luna competes as a small business for some of these contracts, and in order to maintain Luna’s eligibility to compete as a small business, Luna, together with any affiliates, must continue to meet size and revenue limitations established by the U.S. government.

Luna’s contract research customer base includes government agencies, corporations and academic institutions. Luna’s customers are not obligated to extend their agreements with Luna and may elect not to do so. Also, Luna’s customers’ priorities regarding funding for certain projects may change and funding resources may no longer be available at previous levels.

In addition, the Budget Control Act commits the U.S. Government to reduce the federal deficit by $1.2 trillion over ten years through a combination of automatic, across-the-board spending cuts and caps on discretionary spending. This “sequestration” under the Budget Control Act, which is split equally between defense and non-defense programs, went into effect on March 1, 2013. The appropriate resolution reflecting a budget deal for fiscal years 2014 and 2015 reduces but does not eliminate these sequestration cuts. Any spending cuts required by “sequestration” could have a material adverse effect on Luna’s technology development revenues and, consequently, Luna’s results of operations. While the exact manner in which this “sequestration” may impact Luna’s business remains unclear, funding for programs in which Luna participates could be reduced, delayed or canceled. Luna’s ability to obtain new contract awards also could be negatively affected.

In addition to contract cancellations and changes in agency budgets, Luna’s future financial results may be adversely affected by curtailment of or restrictions on the U.S. government’s use of contract research providers, including curtailment due to government budget reductions and related fiscal matters or any legislation or

resolution limiting the number or amount of awards Luna may receive. These or other factors could cause U.S. defense and other federal agencies to conduct research internally rather than through commercial research organizations or direct awards to other organizations, to reduce their overall contract research requirements or to exercise their rights to terminate contracts. Alternatively, the U.S. government may discontinue the SBIR program or its funding altogether. Also, SBIR regulations permit increased competition for SBIR awards from companies that may not have previously been eligible, such as those backed by venture capital operating companies, hedge funds and private equity firms. Any of these developments could limit Luna’s ability to obtain new contract awards and adversely affect Luna’s revenues, cash flows and ability to fund Luna’s growth.

The results of Luna’s operations could be adversely affected by economic and political conditions and the effects of these conditions on Luna’s customers’ businesses and levels of business activity.

Global economic and political conditions affect Luna’s customers’ businesses and the markets they serve. A severe or prolonged economic downturn or a negative or uncertain political climate could adversely affect Luna’s customers’ financial conditions and the timing or levels of business activity of Luna’s customers and the industries Luna serves. This may reduce the demand for Luna’s products or depress pricing for Luna’s products and have a material adverse effect on Luna’s results of operations. Changes in global economic conditions could also shift demand to products or services for which Luna does not have competitive advantages, and this could negatively affect the amount of business Luna is able to obtain. In addition, if Luna is unable to successfully anticipate changing economic and political conditions, Luna may be unable to effectively plan for and respond to those changes, and Luna’s business could be negatively affected as a result.

There was a rapid softening of the economy and tightening of the financial markets in 2008 and 2009. This slowing of the economy has reduced the financial capacity of some of Luna’s customers and, to the extent that such economic conditions continue in certain industries, it could continue to affect Luna’s potential customers, thereby slowing spending on the products and services Luna provides. The outlook for the economy in 2015 and beyond remains uncertain, and until there is a sustained economic recovery Luna’s revenues and results of operations could be negatively impacted.

Luna has a history of losses, and because Luna’s strategy for expansion may be costly to implement, Luna may experience continuing losses and may never achieve or maintain profitability or positive cash flow.

Luna realized a net loss from continuing operations of $0.5$5.5 million and $3.4 million for the three monthsyears ended September 30,December 31, 2013 and 2014, compared to $0.8 million for the same period in 2013.respectively. Luna expects to continue to incur significant expenses as Luna pursues strategic initiatives, including increased expenses for research and development, sales and marketing and manufacturing. Luna’s business may grow in part through acquisitions of additional companies and complementary technologies which could cause Luna to incur greater than anticipated transaction expenses, amortization or write-offs of intangible assets and other acquisition-related expenses. As a result, Luna expects to incur net losses for the foreseeable future, and these losses could be substantial. At a certain level, continued net losses could impair Luna’s ability to comply with NASDAQ continued listing standards, as described further below.

Luna’s ability to generate additional revenues and to become profitable will depend on Luna’s ability to execute Luna’s key growth initiative regarding the development, marketing and sale of sensing products, develop and commercialize innovative technologies, expand Luna’s contract research capabilities and sell the products that result from those development initiatives. Luna is unable to predict when or if Luna will be able to achieve profitability. If Luna’s revenues do not increase, or if Luna’s expenses increase at a greater rate than Luna’s revenues, Luna will continue to experience losses. Even if Luna does achieve profitability, Luna may not be able to sustain or increase Luna’s profitability on a quarterly or annual basis.

Luna has obtained capital by borrowing money under a term loan and Luna might require additional capital to support and expand Luna’s business; Luna’s term loan has various loan covenants with which Luna must comply.

Luna intends to continue to make investments to support Luna’s business growth, including developing new products, enhancing Luna’s existing products, obtaining important regulatory approvals, enhancing Luna’s operating infrastructure, completing Luna’s development activities and building Luna’s commercial scale manufacturing facilities. To the extent that Luna is unable to become or remain profitable and to finance Luna’s activities from Luna’s continuing operations, Luna may require additional funds to support these initiatives and to grow Luna’s business.

If Luna is successful in raising additional funds through issuances of equity or convertible debt securities, Luna’s existing stockholders could suffer significant dilution, including as the result of the issuance of warrants in connection with the financing, and any new equity securities Luna issues could have rights, preferences and privileges superior to those of Luna’s existing common stock. Furthermore, such financings may jeopardize Luna’s ability to apply for SBIR grants or qualify for SBIR contracts or grants, and Luna’s dependence on SBIR grants may restrict Luna’s ability to raise additional outside capital. If Luna raises additional funds through debt financings, these financings may involve significant cash payment obligations and covenants that restrict Luna’s ability to operate Luna’s business and make distributions to Luna’s stockholders.

Luna has a term loan with Silicon Valley Bank, or SVB, which requires Luna to observe certain financial and operational covenants, including maintenance of a specified cash balance, protection and registration of intellectual property rights, and certain customary negative covenants, as well as other customary events of default. If any event of default occurs SVB may declare due immediately all borrowings under Luna’s term loan and foreclose on the collateral. Furthermore, an event of default would result in an increase in the interest rate on any amounts outstanding.

If Luna is unable to obtain adequate financing or financing terms satisfactory to Luna when Luna requires it, Luna’s ability to continue to support Luna’s business growth and to respond to business challenges could be significantly limited.

Risks Relating to Luna’s Operations and Business Strategy

If Luna cannot successfully transition Luna’s revenue mix from contract research revenues to product sales and license revenues, Luna may not be able to fully execute Luna’s business model or grow Luna’s business.

Luna’s business model and future growth depend on Luna’s ability to transition to a revenue mix that contains significantly larger product sales and revenues from the provision of services or from licensing. Product sales and these revenues potentially offer greater scalability than contract research revenues. Luna’s current plan is to increase Luna’s sales of commercial products, Luna’s licensing revenues and Luna’s provision of non-research services to customers so as to represent a larger percentage of Luna’s total revenues. If Luna is unable to develop and grow Luna’s product sales and revenues from the provision of services or from licensing to augment Luna’s contract research revenues, however, Luna’s ability to execute Luna’s business model or grow Luna’s business could suffer. There can be no assurance that Luna will be able to achieve increased revenues in this manner.

If Luna is unable to manage growth effectively, Luna’s revenues and net loss could be adversely affected.

Luna may need to expand Luna’s personnel resources to grow Luna’s business effectively. Luna believes that sustained growth at a higher rate will place a strain on Luna’s management as well as on Luna’s other human resources. To manage this growth, Luna must continue to attract and retain qualified management, professional, scientific and technical and operating personnel. If Luna is unable to recruit a sufficient number of qualified personnel, Luna may be unable to staff and manage projects adequately, which in turn may slow the rate of growth of Luna’s contract research revenues or Luna’s product development efforts.

Luna may not be successful in identifying market needs for new technologies or in developing new products.

Part of Luna’s business model depends on Luna’s ability to correctly identify market needs for new technologies. Luna intends to identify new market needs, but Luna may not always have success in doing so in part because Luna’s contract research largely centers on identification and development of unproven technologies, often for new or emerging markets. Furthermore, Luna must identify the most promising technologies from a sizable pool of projects. If Luna’s commercialization strategy process fails to identify projects with commercial potential or if management does not ensure that such projects advance to the commercialization stage, Luna may not successfully commercialize new products and grow Luna’s revenues.

Luna’s growth strategy requires that Luna also develops successful commercial products to address market needs. Luna faces several challenges in developing successful new products. Many of Luna’s existing products and those currently under development are technologically innovative and require significant and lengthy product development efforts. These efforts include planning, designing, developing and testing at the technological, product and manufacturing-process levels. These activities require Luna to make significant investments. Although there are many potential applications for Luna’s technologies, Luna’s resource constraints require Luna to focus on specific products and to forgo other opportunities. Luna expects that one or more of the potential products Luna chooses to develop will not be technologically feasible or will not achieve commercial acceptance, and Luna cannot predict which, if any, of Luna’s products Luna will successfully develop or commercialize. The technologies Luna research and develop are new and steadily changing and advancing. The products that are derived from these technologies may not be applicable or compatible with the state of technology or demands in existing markets. Luna’s existing products and technologies may become uncompetitive or obsolete if Luna’s competitors adapt more quickly than Luna does to new technologies and changes in customers’ requirements. Furthermore, Luna may not be able to identify if and when new markets will open for Luna’s products given that future applications of any given product may not be readily determinable, and Luna cannot reasonably estimate the size of any markets that may develop. If Luna is not able to successfully develop new products, Luna may be unable to increase Luna’s product revenues.

Luna faces and will face substantial competition in several different markets that may adversely affect Luna’s results of operations.

Luna faces and will face substantial competition from a variety of companies in several different markets. As Luna focuses on developing marketing and selling fiber optic sensing products, Luna may also face substantial and entrenched competition in that market.

Many of Luna’s competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than Luna does. These competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements. In addition, current and potential competitors have established or may establish financial or strategic relationships among themselves or with existing or potential customers or other third parties. Accordingly, new competitors or alliances among competitors could emerge and rapidly acquire significant market share. Luna cannot assure you that Luna will be able to compete successfully against current or new competitors, in which case Luna’s revenues may fail to increase or may decline.

Luna has limited experience manufacturing Luna’s products in commercial quantities in a cost-effective manner, which could adversely impact Luna’s business.

In the past, Luna produced most of Luna’s products on a custom order basis rather than pursuant to large contracts that require production on a large volume basis. Accordingly, other than the commercial manufacture of products by Luna’s Products and Licensing segment, Luna has no experience manufacturing products in large volumes. Because Luna’s experience in large scale manufacturing is limited, Luna may encounter unforeseen difficulties in Luna’s efforts to manufacture other products or materials in commercial quantities or have to rely

on third-party contractors over which Luna may not have direct control to manufacture Luna’s products. Luna may also encounter difficulties and delays in manufacturing Luna’s products for any of the following reasons:

If Luna is unable to keep up with demand for Luna’s products, Luna’s revenues could be impaired, market acceptance of Luna’s products could be adversely affected and Luna’s customers might instead purchase Luna’s competitors’ products. Moreover, failure to develop and maintain a U.S. market for goods developed with U.S. government-licensed technology may result in the cancellation of the relevant U.S. government licenses. Luna’s inability to manufacture Luna’s products successfully would have a material adverse effect on Luna’s revenues.

Even if Luna is able to manufacture Luna’s products on a commercial scale, the cost of manufacturing Luna’s products may be higher than Luna expects. If the costs associated with manufacturing are not significantly less than the prices at which Luna can sell Luna’s products, Luna may not be able to operate at a profit.

Luna’s nanotechnology-enabled products are new and may be, or may be perceived as being, harmful to human health or the environment.

While Luna believes that none of its current products contain chemicals known by Luna to be hazardous or subject to environmental regulation, it is possible that Luna’s current or future products, particularly carbon-based nanomaterials, may become subject to environmental or other regulation. Luna intends to develop and sell carbon-based nanomaterials as well as nanotechnology-enabled products, which are products that include nanomaterials as a component to enhance those products’ performance. Nanomaterials and nanotechnology-enabled products have a limited historical safety record. Because of their size or shape or because they may contain harmful elements, such as gadolinium and other rare-earth metals, Luna’s products could pose a safety risk to human health or the environment. These characteristics may also cause countries to adopt regulations in the future prohibiting or limiting the manufacture, distribution or use of nanomaterials or nanotechnology-enabled products.

Such regulations may inhibit Luna’s ability to sell some products containing those materials and thereby harm Luna’s business or impair Luna’s ability to develop commercially viable products.

The subject of nanotechnology has received negative publicity and has aroused public debate. Government authorities could, for social or other purposes, prohibit or regulate the use of nanotechnology. Ethical and other concerns about nanotechnology could adversely affect acceptance of Luna’s potential products or lead to government regulation of nanotechnology-enabled products.

Luna faces risks associated with its international business.

Luna currently conducts business internationally and might considerably expand Luna’s international activities in the future. Luna’s international business operations are subject to a variety of risks associated with conducting business internationally, including:

Luna does not know the impact that these regulatory, geopolitical and other factors may have on Luna’s international business in the future.

Luna could be negatively affected by a security breach, either through cyber attack, cyber intrusion or other significant disruption of Luna’s IT networks and related systems.

Luna faces the risk, as does any company, of a security breach, whether through cyber attack or cyber intrusion over the internet, malware, computer viruses, attachments to e-mails, persons inside Luna’s organization or persons with access to systems inside Luna’s organization, or other significant disruption of Luna’s IT networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

As a technology company, and particularly as a government contractor, Luna may face a heightened risk of a security breach or disruption from threats to gain unauthorized access to Luna’s proprietary, confidential or classified information on Luna’s IT networks and related systems. These types of information and IT networks and related systems are critical to the operation of Luna’s business and essential to Luna’s ability to perform day-to-day operations, and, in some cases, are critical to the operations of certain of Luna’s customers. In addition, as certain of Luna’s technological capabilities become widely known, it is possible that Luna may be subjected to cyber attack or cyber intrusion as third parties seek to gain improper access to information regarding these capabilities and cyber attacks or cyber intrusion could compromise Luna’s confidential information or Luna’s IT networks and systems generally, as it is not practical as a business matter to isolate all of Luna’s confidential information and trade secrets from email and internet access. There can be no assurance that Luna’s security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.

A security breach or other significant disruption involving these types of information and IT networks and related systems could disrupt the proper functioning of these networks and systems and therefore Luna’s operations, compromise Luna’s confidential information and trade secrets, or damage Luna’s reputation among Luna’s customers and the public generally. Any of these developments could have a negative impact on Luna’s results of operations, financial condition and cash flows.

Risks Relating to Luna’s Regulatory Environment

Luna’s operations are subject to domestic and foreign laws, regulations and restrictions, and noncompliance with these laws, regulations and restrictions could expose Luna to fines, penalties, suspension or debarment, which could have a material adverse effect on Luna’s profitability and overall financial position.

Luna’s operations, particularly Luna’s international sales, subject Luna to numerous U.S. and foreign laws and regulations, including, without limitation, regulations relating to imports, exports (including the Export Administration Regulations and the International Traffic in Arms Regulations), technology transfer restrictions, anti-boycott provisions, economic sanctions and the Foreign Corrupt Practices Act. The number of Luna’s various emerging technologies, the development of many of which has been funded by the Department of Defense, presents Luna with many regulatory challenges. Failure by Luna or Luna’s sales representatives or consultants to comply with these laws and regulations could result in administrative, civil, or criminal liabilities and could result in suspension of Luna’s export privileges, which could have a material adverse effect on Luna’s business. Changes in regulation or political environment may affect Luna’s ability to conduct business in foreign markets including investment, procurement and repatriation of earnings.

Luna’s healthcare and medical products are and may continue to be subject to a lengthy and uncertain domestic regulatory approval process. If Luna does not obtain and maintain the necessary domestic regulatory approvals or clearances, Luna will not be able to market and sell Luna’s products for clinical use in the United States. Complying with applicable regulations is an expensive and time-consuming process and any failure to fully comply with such regulations could subject Luna to enforcement actions.

Certain of Luna’s current and potential products could require regulatory clearances or approvals prior to commercialization. For example, any nanomaterial-based MRI contrast agent is likely to be considered a drug under the Federal Food, Drug and Cosmetic Act, or the FDC Act. Drugs and some medical devices are subject to rigorous preclinical testing and other approval requirements by the U.S. Food and Drug Administration, or the FDA, pursuant to the FDC Act, and regulations under the FDC Act, as well as by similar health authorities in foreign countries.

Various federal statutes and regulations also govern or influence the testing, manufacturing, safety, labeling, packaging, advertising, storage, registration, listing and recordkeeping related to marketing of pharmaceuticals. The process of obtaining these clearances or approvals and the subsequent compliance with appropriate federal statutes and regulations require the expenditure of substantial resources, which Luna may not be able to obtain on favorable terms, if at all. Luna cannot be certain that any required FDA or other regulatory approval will be granted or, if granted, will not be withdrawn. Luna’s failure to obtain the necessary regulatory approvals, or Luna’s failure to obtain them in a timely manner, will prevent or delay Luna’s commercialization of new products and Luna’s business or Luna’s stock price could be adversely affected as a result.

Luna will also become subject to inspection and marketing surveillance by the FDA to determine Luna’s compliance with regulatory requirements. If the FDA determines that Luna has failed to comply, it can institute a wide variety of enforcement actions ranging from a regulatory letter to a public warning letter to more severe civil and criminal sanctions. Luna’s failure to comply with applicable requirements could lead to an enforcement action that may have an adverse effect on Luna’s financial condition and results of operations.

If Luna’s manufacturing facilities do not meet Federal, state or foreign country manufacturing standards, Luna may be required to temporarily cease all or part of its manufacturing operations, which would result in product delivery delays and negatively impact revenues.

Luna’s manufacturing facilities are subject to periodic inspection by regulatory authorities and Luna’s operations will continue to be regulated by the FDA for compliance with Good Manufacturing Practice requirements contained in the quality systems regulations. Luna is also required to comply with International Organization for Standardization, or ISO, quality system standards in order to produce products for sale in Europe. If Luna fails to

continue to comply with Good Manufacturing Practice requirements or ISO standards, Luna may be required to cease all or part of Luna’s operations until Luna complies with these regulations. Obtaining and maintaining such compliance is difficult and costly. Luna cannot be certain that Luna’s facilities will be found to comply with Good Manufacturing Practice requirements or ISO standards in future inspections and audits by regulatory authorities. In addition, if Luna cannot maintain or establish manufacturing facilities or operations that comply with such standards or do not meet the expectations of its customers, Luna may not be able to realize certain economic opportunities in Luna’s current or future supply arrangements.

Medical products are subject to various international regulatory processes and approval requirements. If Luna does not obtain and maintain the necessary international regulatory approvals for any such potential products, Luna may not be able to market and sell Luna’s medical products in foreign countries.

To be able to market and sell medical products in other countries, Luna must obtain regulatory approvals and comply with the regulations of those countries. These regulations, including the requirements for approvals and the time required for regulatory review, vary from country to country. Obtaining and maintaining foreign regulatory approvals are expensive, and Luna cannot be certain that it will have the resources to be able to pursue such approvals or whether Luna would receive regulatory approvals in any foreign country in which Luna plans to market its products. For example, the European Union requires that manufacturers of medical products obtain the right to affix the CE mark to their products before selling them in member countries of the European Union, which Luna has not yet obtained and may never obtain. If Luna fails to obtain regulatory approval in any foreign country in which Luna plans to market its products, Luna’s ability to generate revenues will be harmed.

Luna is subject to additional significant foreign and domestic government regulations, including environmental and health and safety regulations, and failure to comply with these regulations could harm Luna’s business.

Luna’s facilities and current and proposed activities involve the use of a broad range of materials that are considered hazardous under applicable laws and regulations. Accordingly, Luna is subject to a number of foreign, federal, state and local laws and regulations relating to health and safety, protection of the environment and the storage, use, disposal of, and exposure to, hazardous materials and wastes. Luna could incur costs, fines and civil and criminal penalties, personal injury and third party property damage claims, or could be required to incur substantial investigation or remediation costs, if Luna was to violate or become liable under environmental, health and safety laws. Moreover, a failure to comply with environmental laws could result in fines and the revocation of environmental permits, which could prevent Luna from conducting Luna’s business. Liability under environmental laws can be joint and several and without regard to fault. There can be no assurance that violations of environmental and health and safety laws will not occur in the future as a result of the inability to obtain permits, human error, equipment failure or other causes. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations, which could harm Luna’s business. Accordingly, violations of present and future environmental laws could restrict Luna’s ability to expand facilities, pursue certain technologies, and could require Luna to acquire costly equipment or incur potentially significant costs to comply with environmental regulations.

Compliance with foreign, federal, state and local environmental laws and regulations represents a small part of Luna’s present budget. If Luna fails to comply with any such laws or regulations, however, a government entity

may levy a fine on Luna or require Luna to take costly measures to ensure compliance. Any such fine or expenditure may adversely affect Luna’s development. Luna cannot predict the extent to which future legislation and regulation could cause Luna to incur additional operating expenses, capital expenditures or restrictions and delays in the development of Luna’s products and properties.

Risks Relating to Luna’s Intellectual Property

Luna’s proprietary rights may not adequately protect Luna’s technologies.

Luna’s commercial success will depend in part on Luna’s obtaining and maintaining patent, trade secret, copyright and trademark protection of Luna’s technologies in the United States and other jurisdictions as well as successfully enforcing this intellectual property and defending it against third-party challenges. Luna will only be able to protect its technologies from unauthorized use by third parties to the extent that valid and enforceable intellectual property protections, such as patents or trade secrets, cover them. In particular, Luna places considerable emphasis on obtaining patent and trade secret protection for significant new technologies, products and processes. The degree of future protection of Luna’s proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect Luna’s rights or permit Luna to gain or keep Luna’s competitive advantage. The degree of future protection of Luna’s proprietary rights is also uncertain for products that are currently in the early stages of development because Luna cannot predict which of these products will ultimately reach the commercial market or whether the commercial versions of these products will incorporate proprietary technologies.

Luna’s patent position is highly uncertain and involves complex legal and factual questions. Accordingly, Luna cannot predict the breadth of claims that may be allowed or enforced in Luna’s patents or in third-party patents. For example:

Patents may not be issued for any pending or future pending patent applications owned by or licensed to us,Luna, and claims allowed under any issued patent or future issued patent owned or licensed by Luna may not be valid or sufficiently broad to protect Luna’s technologies. Moreover, protection of certain of Luna’s intellectual property may be unavailable or limited in the United States or in foreign countries, and Luna has not sought to obtain foreign patent protection for certain of Luna’s products or technologies due to cost, concerns about enforceability or other reasons. Any issued patents owned by or licensed to Luna now or in the future may be challenged, invalidated, or circumvented, and the rights under such patents may not provide Luna with competitive advantages. In addition, competitors may design around Luna’s technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, and in the case of certain products no foreign patents were filed or can be filed. This could make it easier for competitors to

capture or increase their market share with respect to related technologies. Luna could incur substantial costs to bring suits in which Luna may assert Luna’s patent rights against others or defend Luna in suits brought against us.Luna. An unfavorable outcome of any litigation could have a material adverse effect on Luna’s business and results of operations.

Luna also relies on trade secrets to protect its technology, especially where Luna believes patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. Luna regularly attempts to obtain

confidentiality agreements and contractual provisions with Luna’s collaborators, employees and consultants to protect Luna’s trade secrets and proprietary know-how. These agreements may be breached or may not have adequate remedies for such breach. While Luna uses reasonable efforts to protect Luna’s trade secrets, Luna’s employees, consultants, contractors or scientific and other advisors, or those of Luna’s strategic partners, may unintentionally or willfully disclose Luna’s information to competitors. If Luna was to enforce a claim that a third party had illegally obtained and was using Luna’s trade secrets, Luna’s enforcement efforts would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States are sometimes unwilling to protect trade secrets. Moreover, if Luna’s competitors independently develop equivalent knowledge, methods and know-how, it will be more difficult for Luna to enforce Luna’s rights and Luna’s business could be harmed.

If Luna is not able to defend the patent or trade secret protection position of Luna’s technologies, then Luna will not be able to exclude competitors from developing or marketing competing technologies and Luna may not generate enough revenues from product sales to justify the cost of developing Luna’s technologies and to achieve or maintain profitability.

Luna also relies on trademarks to establish a market identity for it and its products. To maintain the value of Luna’s trademarks, Luna might have to file lawsuits against third parties to prevent them from using trademarks confusingly similar to or dilutive of Luna’s registered or unregistered trademarks. Also, Luna might not obtain registrations for Luna’s pending trademark applications, and Luna might have to defend its registered trademark and pending trademark applications from challenge by third parties. Enforcing or defending Luna’s registered and unregistered trademarks might result in significant litigation costs and damages, including the inability to continue using certain trademarks.

Third parties may claim that Luna infringes their intellectual property, and Luna could suffer significant litigation or licensing expense as a result.

Various U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in Luna’s technology areas. Such third parties may claim that Luna infringes their patents. Because patent applications can take several years to result in a patent issuance, there may be currently pending applications, unknown to us,Luna, which may later result in issued patents that Luna’s technologies may infringe. For example, Luna is aware of competitors with patents in technology areas applicable to Luna’s optical test equipment products. Such competitors may allege that Luna infringes these patents. There could also be existing patents of which Luna is not aware that Luna’s technologies may inadvertently infringe. Luna has from time to time, and may in the future, be contacted by third parties, including patent assertion entities or intellectual property advisors, about licensing opportunities that also contain claims that Luna is infringing on third party patent rights. If third parties assert these claims against Luna, Luna could incur extremely substantial costs and diversion of management resources in defending these claims, and the defense of these claims could have a material adverse effect on Luna’s business, financial condition and results of operations. Even if Luna believes it has not infringed on a third party’s patent rights, Luna may have to settle a claim on unfavorable terms because Luna cannot afford to litigate the claim. In addition, if third parties assert claims against Luna and Luna is unsuccessful in defending against these claims, these third parties may be awarded substantial damages as well as injunctive or other equitable relief against us,Luna, which could effectively block Luna’s ability to make, use, sell, distribute or market Luna’s products and services in the United States or abroad.

Commercial application of nanotechnologies in particular, or technologies involving nanomaterials, is new and the scope and breadth of patent protection is uncertain. Consequently, the patent positions of companies involved in nanotechnologies have not been tested, and there are complex legal and factual questions for which important legal principles will be developed or may remain unresolved. In addition, it is not clear whether such patents will be subject to interpretations or legal doctrines that differ from conventional patent law principles. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of Luna’s nanotechnology-related intellectual property. Accordingly, Luna cannot predict the breadth

of claims that may be allowed or enforced in Luna’s nanotechnology-related patents or in third party patents. In the event that a claim relating to intellectual property is asserted against us,Luna, or third parties not affiliated with Luna hold pending or issued patents that relate to Luna’s products or technology, Luna may seek licenses to such intellectual property or challenge those patents. However, Luna may be unable to obtain these licenses on commercially reasonable terms, if at all, and Luna’s challenge of the patents may be unsuccessful. Luna’s failure to obtain the necessary licenses or other rights could prevent the sale, manufacture or distribution of Luna’s products and, therefore, could have a material adverse effect on Luna’s business, financial condition and results of operations.

A substantial portion of Luna’s technology is subject to retained rights of Luna’s licensors, and Luna may not be able to prevent the loss of those rights or the grant of similar rights to third parties.

A substantial portion of Luna’s technology is licensed from academic institutions, corporations and government agencies. Under these licensing arrangements, a licensor may obtain rights over the technology, including the right to require Luna to grant a license to one or more third parties selected by the licensor or that Luna provides licensed technology or material to third parties for non-commercial research. The grant of a license for any of Luna’s core technologies to a third party could have a material and adverse effect on Luna’s business. In addition, some of Luna’s licensors retain certain rights under the licenses, including the right to grant additional licenses to a substantial portion of Luna’s core technology to third parties for non-commercial academic and research use. It is difficult to monitor and enforce such non-commercial academic and research uses, and Luna cannot predict whether the third-party licensees would comply with the use restrictions of such licenses. Luna has incurred and could incur substantial expenses to enforce Luna’s rights against them. Luna also may not fully control the ability to assert or defend those patents or other intellectual property which Luna has licensed from other entities, or which Luna has licensed to other entities.

In addition, some of Luna’s licenses with academic institutions give Luna the right to use certain technology previously developed by researchers at these institutions. In certain cases Luna also has the right to practice improvements on the licensed technology to the extent they are encompassed by the licensed patents and are within Luna’s field of use. Luna’s licensors may currently own and may in the future obtain additional patents and patent applications that are necessary for the development, manufacture and commercial sale of Luna’s anticipated products. Luna may be unable to agree with one or more academic institutions from which Luna has obtained licenses whether certain intellectual property developed by researchers at these academic institutions is covered by Luna’s existing licenses. In the event that the new intellectual property is not covered by Luna’s existing licenses, Luna would be required to negotiate a new license agreement. Luna may not be able to reach agreement with current or future licensors on commercially reasonable terms, if at all, or the terms may not permit Luna to sell Luna’s products at a profit after payment of royalties, which could harm Luna’s business.

Some of Luna’s patents may cover inventions that were conceived or first reduced to practice under, or in connection with, U.S. government contracts or other federal funding agreements. With respect to inventions conceived or first reduced to practice under a federal funding agreement, the U.S. government may retain a non-exclusive, non-transferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the invention throughout the world. Luna may not succeed in Luna’s efforts to retain title in patents, maintain ownership of intellectual property or in limiting the U.S. government’s rights in Luna’s proprietary technologies and intellectual property when an issue exists as to whether such intellectual property was developed in the performance of a federal funding agreement or developed at private expense.

Risks Relating to Luna’s Common Stock

Luna may become involved in securities class action litigation that could divert management’s attention and harm Luna’s business and Luna’s insurance coverage may not be sufficient to cover all costs and damages.

The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of technology companies. These broad market fluctuations may cause the market price of Luna’s common stock to decline. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. Securities class litigation also often follows certain significant business transactions, such as the sale of a business division or a change in control transaction. Luna may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect Luna’s business.

Luna may not be able to comply with all applicable listing requirements or standards of The NASDAQ Capital Market and NASDAQ could delist Luna’s common stock.

Luna’s common stock is listed on The NASDAQ Capital Market. In order to maintain that listing, Luna must satisfy minimum financial and other continued listing requirements and standards. There can be no assurances that Luna will be able to comply with applicable listing standards. In the event that Luna’s common stock is not eligible for quotation on another market or exchange, trading of Luna’s common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, Luna’s common stock, and there would likely also be a reduction in Luna’s coverage by security analysts and the news media, which could cause the price of Luna’s common stock to decline further. Also, it may be difficult for Luna to raise additional capital if Luna is not listed on a major exchange.

Luna’s common stock price has been volatile and Luna expects that the price of its common stock will fluctuate substantially in the future, which could cause you to lose all or a substantial part of your investment.

The public trading price for Luna’s common stock is volatile and may fluctuate significantly. Since January 1, 2009, Luna’s common stock has traded between a high of $5.00 per share and a low of $0.26 per share. Among the factors, many of which Luna cannot control, that could cause material fluctuations in the market price for Luna’s common stock are:

In addition, the stock prices of many technology companies have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. These factors may materially and adversely affect the market price of API’s common stock.

If Luna’s internal control over financial reporting is found not to be effective or if Luna makes disclosure of existing or potential significant deficiencies or material weaknesses in those controls, investors could lose confidence in Luna’s financial reports, and Luna’s stock price may be adversely affected.

Section 404 of the Sarbanes-Oxley Act of 2002 requires Luna to include an internal control report with Luna’s Annual Report on Form 10-K. That report must include management’s assessment of the effectiveness of Luna’s internal control over financial reporting as of the end of the fiscal year.

Luna evaluates its existing internal control over financial reporting based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. During the course of Luna’s ongoing evaluation of the internal controls, Luna may identify areas requiring improvement, and may have to design enhanced processes and controls to address issues identified through this review. Remedying any deficiencies, significant deficiencies or material weaknesses that Luna identifies may require Luna to incur significant costs and expend significant time and management resources. Luna cannot assure you that any of the measures Luna implements to remedy any such deficiencies will effectively mitigate or remedy such deficiencies. Investors could lose confidence in Luna’s financial reports, and Luna’s stock price may be adversely affected, if Luna’s internal controls over financial reporting are found not to be effective by management or if Luna makes disclosure of existing or potential significant deficiencies or material weaknesses in those controls.

Anti-takeover provisions in Luna’s amended and restated certificate of incorporation and bylaws and Delaware law could discourage or prevent a change in control, even if an acquisition would be beneficial to Luna’s stockholders, which could affect Luna’s stock price adversely and prevent attempts by Luna’s stockholders to replace or remove Luna’s current management.

Luna’s amended and restated certificate of incorporation and bylaws and Delaware law contain provisions that might delay or prevent a change in control, discourage bids at a premium over the market price of Luna’s common stock and adversely affect the market price of Luna’s common stock and the voting and other rights of the holders of Luna’s common stock. These provisions include:

Luna is also subject to provisions of the Delaware General Corporation Law that, in general, prohibit any business combination with a beneficial owner of 15% or more of Luna’s common stock for three years unless the holder’s acquisition of Luna’s stock was approved in advance by Luna’s board of directors or certain other conditions are satisfied.

The existence of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for shares of Luna’s common stock.

Risks Relating to API’s Business

Risks Relating to API’s Financial Condition and Performance

API’s substantial debt obligations could impair API’s financial flexibility and restrict API’s business significantly.

API now has, and will continue to have if the Merger is not consummated, significant debt obligations, which are summarized in the table below:

On January 31, 2012, API entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB,” such agreement as amended from time to time, the “SVB Loan Agreement”) and a related Loan and Security Agreement (“Ex-IM Loan Facility”) with SVB (as amended from time to time, the “SVB Ex-Im Loan Agreement”, and together with the SVB Loan Agreement, the “SVB Loan Agreements”) that provided for a three-year $1 million term loan that expires in March 2015, and a $5 million line of credit with a $3 million export-import facility sublimit that currently expires in June 2016. Subsequent to the execution of the original SVB Loan Agreements, there have been ten amendments that have modified the financial covenants, allowed for the acquisition of substantially all of the operating assets of Silonex, Inc. (“Silonex”), allowed API to enter into the PFG Loan Agreement (as described below), and extended the maturity date of the line of credit from January 2014 to June 2016.

On February 8, 2013, API entered into a $2.5 million secured Loan and Security Agreement with Partners for Growth III, L.P. (“PFG,” such agreement, as amended, the “PFG Loan Agreement”) that is subordinated to the SVB Loan Agreements and expires in August 2016. The interest rate on the loan is 11.75%. As part of the consideration for and as a closing condition to the PFG Loan Agreement, API agreed to grant PFG and certain of its affiliates warrants to purchase up to 1,195,000 shares of API’s Class A Stock (the “Warrants”) in a private placement pursuant to Section 4(a)(2) of the Securities Act. 995,000 of the shares issuable under the Warrants have an initial exercise price of $0.50 per share (the “Tier 1 Warrants”), and the remaining 200,000 shares issuable under the Warrants have an exercise price of $1.00 per share (“$1.00 Warrants”).

The Warrants contain full-ratchet anti-dilution provisions that will result in proportional adjustments to the exercise price and the number of shares issuable under the PFG Warrant Agreements in the event that API conducts a stock split, subdivision, stock dividend or combination, or similar transaction. The PFG Warrant Agreements also include a net exercise provision pursuant to which warrant holders will receive the number of shares equal to (x) the product of (A) the number of Warrants exercised multiplied by (B) the difference between (1) the fair market value of a share of Class A Stock (with fair value generally being equal to the highest closing price of API’s Class A Stock during the 45 consecutive trading days prior to the date of exercise) and (2) the strike price of the Warrant, (y) divided by the fair market value of a share of Class A Stock. In addition, in specified events, including the closing of the Merger, each warrant holder will have the right to “put” its Warrants to API in exchange for a per share cash payment that varies with the number of shares issuable under each Warrant, but in the aggregate will not exceed $250,000.

In fiscal years 2005 and 2006, API entered into two unsecured loan agreements that are currently held by the Michigan Economic Development Corporation (“MEDC” and such agreement the “MEDC Loan Agreement”) and a MEDC affiliate, the Michigan Strategic Fund (“MSF” and such agreement the “MSF Loan Agreement”) pursuant to which API borrowed an aggregate of amount of $2.2 million. As amended, payments on the approximately $327,000 in principal outstanding under each of the MEDC Loan Agreement and MSF Loan Agreement are deferred and payable monthly in equal installments plus accrued interest for the 12 months beginning November 1, 2015.

The obligations and restrictions under the SVB Loan Agreements, the PFG Loan Agreement, the MEDC Loan Agreement, the MSF Loan Agreement, and API’s other debt obligations could have important consequences for API, including:

If API is unable to meet API’s debt obligations, API could be forced to restructure or refinance API’s obligations, to seek additional equity financing or to sell assets, which API may not be able to do on satisfactory terms or at all. As a result, API could default on those obligations and in the event of such default, API’s lenders could accelerate API’s debt or take other actions that could restrict API’s operations. The foregoing risks would be intensified to the extent API borrows additional money or incurincurs additional debt.

API has previously violated certain covenants under the SVB Loan Agreements and the PFG Loan Agreement.

The SVB Loan Agreements and PFG Loan Agreement, each as amended, contained financial covenants through December 2013 and January 2014 that required API to maintain a minimum liquidity ratio of 2.25 to 1.00 and a minimum trailing three month adjusted EBITDA, measured monthly of (1) a negative $300,000 for each fiscal month during the period July through October 2013; and (2) $1 for each fiscal month during the period November 2013 through February 2014.

As of December 27, 2013 and January 24, 2014, API was not in compliance with then existing minimum adjusted EBITDA covenant of $1 for the three months ended December 27, 2013 and January 24, 2014, respectively, and as of January 24, 2014, API was also not in compliance with the then existing minimum liquidity ratio of 2.25 to 1.00. In addition, the foregoing defaults triggered the cross-default provisions under each of the SVB Loan Agreements and PFG Loan Agreement. Consequently, under the terms of each agreement, SVB and PFG were both entitled to proceed against the collateral provided as security for the loans issued thereunder upon an event of default subject, in PFG’s case, to any rights that SVB may have in that same collateral.

On February 10, 2014, API entered into separate Forbearance Agreements with SVB and PFG pursuant to which and subject to certain exceptions, each of SVB and PFG agreed not to proceed against the collateral securing their respective loans until February 28, 2014. On March 5, 2014, API entered into separate amendment agreements with SVB and PFG where, among other things, (i) SVB agreed to extend the maturity date of API’s $5 million line of credit to May 31, 2014; (ii) the minimum trailing three month adjusted EBITDA covenant was reset to a negative $1.2 million for the fiscal month ended February 28, 2014, a negative $800,000 for the fiscal month ended March 31, 2014, a negative $600,000 for the fiscal month ended April 30, 2014 and a positive $1 for the fiscal month ending May 31, 2014; (iii) the existing minimum liquidity ratio covenant was reset to 1.30 to 1.00 as of February 28, 2014, and 2.25 to 1.00 for each month thereafter through May 2014; and (iv) each of SVB and PFG waived the existing defaults. In addition to the payment of an amendment fee, API agreed to pay each of SVB and PFG additional fees of up to $50,000 and $75,000, respectively, no later than May 31, 2014 (the “Tail Fees”).

On April 30, 2014, API entered into separate amendment agreements with SVB and PFG where, among other things, (i) SVB agreed to extend the maturity date of API’s $5 million line of credit to July 31, 2014; (ii) the minimum trailing three month adjusted EBITDA covenant was reset to a negative $800,000 for the fiscal month ended March 31, 2014, a negative $600,000 for the fiscal month ended April 30, 2014, a negative $250,000 for the fiscal months ending May 31, 2014 and June 30, 2014 and a positive $1 for the fiscal month ending July 31, 2014; and (iii) the existing minimum liquidity ratio covenant was reset to 1.30 to 1.00 as of March 31, 2014 through May 31, 2014, and 2.00 to 1.00 for each month thereafter through July 2014. In addition to the payment of an amendment fee, API agreed to pay each of SVB and PFG their respective Tail Fee and, commencing with the month ended May 31, 2014, an additional fee of $15,000 for SVB and $20,000 for PFG (the “Leverage Ratio Fees”), for each month that the liquidity ratio is less than 2.00 to 1.00 as of the last day of the month under measurement.

On November 10, 2014, API signed separate amendments to the Loan Agreements with SVB and PFG where, among other things, (i) all parties agreed to a six month trailing adjusted EBITDA covenant, measured at each fiscal month end, of negative $800,000 through March of 2015, negative $300,000 for April through June of 2015, and $100,000 each month thereafter, (ii) all parties agreed to adjust the minimum liquidity ratio, as defined, to be 2.00 to 1.00 through February of 2015 with a reduction to 1.50 to 1.00 for each month thereafter and (iii) all parties agreed to continue the existing interest rate matrix. The amendments provided for a reimbursement of legal expenses and a modification fee of $10,000 with an additional $10,000 payable if API’s March 2015 quarterly adjusted EBITDA is less than one dollar.

As of December 26, 2014, API was in compliance with the November 10, 2014 revisions to the liquidity and adjusted EBITDA covenants with PFG and SVB. API experienced a $2.1 million dollar reduction in HSOR revenues in the third quarter relative to the second quarter which was more than anticipated in the November 2014 covenant reset. As a result, API obtained further covenant relief on February 5, 2015 from PFG and SVB by reducing the rolling six month adjusted EBITDA requirement for January through June 2015 to a negative $1,250,000, $1 of adjusted EBITDA required in July 2015 and $100,000 each month thereafter until maturity with up to $150,000 in merger transaction costs carved out of the calculation. The parties also agreed to reduce the minimum liquidity ratio to 1.30 to 1.00 for January 2015 until the maturity of the line of credit. Pursuant to the amendments, the interest rate with SVB was changed to prime plus 5%, or 8.25% per annum for the line of credit while the interest rate with PFG remained at 11.75% per annum. API is required to pay each lender a $10,000 fee plus associated legal costs for the amendment with an added $15,000 payable to each lender upon the maturity or payoff of the term loan. Should API experience a reduction in revenue or an increase in expenses from its most recent forecast, which was the basis for the February 5, 2015 covenants, the loan would be callable, creating a liquidity issue for API.

While API believes API has good relations with SVB and PFG, API can provide no assurance that API will be able to obtain waivers or amendments if future covenant violations occur under the SVB Loan Agreements and/or the PFG Loan Agreement. Failure to obtain such waivers or amendments, if necessary, could materially affect API’s business, financial condition and results of operations.

API has incurred significant losses in prior periods and may incur losses in the future.

API has incurred significant losses in prior periods. API recorded a net loss of $1,337,000 for the nine months ended December 26, 2014 and ended the period with an accumulated deficit of $49.8 million. In addition, API recorded net losses of $4.3 million and $4.4 million for the years ended March 31, 2014 and 2013, respectively. There can be no assurance that API will have sufficient revenue growth to offset expenses or to achieve profitability in future periods.

API must continue to increase API’s revenues in order to become profitable. API cannot reliably predict when, or if, API will become profitable. Even if API achieves profitability, API may not be able to sustain it. If API cannot generate operating income or positive cash flows in the future, API will be unable to meet API’s working capital requirements.

API may not be able to generate the amount of cash needed to fund API’s existing indebtedness and future operations.

API’s ability either to make payments on or to refinance API’s indebtedness, or to fund planned capital expenditures and research and development efforts, will depend on API’s ability to generate cash in the future. API’s ability to generate cash is in part subject to general economic, financial, competitive, regulatory and other factors that are beyond API’s control, and as such has fluctuated significantly as indicted in the table below:

If the Merger is not approved by stockholders or does not proceed to a timely closing, then API may need to seek additional funding sources to meet its obligations through fiscal 2016. Consequently, the trading price of API’s Class A Stock may be adversely affected and API’s ability to raise additional financing may be impaired. In addition, API will be forced to adopt an alternative strategy that may include actions such as:

In light of API’s historical performance, API cannot assure you that API’s business will generate sufficient cash flow from operations, or that API will be able to make future borrowings in amounts sufficient to enable API to pay the principal and interest on API’s current indebtedness or to fund API’s other liquidity needs. API may need to refinance all or a portion of its indebtedness on or before maturity.

If API raises additional funds through the issuance of equity or convertible debt securities, the percentage ownership of API’s stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders. API cannot assure you that additional financing will be available on terms favorable to us,API, or at all. If, when required, adequate funds are unavailable, or are not available on acceptable terms, API’s ability to fund API’s operations, take advantage of unanticipated opportunities, develop or enhance API’s products, or otherwise respond to competitive pressures could be significantly limited.

API may dispose of or discontinue existing product lines and technology developments, which may adversely impact API’s future results.

On an ongoing basis, API evaluates API’s various product offerings and technology developments in order to determine whether any should be discontinued or, to the extent possible, divested. In addition, if API is unable to generate the amount of cash needed to fund API’s existing indebtedness and future operations, API may be forced to sell one or more of API’s product lines or technology developments.

API cannot guarantee that it has correctly forecasted, or will correctly forecast in the future, the right product lines and technology developments to dispose or discontinue or that API’s decision to dispose of or discontinue various investments, products lines and technology developments is prudent if market conditions change. In addition, there are no assurances that the discontinuance of various product lines will reduce API’s operating expenses or will not cause API to incur material charges associated with such decision. Furthermore, the discontinuance of existing product lines entails various risks, including the risk that API will not be able to find a purchaser for a product line or the purchase price obtained will not be equal to at least the book value of the net assets for the product line. Other risks include managing the expectations of, and maintaining good relations

with, API’s customers who previously purchased products from API’s disposed or discontinued product lines, which could prevent API from selling other products to them in the future. API may also incur other significant liabilities and costs associated with API’s disposal or discontinuance of product lines, including employee severance costs and excess facilities costs.

API’s cost saving initiatives may not be effective, and API’s ability to develop products could be adversely affected by reduced research and development and capital expenditures.

To conserve cash and more closely align API’s spending towards API’s strategic objectives, API has implemented a number of cost reduction initiatives over the past several years, including a workforce reduction in API’s administrative, research and development and sales and marketing staffs and, a refocusing of API’s research and development plans, and a reduction in capital expenditures. API cannot assure you that the assumptions underlying API’s decisions as to which reductions to make as part of these cost reduction initiatives will prove to be correct and, accordingly, API may determine that API has reduced or eliminated resources that are necessary to, or desirable for, API’s business. In particular, the reductions that API has made to API’s research and development staff and, research and development expenses and capital expenditures could hinder API’s ability to update or introduce new products.

Any impairment of goodwill and other intangible assets, could negatively impact API’s results of operations.

As of December 26, 2014, March 31, 2014 and March 31, 2013, API’s consolidated balance sheet included $4.6 million in goodwill. Goodwill represents the excess purchase price over amounts assigned to tangible or identifiable intangible assets acquired and liabilities assumed from API’s business acquisitions. API’s goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired. Any goodwill value in excess of fair value as determined in an impairment test must be written off in the period of determination.

Intangible assets (other than goodwill) are generally amortized over the useful life of such assets. The carrying value of the intangible assets aggregated to $2.7 million as of December 26, 2014. From time to time, API may acquire, or make an investment in, a business which may require API to record goodwill based on the purchase price and the value of the acquired tangible and intangible assets. API may subsequently experience unforeseen issues with such business which adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business. Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have a negative impact on API’s results of operations.

API is subject to the cyclical nature of the markets in which API competes and any future downturn may reduce demand for API’s products and revenue.

Many factors beyond API’s control affect API’s industry, including consumer confidence in the economy, interest rates, fuel prices and the general availability of credit. The overall economic climate and changes in Gross National Product growth has a direct impact on API’s customers and the demand for API’s products. API cannot be sure that its business will not be adversely affected as a result of an industry or general economic downturn.

API’s customers may reduce capital expenditures and have difficulty satisfying liquidity needs because of continued turbulence in the U.S. and global economies, resulting in reduced sales of API’s products and harm to API’s financial condition and results of operations.

In particular, API’s historical results of operations have been subject to substantial fluctuations, and API may experience substantial period-to-period fluctuations in future results of operations. Any future downturn in the markets in which API competes could significantly reduce the demand for API’s products and therefore may

result in a significant reduction in revenue. It may also increase the volatility of the price of API’s common stock. API’s revenue and results of operations may be materially and adversely affected in the future due to changes in demand from customers or cyclical changes in the markets utilizing API’s products.

In addition, the telecommunications industry, has, from time to time, experienced, and may again experience, a pronounced downturn. To respond to a downturn, many service providers may slow their capital expenditures, cancel or delay new developments, reduce their workforces and inventories and take a cautious approach to acquiring new equipment and technologies from original equipment manufacturers like us,API, which would have a negative impact on API’s business. Weakness in the global economy or a future downturn in the telecommunications industry may cause API’s results of operations to fluctuate from quarter-to-quarter and year-to-year, harm API’s business, and may increase the volatility of the price of API’s common stock.

Customer acceptance of API’s products is dependent on API’s ability to meet changing requirements, and any decrease in acceptance could adversely affect API’s revenue.

Customer acceptance of API’s products is significantly dependent on API’s ability to offer products that meet the changing requirements of API’s customers, including telecommunication, military, medical and industrial corporations, as well as government agencies. Any decrease in the level of customer acceptance of API’s products could have a material adverse effect on API’s business.

API’s products must meet exacting specifications, and defects and failures may occur, which may cause customers to return or stop buying API’s products.

API’s customers generally establish demanding specifications for quality, performance and reliability that API’s products must meet. However, API’s products are highly complex and may contain defects and failures when they are first introduced or as new versions are released. API’s products are also subject to rough environments as they are integrated into API’s customer products for use by the end customers. If defects and failures occur in API’s products, API could experience lost revenue, increased costs, including warranty expense and costs associated with customer support, delays in or cancellations or rescheduling of orders or shipments, product returns or discounts, diversion of management resources or damage to API’s reputation and brand equity, and in some cases consequential damages, any of which would harm API’s operating results. In addition, delays in API’s ability to fill product orders as a result of quality control issues may negatively impact API’s relationship with API’s customers. API cannot assure you that it will have sufficient resources, including any available insurance, to satisfy any asserted claims.

Rapidly changing standards and regulations could make API’s products obsolete, which would cause API’s revenue and results of operations to suffer.

API designdesigns products to conform to API’s customer’s requirements and API’s customer’s systems may be subject to regulations established by governments or industry standards bodies worldwide. Because certain of API’s products are designed to conform to current specific industry standards, if competing or new standards emerge that are preferred by API’s customers, API would have to make significant expenditures to develop new products. If API’s customers adopt new or competing industry standards with which API’s products are not compatible, or the industry groups adopt standards or governments issue regulations with which API’s products are not compatible, API’s existing products would become less desirable to API’s customers and API’s revenue and results of operations would suffer.

The markets for many of API’s products are characterized by changing technology which could cause obsolescence of API’s products, and API may incur substantial costs in delivering new products.

The markets for many of API’s products are characterized by changing technology, new product introductions and product enhancements, and evolving industry standards. The introduction or enhancement of products embodying new technology or the emergence of new industry standards could render existing products obsolete,

and result in a write down to the value of API’s inventory, or result in shortened product life cycles. Accordingly, API’s ability to compete is in part dependent on API’s ability to continually offer enhanced and improved products.

The success of API’s new product offerings will depend upon several factors, including API’s ability to:

Some of API’s products are used by API’s customers to develop, test and manufacture their products. API therefore must anticipate industry trends and develop products in advance of the commercialization of API’s customers’ products. In developing any new product, API may be required to make a substantial investment before API can determine the commercial viability of the new product. If API fails to accurately foresee API’s customers’ needs and future activities, API may invest heavily in research and development of products that do not lead to significant revenues.

If any of API’s products are found to have, or are suspected to have, security vulnerabilities, API could incur significant costs and irreparable damage to API’s reputation.

If any of API’s products are found to have significant security vulnerabilities, then API may need to dedicate engineering and other resources to eliminating such vulnerabilities and to repairing or replacing products already sold or licensed to API’s customers. In addition, API’s customers and potential customers could perceive API’s products as unreliable, making it more difficult for API to sell API’s products.

API’s inability to find new customers or retain existing customers could have a material adverse effect on API’s business.

Customers normally purchase API’s products and incorporate them into products that they, in turn, sell in their own markets on an ongoing basis. As a result, API’s sales are dependent upon the success of API’s customers’ products and API’s future performance is dependent upon API’s success in finding new customers and receiving new orders from existing customers.

In several of API’s markets, quality and/or reliability of API’s products are a major concern for API’s customers, not only upon the initial manufacture of the product, but for the life of the product. Many of API’s products are used in remote locations for higher value assembly, making servicing of API’s products unfeasible. Any failure of the quality and/or reliability of API’s products could have an adverse effect on API’s business.

If API’s customers do not qualify API’s products or if their customers do not qualify their products, API’s results of operations may suffer.

Most of API’s customers do not purchase API’s products prior to qualification of API’s products and satisfactory completion of factory audits and vendor evaluation. API’s existing products, as well as each new product, must pass through varying levels of qualification with API’s customers. In addition, because of the rapid technological changes in API’s market, a customer may cancel or modify a design project before API begins large-scale manufacturing and receivereceives revenues from the customer. It is unlikely that API would be able to recover the expenses for cancelled or unutilized custom design projects. It is difficult to predict with any certainty whether

API’s customers will delay or terminate product qualification or the frequency with which customers will cancel or modify their projects. Any such delay, cancellation or modification could have a negative effect on API’s results of operations.

In addition, once a customer qualifies a particular supplier’s product or component, these potential customers design the product into their system, which is known as a design-in win. Suppliers whose products or components are not designed in are unlikely to make sales to that customer until at least the adoption of a future redesigned system. Even then, many customers may be reluctant to incorporate entirely new products into their new systems, as doing so could involve significant additional redesign efforts and increased costs. If API fails to achieve design-in wins in API’s potential customers’ qualification processes, API will likely lose the opportunity for significant sales to those customers for a lengthy period of time.

If the end user customers that purchase systems from API’s customers fail to qualify or delay qualifications of any products sold by API’s customers that contain API’s products, API’s business could be harmed. The qualification and field testing of API’s customers’ systems by end user customers is long and unpredictable. This process is not under API’s control or that of API’s customers; and, as a result, the timing of API’s sales is unpredictable. Any unanticipated delay in qualification of one of API’s customers’ products could result in the delay or cancellation of orders from API’s customers for products included in their equipment, which could harm API’s results of operations.

API’s sales to overseas markets expose API to additional, unpredictable risks which could have a material adverse effect on API’s business and expose API to liability under the Foreign Corrupt Practices Act.

A portion of API’s sales are being derived from overseas markets. These international sales are primarily focused in Asia, Europe and the Middle East. These operations are subject to unpredictable risks that are inherent in operating in foreign countries and which could have a material adverse effect on API’s business, including the following:

In addition, API utilizes third-party distributors to act as API’s representative for the geographic region that they have been assigned as well as value added resellers that have territorial restrictions. Sales through these channels represent approximately 19% of total revenue for the nine months ended December 26, 2014. Significant terms and conditions of distributor agreements include FOB source, net 30 days payment terms, with no return or exchange rights, and no price protection. Since the product title transfers to the distributor at the time of shipment, the products are not considered inventory on consignment. API’s success is dependent on these distributors finding new customers and receiving new orders from existing customers.

API is subject to the Foreign Corrupt Practice Act (“FCPA”) and other laws that prohibit improper payments to foreign governments and their officials for the purpose of obtaining or retaining business. API’s activities in

API’s overseas markets create the risk of unauthorized payments or offers of payments by one of API’s employees, consultants, sales agents or distributors, because these parties are not always subject to API’s control. While it is API’s policy to implement safeguards to discourage these practices, API’s existing safeguards and any future improvements may prove to be less than effective, and API’s employees, consultants, sales agents or distributors may engage in conduct for which API might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and API may be subject to other liabilities, which could negatively affect API’s business, operating results and financial condition. In addition, certain governmental authorities may seek to hold API liable for successor liability FCPA violations committed by companies in which API invests or that API acquires.

Customer demand is difficult to accurately forecast and, as a result, API may be unable to optimally match production with customer demand, which could adversely affect API’s business and financial results.

API makes planning and spending decisions, including determining the levels of business that API will seek and accept, production schedules, and inventory levels, component procurement commitments, personnel needs and other resource requirements, based on API’s estimates of customer requirements. The short-term nature of commitments by many of API’s customers and the possibility of unexpected changes in demand for their products reduce API’s ability to accurately estimate future customer requirements. On occasion, customers may require rapid increases in production, which can strain API’s resources, cause API’s manufacturing to be negatively impacted by materials shortages, necessitate higher or more restrictive procurement commitments, increase API’s manufacturing yield loss and scrapping of excess materials, and reduce API’s gross margin. API may not have sufficient capacity at any given time to meet the volume demands of API’s customers, or one or more of API’s suppliers may not have sufficient capacity at any given time to meet API’s volume demands. Conversely, a downturn in the markets in which API’s customers compete can cause, and in the past have caused, API’s customers to significantly reduce or delay the amount of products ordered from API or to cancel existing orders, leading to lower utilization of API’s facilities. Because many of API’s costs and operating expenses are relatively fixed, reduction in customer demand due to market downturns or other reasons would have a material adverse effect on API’s gross margin, operating income and cash flow.

Customer orders and forecasts are subject to cancellation or modification at any time which could result in higher manufacturing costs.

API’s sales are made primarily pursuant to standard purchase orders for delivery of products. However, by industry practice, orders may be canceled or modified at any time. When a customer cancels an order, they are responsible for all finished goods, all costs, direct and indirect, incurred by us,API, as well as a reasonable allowance for anticipated profits. No assurance can be given that API will receive these amounts after cancellation. Furthermore, uncertainty in customer forecasts of their demands and other factors may lead to delays and disruptions in manufacturing, which could result in delays in product shipments to customers and could adversely affect API’s business.

Fluctuations and changes in API’s customers’ demand are common in API’s industry. Such fluctuations, as well as quality control problems experienced in API’s manufacturing operations may cause API to experience delays and disruptions in API’s manufacturing process and overall operations and reduce API’s output capacity. As a result, product shipments could be delayed beyond the shipment schedules requested by API’s customers or could be cancelled, which would negatively affect API’s sales, operating income, strategic position at customers, market share and reputation. In addition, disruptions, delays or cancellations could cause inefficient production which in turn could result in higher manufacturing costs, lower yields and potential excess and obsolete inventory or manufacturing equipment. In the past, API has experienced such delays, disruptions and cancellations.

API depends upon an outside contract manufacturer for a portion of the manufacturing process for some of API’s products. API’s operations and revenue related to these products could be adversely affected if API encounters problems with this contract manufacturer.

Many of API’s products are manufactured internally. However API also relies upon a contract manufacturer in China to produce the finished portion of some of API’s optoelectronic components. API’s reliance on a contract manufacturer for these products makes API vulnerable to possible capacity constraints and reduced control over delivery schedules, manufacturing yields, manufacturing quality/controls and costs. If the contract manufacturer for API’s products were unable or unwilling to manufacture API’s products in required volumes and at high quality levels or to continue API’s existing supply arrangement, API would have to identify, qualify and select an acceptable alternative contract manufacturer or move these manufacturing operations to API’s internal manufacturing facilities. An alternative contract manufacturer may not be available to API when needed or may not be in a position to satisfy API’s quality or production requirements on commercially reasonable terms, including price. Any significant interruption in manufacturing API’s products would require API to reduce API’s supply products to API’s customers, which in turn would reduce API’s revenue, harm API’s relationships with the customers of these products and cause API to forego potential revenue opportunities.

API depends on key in-house manufacturing capabilities and a loss of these capabilities could have an adverse effect on API’s existing operations and new business growth.

API depends on key in-house manufacturing equipment and assembly processes. API believes that these key manufacturing and assembly processes give API the flexibility and responsiveness to meet API’s customer delivery schedule and performance specification with a custom product. This value proposition is an important component of API’s offering to API’s customers. A loss of these capabilities could have an adverse effect on API’s existing operations and new business growth.

Changes in the spending priorities of the federal government can materially adversely affect API’s business.

For API’s fiscal 2014, approximately 14% of API’s sales were related to products and services purchased by the federal government directly or indirectly. API’s business relies upon continued federal government expenditures on defense, intelligence, homeland security, aerospace and other programs that API supports. For fiscal 2013, API’s sales to federal government contractors totaled 25% of sales. In addition, foreign military sales are affected by U.S. government regulations, regulations by purchasing foreign governments and political uncertainties in the U.S. and abroad. There can be no assurance that the federal government budget (including defense and military) will continue to grow or that sales of defense related items to foreign governments will continue at present levels. The terms of defense contracts with the U.S. government generally permit the government to terminate such contracts, with or without cause, at any time. Any unexpected termination of a significant U.S. government contract with a military contractor to which API sells API’s products could have a material adverse effect on API’s business.

API faces intense competition which could negatively impact API’s results of operations and market share.

API competes with a range of companies in API’s target markets, some of which have greater financial and marketing resources, and greater manufacturing capacity, as well as better-established relationships with customers, than API does. Because API specializes in custom high performance devices requiring a high degree of engineering expertise to meet the requirements of specific applications, API generally does not compete to any significant degree with other large United States, European or Pacific Rim high volume manufacturers of standard “off the shelf” optoelectronic components. API cannot assure you that API will be able to compete successfully in API’s markets against these or any future competitors.

API also faces competition from some of its customers who evaluate API’s capabilities against the merits of manufacturing products internally. Due to the fact that such customers are not seeking to make a profit directly from the manufacture of these products, they may have the ability to manufacture competitive products at a lower

cost than API would charge such customers. As a result, these customers may purchase less of API’s products and there would be additional pressure to lower API’s selling prices which, accordingly, would negatively impact API’s revenue and gross margin.

Intense competition in API’s markets could result in aggressive business tactics by API’s competitors, including aggressively pricing their products or selling older inventory at a discount. If API’s current or future competitors utilize aggressive business tactics, including those described above, demand for API’s products could decline, API could experience delays or cancellations of customer orders, or API could be required to reduce API’s sales prices.

Acquisition and alliance activities by API’s competitors could disrupt API’s ongoing business.

From time to time, API’s competitors acquire or enter into exclusive arrangements with companies with whom API does business or may do business in the future. Reductions in the number of partners with whom API may do business in a particular context may reduce API’s ability to enter into critical alliances on attractive terms or at all, and the termination of an existing alliance by a business partner may disrupt API’s operations.

Decreases in average selling prices of API’s products may increase operating losses and net losses, particularly if API is not able to reduce API’s expenses commensurately.

The market for optical components and subsystems continues to be characterized by declining average selling prices resulting from factors such as increased price competition among optical component and subsystem manufacturers, excess capacity, the introduction of new products and increased unit volumes as manufacturers continue to deploy network and storage systems. In the last two years, API has observed a significant decline of average selling prices, primarily in the telecommunications market. API anticipates that average selling prices will continue to decrease in the future in response to product introductions by API’s competitors or us,API, or in response to other factors, including price pressures from significant customers. In order to sustain profitable operations, API must, therefore, reduce the cost of API’s current designs or continue to develop and introduce new products on a timely basis that incorporate features that can be sold at higher average selling prices. Failure to do so could cause API’s sales to decline and operating losses to increase.

API’s cost reduction efforts may not keep pace with competitive pricing pressures. To remain competitive, API must continually reduce the cost of manufacturing API’s products through design and engineering changes. API may not be successful in redesigning its products or delivering API’s products to market in a timely manner. API cannot assure you that any redesign will result in sufficient cost reductions enabling API to reduce the price of API’s products to remain competitive or positively contribute to operating results.

Shifts in API’s product mix may result in declines in gross profit.

API’s gross profit margins vary among API’s product platforms, and are generally highest on API’s Terahertz products. API’s overall gross profit has fluctuated from period to period as a result of shifts in product mix, the introduction of new products, decreases in average selling prices for older products and API’s ability to reduce product costs, and these fluctuations are expected to continue in the future. If API’s customers decide to buy more of API’s products with low gross profit margins and fewer of API’s products with high gross profit margins, API’s total gross profits could be adversely affected.

Environmental regulations could increase operating costs and additional capital expenditures and delay or interrupt operations.

The photonics industry, as well as the semiconductor industry in general, is subject to governmental regulations for the protection of the environment, including those relating to air and water quality, solid and hazardous waste handling, and the promotion of occupational safety. Various federal, state and local laws and regulations require

that API maintains certain environmental permits. While API believes that API has obtained all necessary environmental permits required to conduct API’s manufacturing processes. Ifprocesses, if API was found to be in violation of these laws, API could be subject to governmental fines and liability for damages resulting from such violations.

Changes in the aforementioned laws and regulations or the enactment of new laws, regulations or policies could require increases in operating costs and additional capital expenditures and could possibly entail delays or interruptions of API’s operations.

If API has insufficient proprietary rights or if API fails to protect those proprietary rights API has, API’s business would be materially harmed.

API’s success and ability to compete is dependent in part on API’s proprietary technology. API relies on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and internal procedures, to establish and protect API’s proprietary rights. For example, API utilizes proprietary design rules and processing steps in, among other things, the development and fabrication of API’s PIN photodiodes, APD photodiodes and API’s THz systems and sensors. In addition, API’s products rely upon over 200 patents or patents pending. There can be no assurance that any issued patents will provide API with significant competitive advantages, or that challenges will not be instituted against the validity or enforceability of any patent utilized by us,API, or, if instituted, that such challenges will not be successful. The cost of litigation to uphold the validity and to prevent the infringement of a patent could be substantial and could have a material adverse effect on API’s operating results. Furthermore, there can be no assurance that API’s technology, which API is constantly developing, will not infringe on patents or rights owned by others, licenses to which might not be available to us.API. While API has conducted limited due diligence and havehas conferred with experts with respect to, among other things, API’s proprietary materials which API incorporates into API’s PIN photodiodes, APD photodiodes and API’s THz systems and sensors, there can be no assurance that API has not overlooked or misinterpreted the status of the proprietary rights and intellectual property of others with respect to these products.

The steps API has taken to protect API’s intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. Other companies may be investigating or developing other technologies that are similar to API’s own. It is possible that patents may not be issued from any of API’s pending applications or those API may file in the future and, if patents are issued, the claims allowed may not be sufficiently broad to deter or prohibit others from making, using or selling products that are similar to API’s. API does not own patents in every country in which API sell or distribute API’s products, and thus others may be able to offer identical products in countries where API does not have intellectual property protection. In addition, the laws of some territories in which API’s products are or may be developed, manufactured or sold, including Europe, Asia-Pacific or Latin America, may not protect API’s products and intellectual property rights to the same extent as the laws of the United States.

In some cases, API may rely on trade secrets to protect API’s innovations. There can be no assurance that trade secrets will be established, that secrecy obligations will be honored or that others will not independently develop similar or superior technology. To the extent that consultants, key employees or other third parties apply technological information independently developed by them or by others to API’s projects, disputes might arise as to the proprietary rights to such information which may not be resolved in API’s favor.

Pursuing infringers of API’s intellectual property rights can be difficult and costly.

Policing unauthorized use of API’s technology is difficult and API cannot be certain that the steps API has taken will prevent the misappropriation, unauthorized use or other infringement of API’s intellectual property rights. Pursuing infringers of API’s proprietary rights could result in significant litigation costs, and any failure to pursue infringers could result in API’s competitors utilizing API’s technology and offering similar products, potentially resulting in loss of a competitive advantage and decreased sales.

Despite API’s efforts to protect API’s proprietary rights, existing patent, copyright, trademark and trade secret laws afford only limited protection. Further, API may not be able to effectively protect API’s intellectual property rights from misappropriation or other infringement in foreign countries where API has not applied for patent protections, and where effective patent, trademark, trade secret and other intellectual property laws may be unavailable, or may not protect API’s proprietary rights as fully as U.S. law. API seeks to secure, to the extent possible, comparable intellectual property protections in China and other areas in which API operates. Moreover, the level of protection afforded by patent and other laws in countries such as China may not be comparable to that afforded in the U.S.

Protecting API’s intellectual property is difficult especially after API’s employees or API’s third-party contractors end their employment or engagement. API may have employees leave API and go to work for competitors. Attempts may be made to copy or reverse-engineer aspects of API’s products or to obtain and use information that API regards as proprietary. Accordingly, API may not be able to prevent misappropriation of API’s technology or prevent others from developing similar technology.

API may be involved in intellectual property disputes in the future, which could divert management’s attention, cause API to incur significant costs and prevent API from selling or using the challenged technology.

Participants in the markets in which API sellsells products have experienced litigation regarding patent and other intellectual property rights. Numerous patents in these industries are held by others, including API’s competitors. In addition, third parties may claim that API, or API’s products, operations or any products or technology API obtains from other parties are infringing their intellectual property rights;rights, and API may be unaware of intellectual property rights of others that may cover some of API’s assets, technology and products.

Regardless of their merit, responding to such claims can be time consuming, divert management’s attention and resources and may cause API to incur significant expenses. While API believes that API’s products do not infringe in any material respect upon the intellectual property rights of other parties and/or believebelieves that a meritorious defense would exist with respect to any assertions to the contrary, API cannot be certain that API’s products would not be found to infringe upon the rights of others. Intellectual property claims against API could invalidate API’s proprietary rights and force API to do one or more of the following:

Any of these actions could result in a substantial reduction in API’s revenue and could result in losses over an extended period of time.

If API fails to obtain the right to use the intellectual property rights of others which are necessary to operate API’s business, and to protect their intellectual property, API’s business and results of operations will be adversely affected.

In the past, API have licensed certain Terahertz technology for use in API’s products. In the future, API may choose, or be required, to license technology or intellectual property from third parties in connection with the development of API’s products. API cannot assure you that third-party licenses will be available to API on commercially reasonable terms, if at all. API’s competitors may be able to obtain licenses, or cross-license their

technology, on better terms than API can, which could put API at a competitive disadvantage. Also, API typically enters into confidentiality agreements with such third parties in which API agrees to protect and maintain their proprietary and confidential information, including requiring API’s employees to enter into agreements protecting such information. There can be no assurance that the confidentiality agreements will not be breached by any of API’s employees or that such third parties will not make claims that their proprietary information has been disclosed.

API faces strong competition for skilled workers which could result in API’s inability to attract and retain necessary personnel.

API’s success depends in large part on API’s ability to attract and retain highly qualified scientific, technical, management, and marketing personnel. Competition for such personnel is intense and there can be no assurance that API will be able to attract and retain the personnel necessary for the development and operation of API’s business.

API may not be able to successfully integrate future acquisitions, which could result in API’s not achieving the expected benefits of the acquisition, the disruption of API’s business and an increase in API’s costs.

API’s ability to continue to grow may depend upon identifying and successfully acquiring attractive companies, effectively integrating these companies, achieving cost efficiencies and managing these businesses as part of API’s company.

API may not be able to effectively integrate the acquired companies and successfully implement appropriate operational, financial and management systems and controls to achieve the benefits expected to result from these acquisitions. API’s efforts to integrate these businesses could be affected by a number of factors beyond API’s control, such as regulatory developments, general economic conditions and increased competition. In addition, the process of integrating these businesses could cause the interruption of, or loss of momentum in, the activities of API’s existing business. The diversion of management’s attention and any delays or difficulties encountered in connection with the integration of these businesses could negatively impact API’s business and results of operations. Further, the benefits that API anticipateanticipates from these acquisitions may not develop.

Future acquisitions could require API to issue additional indebtedness or equity.

If API was to undertake a substantial acquisition for cash, the acquisition would likely need to be financed in part through bank borrowings or the issuance of public or private debt. This acquisition financing would likely increase API’s ratio of debt to equity and adversely affect other leverage criteria. Under API’s existing SVB Loan Agreement and PFG Loan Agreement, API is required to obtain consent prior to incurring additional indebtedness beyond a certain dollar amount. API cannot assure you that the necessary acquisition financing would be available on acceptable terms if and when required. If API was to undertake an acquisition for equity, the acquisition may have a dilutive effect on the interests of the holders of API’s Common Stock.

API may be liable for damages based on product liability claims relating to defects in API’s products which might be brought against API directly, or against API’s customers in their end-use markets. Such claims could result in a loss of customers in addition to substantial liability in damages.

API’s products are complex and undergo quality testing as well as formal qualification, both by API’s customers and by us.API. However, defects may occur from time to time. API’s customers’ testing procedures are limited to evaluating API’s products under likely and foreseeable failure scenarios and over varying amounts of time. For various reasons, such as the occurrence of performance problems that are unforeseeable in testing or that are detected only when products age or are operated under peak stress conditions, API’s products may fail to perform as expected long after customer acceptance. Failures could result from faulty components or design, problems in manufacturing or other unforeseen reasons. As a result, API could incur significant costs to repair or replace

defective products under warranty, particularly when such failures occur in installed systems. In addition, API may in certain circumstances honor warranty claims after the warranty has expired or for problems not covered by warranty in order to maintain customer relationships. Any significant product failure could result in lost future sales of the affected product and other products, as well as customer relations problems, litigation and damage to API’s reputation.

In addition, API’s products are typically embedded in, or deployed in conjunction with, API’s customers’ products, which incorporate a variety of components, modules and subsystems and may be expected to interoperate with modules produced by third parties. As a result, not all defects are immediately detectable, and, when problems occur, it may be difficult to identify the source of the problem. These problems may cause API to incur significant damages or warranty and repair costs, divert the attention of API’s engineering personnel from API’s product development efforts and cause significant customer relations problems or loss of customers, all of which would harm API’s business.

Furthermore, many of API’s products may provide critical performance attributes to API’s customers’ products that will be sold to end users who could potentially bring product liability suits in which API could be named as a defendant. The sale of these products involves the risk of product liability claims. If a person were to bring a product liability suit against one of API’s customers, this customer may attempt to seek contribution from us.API. A person may also bring a product liability claim directly against us.API. A successful product liability claim or series of claims against API in excess of API’s insurance coverage for payments, for which API is not otherwise indemnified, could have a material adverse effect on API’s financial condition or results of operations. API has acquired product liability coverage of up to $2 million.

API’s current and planned systems, procedures and controls may not be adequate to support API’s future operations.

The laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the rules adopted or proposed by the SEC, will result in increased costs to API as API evaluates the implications of any new rules and respond to their requirements. New rules could make it more difficult or more costly for API to comply with regulatory requirements, including API’s reporting obligations under the Securities Exchange Act of 1934 (the “Exchange Act”), and obtain certain types of insurance, including director and officer liability insurance, and API may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. API cannot predict or estimate the amount of the additional costs API may incur or the timing of such costs to comply with any new rules and regulations, or if compliance can be achieved.

Additionally, in August 2012 the SEC adopted the conflict mineral rules under Section 1502 of the Dodd-Frank Act. The conflict mineral rules require issuers that manufacture products that contain certain minerals and metals (tantalum, tin, gold or tungsten), known as conflict minerals, to perform due diligence and to report annually to the SEC whether such minerals originated in the Democratic Republic of Congo or an adjoining country. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of minerals API uses in the manufacture of API’s products. In addition, API has incurred and will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals used in API’s products. On June 2, 2014, API filed API’s conflict minerals report with the SEC indicating API was “conflict free undetermined” because API did not receive 100% of the surveys back from API’s suppliers to confirm that they used conflict free materials in the production of API’s parts. API intends to continue to develop more transparency into API’s supply chain as required by the SEC pursuant to the Dodd-Frank Act but significant efforts remain in order to achieve 100% certainty.

API is increasingly dependent on information technology systems and infrastructure.

API relies to a large extent on sophisticated information technology systems and infrastructure. The size and complexity of these systems make them potentially vulnerable to breakdown, malicious intrusion, and random attack. Likewise, confidentiality or data privacy breaches by employees or others with permitted access to API’s systems may pose a risk that trade secrets, personal information, or other sensitive data may be exposed to unauthorized persons or to the public. While API has invested in the protection of data and information technology, there can be no assurance that API’s efforts will prevent breakdowns or breaches in API’s systems that could adversely affect API’s business.

API may be unable to utilize its net operating loss carryforwards to reduce API’s income taxes, which could adversely affect API’s future financial results.

As of March 31, 2014, API had net operating loss, or NOL, carryforwards for U.S. federal and state tax purposes of $25.4 million and $6.5 million, respectively. As these net operating losses have not been utilized, a portion has begun to expire in the current year. The utilization of the NOL and tax credit carryforwards are subject to a substantial limitation imposed by Section 382 of the Code, and similar state provisions. API recorded deferred tax assets, net of valuation allowance, for the NOL carryforwards currently available after considering any existing Section 382 limitation. If API incurs an additional limitation under Section 382, then the NOL carryforwards, as disclosed, could be reduced by the impact of any future limitation that would result in existing NOL carryforwards and tax credit carryforwards expiring unutilized.

Risks Relating to API’s Common Stock

API’s stock price has been volatile in the past and may decline in the future.

API’s common stock has experienced significant market price and volume fluctuations in the past and may experience significant market price and volume fluctuations in the future in response to factors such as the following, some of which are beyond API’s control:

Stock markets often experience extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate or currency rate fluctuations or political events or hostilities in or surrounding the United States, could adversely affect the market price of API’s Class A Stock.

In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of its securities. API may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources both of which could have a material adverse effect on API’s business and results of operations.

A limited public trading market may cause volatility in the price of API’s Class A Stock.

The quotation of API’s Class A Stock on the NYSE MKT does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like API. API’s Class A Stock is subject to this volatility. In particular, although over 31 million shares of API’s Class A Stock were outstanding through the end of fiscal year 2014, the average daily trading volume over the 12 month period ended March 31, 2014 was approximately 78,000, or less than 0.3% of the number of shares outstanding. Consequently, sales of substantial amounts of Class A Stock, or the perception that such sales might occur, could adversely affect prevailing market prices of API’s Class A Stock and API’s stock price may decline substantially in a short time and API’s stockholders could suffer losses or be unable to liquidate their holdings.

Future sales of API’s Class A Stock in the public market could lower API’s stock price, and conversion of API’s warrants or stock options and any additional capital raised by API may dilute your ownership.

API may sell additional shares of Class A Stock in the future. In addition, holders of warrants or stock options may exercise their warrants or stock options to purchase shares of API’s Class A Stock. API cannot predict the size of future issuances of API’s Class A Stock or the effect, if any, that future issuances and sales of shares of API’s Class A Stock will have on the market price of API’s Class A Stock. Sales of substantial amounts of API’s Class A Stock, including shares issued in connection with the exercise of the warrants or stock options, or the perception that such sales could occur, may adversely affect prevailing market prices for API’s Class A Stock.

Shares eligible for public sale in the future could decrease the price of API’s Class A Stock and reduce API’s future ability to raise capital.

Future sales of substantial amounts of API’s Class A Stock in the public market could decrease the prevailing market price of API’s Class A Stock, which would have an adverse effect on API’s ability to raise equity capital in the future.

API’s issuance of Preferred Stock could adversely affect holders of Class A Stock.

API’s board of directors is authorized to issue series of Preferred Stock without any action on the part of API’s holders of Class A Stock. API’s board of directors also has the power, without stockholder approval, to set the terms of any such series of Preferred Stock that may be issued, including voting rights, dividend rights, and preferences over the Class A Stock with respect to dividends or if API liquidates, dissolves or winds up API’s business and other terms. If API issues Preferred Stock in the future that has preference over the Class A Stock with respect to the payment of dividends or upon API’s liquidation, dissolution or winding up, or if API issues Preferred Stock with voting rights that dilute the voting power of the Class A Stock, the rights of holders of the Class A Stock or the price of the Class A Stock could be adversely affected.

API does not intend to pay dividends and is precluded from doing so while API’s SVB and PFG Loan Agreements are outstanding.

API has never declared or paid any cash dividends on its common stock and API is currently precluded from doing so while the SVB and PFG Loan Agreements are outstanding. Even in the event the SVB and PFG Loan Agreements are terminated, API intends to retain future earnings, if any, to finance operations and expand API’s business and, therefore, do not expect to pay any dividends in the foreseeable future.

Provisions in API’s organizational documents and Delaware law may delay or prevent a third party from acquiring us,API, which could decrease the value of API’s stock.

API’s board of directors has the authority to issue preferred stock and to determine the price, rights, powers, preferences, privileges and restrictions, including voting and conversion rights, of those shares without any further vote or action by the stockholders. The issuance of API’s preferred stock could have the effect of making it more difficult for a third party to acquire us.API. In addition, API is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which could also have the effect of delaying or preventing API’s acquisition by a third party. Further, certain provisions of API’s Certificate of Incorporation, as amended, and amended bylaws could delay or make more difficult a merger, tender offer or proxy contest, which could adversely affect the market price of API’s common stock, including:

These and other provisions in API’s certificate of incorporation, as amended, API’s amended bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of API’s common stock in the future and result in the market price being lower than it would be without these provisions.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus contains forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions, that could cause the results of Luna and API to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements generally are identified by the words “may,” “will,” “project,” “might,” “expects,” “anticipates,” “believes,” “intends,” “estimates,” “should,” “could,” “would,” “strategy,” “plan,” “continue,” “pursue,” or the negative of these words or other words or expressions of similar meaning. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements. These statements include expectations regarding the completion of the Merger, the prospects of the combined company and the companies’ future growth, as well as the potential synergies from the proposed merger and the future profitability of the combined company. Management of Luna and API caution the reader that these forward-looking statements are only predictions and are subject to a number of both known and unknown risks and uncertainties, and actual results, performance, and/or achievements of the companies may differ materially from the future results, performance and/or achievements expressed or implied by these forward-looking statements as a result of a number of factors. These factors include, but are not limited to: the approval of the Merger and related matters by the companies’ respective stockholders and satisfaction of other closing conditions of the Merger; the uniqueness and advantages of Luna’s or API’s technology and intellectual property; potential costs savings and synergies from the Merger; potential for greater profitability; potential for future commercialization of their technologies; the competitive advantage afforded by Luna’s or API’s technology; the potential efficacy of Luna’s or API’s technology; and growth potential of certain markets. Statements that describe the companies’ business strategies, goals, prospects, opportunities, outlook, plans or intentions are also forward-looking statements.

For a discussion of risks associated with the ability of Luna and API to complete the Merger and the effect of the Merger on the present businesses of Luna and API and the business of the combined company after the Merger, see the section entitled “Risk Factors,” beginning on page 20.21.

If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of Luna or API, or of the combined company after the Merger, could differ materially from the forward-looking statements. All forward-looking statements in this joint proxy statement/prospectus are current only as of the date on which the statements were made. Luna and API do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following summary unaudited pro forma condensed combined financial data is intended to show how the Merger might have affected Luna’s historical financial statements if the Merger had been completed as of January 1, 20132014 with respect to the pro forma results of operations for the nine months ended September 30, 2014 and for the year ended December 31, 2013,2014, and completed as of September 30,December 31, 2014 with respect to the pro forma balance sheet as of September 30,December 31, 2014. The summary unaudited pro forma condensed combined financial data was prepared based on the historical financial results reported by Luna and API. The following should be read in connection with the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page F-79,F-68, and the audited and unaudited consolidated financial statements of Luna and API beginning on pages F-2 and F-36,F-25, respectively.

The Merger will be accounted for as a business combination under the acquisition method of accounting, with Luna as the identified acquirer. The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC. The pro forma adjustments reflecting the completion of the Merger are based upon the acquisition method of accounting in accordance with U.S. GAAP, and upon the assumptions set forth in the notes to the unaudited pro forma condensed combined financial statements.

The fiscal year-ends of Luna and API are December 31st and March 31st, respectively, prior to the Merger. The Unaudited Pro Forma Condensed Combined Statement of Operations (the “pro forma statement of operations”) for the nine months ended September 30, 2014 combines the historical consolidated statement of operations of Luna for the nine months ended September 30, 2014, and the historical consolidated statement of operations of API for the nine months ended September 26, 2014, and gives pro forma effect to the combination as if it had been completed on January 1, 2013. The pro forma statement of operations for the year ended December 31, 20132014 combines the historical consolidated statement of operations of Luna for the year ended December 31, 2013,2014 and the historical consolidated statement of operations of API for the twelve months ended December 27, 2013,26, 2014, and gives pro forma effect to the Merger as if it had been completed on January 1, 2013.2014. The Unaudited Pro Forma Condensed Combined Balance Sheet (the “pro forma balance sheet”) as of September 30,December 31, 2014 combines the historical consolidated balance sheets of Luna and API as of September 30,December 31, 2014 and SeptemberDecember 26, 2014, respectively, and gives pro forma effect to the Merger as if it had been completed on September 30,December 31, 2014.

The historical consolidated financial data has been adjusted to give pro forma effect to events that are (i) directly attributable to the Merger, (ii) factually supportable and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results. Costs of severance expected to be paid to API managementAPI’s president and costs of bonuses expected to be paid to Luna managementchief executive officer of approximately $874,000 and $585,000, respectively,$647,000 are not included in the pro forma accrued liabilities due to their non-recurring nature.the uncertainty of timing of the related payments. The pro forma adjustments are preliminary and based on management’s estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the Merger and certain other adjustments.

The unaudited pro forma condensed combined financial data is presented for illustrative purposes only and is not necessarily indicative of the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the entities been combined during the periodsperiod presented. The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the Merger. These financial statements also do not include any integration costs, dissynergies or estimated future transaction costs, except for fixed contractual transaction costs, that the companies may incur as a result of the Merger. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial statements (see the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page F-79)F-68), the preliminary acquisition date fair value of the identifiable assets acquired and liabilities assumed reflected in the unaudited pro forma condensed combined financial statements is subject to adjustment and may vary significantly from the actual amounts that will be recorded upon completion of the Merger.

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

The following table sets forth certain historical, unaudited pro forma combined and pro forma equivalent financial information. The pro forma combined and pro forma equivalent incomeloss and dividend per share data for the year ended December 31, 2013 and for the nine months ended September 30, 2014 assumes that the Merger was completed as of January 1, 2013.2014. The API pro forma equivalent data was calculated by multiplying the corresponding combined company pro forma data by the Exchange Ratio.

The unaudited pro forma combined and pro forma equivalent loss and dividend per share data for the year ended December 31, 20132014 was prepared based on the audited consolidated financial statements for Luna for the year ended December 31, 20132014 and the unaudited consolidated financial statements of API for the twelve months ended December 27, 2013. The unaudited pro forma combined and pro forma equivalent loss and dividend per share data for the nine months ended September 30, 2014 was prepared based on the unaudited condensed consolidated financial statements for Luna for the nine months ended September 30, 2014 and for API for the nine months ended September 26, 2014. The pro forma combined and pro forma equivalent net book value per share data as of September 30,December 31, 2014 was prepared based on the unauditedaudited consolidated balance sheetssheet of Luna as of September 30,December 31, 2014 and the unaudited consolidated balance sheet of API as of SeptemberDecember 26, 2014.

The information below should be read in conjunction with the audited and unaudited consolidated financial statements of Luna and API referenced above and the accompanying notes to such financial statements. See the section entitled “Where You Can Find More Information” beginning on page 228.250. You are urged to also read the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page F-79.F-68.

shares outstanding during the relevant period.year ended December 31, 2014. Shares issuable upon the exercise of outstanding stock options and the vesting of restricted stock units are excluded from the computation due to their anti-dilutive effect on pro forma combined net loss per share from continuing operations.

(4)	API pro forma equivalent amounts are calculated by multiplying the pro forma combined per share amounts by the Exchange Ratio of 0.31782.

(5)	Pro forma book value per share is not meaningful as purchase adjustments were calculated as of September 30, 2014.

COMPARATIVE MARKET PRICE DATA AND DIVIDEND INFORMATION

Stock Prices

The tables below set forth, for the calendar quarters indicated, the high and low sales prices per share of Luna common stock, which trades on the NASDAQ Capital Market under the symbol “LUNA,” and API common stock, which trades on the NYSE MKT under the symbol “API.”

Luna’s fiscal year ends on December 31st and API’s fiscal year ends on March 31st.

Dividends

Luna has never paid cash dividends on its common stock. Luna currently intends to retain earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future.

API has never paid cash dividends on its common stock. API currently intends to retain earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future.

Comparative Per Share Market Value Data

The following table presents the closing per share price of Luna common stock and API common stock as reported on the NASDAQ Capital Market and the NYSE MKT, respectively, on (i) January 30, 2015, the last

trading day preceding public announcement that Luna and API had entered into the Merger Agreement and (ii)             February 13,, 2015, the latest practicable date before the printing of this joint proxy statement/prospectus.

The table also includes the equivalent closing per share price of API common stock on those dates. These equivalent closing per share prices reflect the fluctuating value of the Luna common stock that API stockholders would receive in exchange for each share of API common stock if the Merger had been completed on either of these dates, applying the exchange ratio of 0.31782 shares of Luna common stock for each share of API common stock.

The above table shows only historical comparisons. These comparisons may not provide meaningful information to API stockholders in determining whether to approve the Merger Agreement. API stockholders are urged to obtain current market quotations for Luna common stock and API common stock and to review carefully the other information contained in this joint proxy statement/prospectus. Historical stock prices are not indicative of future stock prices.

THE MERGER

This section of the joint proxy statement/prospectus describes material aspects of the Merger. While Luna and API believe that the description covers the material terms of the Merger Agreement and the transactions contemplated thereby, this summary does not contain all of the information that may be important to you. You should carefully read this entire joint proxy statement/prospectus, the attached annexes, and the other documents to which this joint proxy statement/prospectus refers, for a more complete understanding of the Merger.

General Description of the Merger

At the Effective Time, API Merger Sub, Inc., a wholly owned subsidiary of Luna, will merge with and into API. Upon completion of the Merger, the separate corporate existence of API Merger Sub, Inc. will cease and API will continue as the surviving entity and a wholly owned subsidiary of Luna.

As a result of the Merger, each share of API common stock outstanding at the Effective Time will be converted automatically into the right to receive 0.31782 shares of Luna common stock. The merger consideration is more fully described in the sections entitled “The Merger Agreement—Merger Consideration” on page111page116 of this joint proxy statement/prospectus and in the Merger Agreement, which is attached to this joint proxy statement/ prospectus as Annex A.

The exchange ratio is subject to adjustment to reflect the effects of any stock split, division or subdivision of shares, stock dividend, reverse stock split, combination of shares, reclassification, recapitalization or other like change in the outstanding common stock of Luna or API.

The merger is expected to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning in Section 368(a) of the Internal Revenue Code of 1986, as amended. See the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page107page112 of this joint proxy statement/prospectus.

Background of the Merger

Luna develops, manufactures and markets fiber optic sensing and test & measurement products. In addition, Luna also provides applied research services, typically under research programs funded by the United States government. Luna’s board and leadership have consistently evaluated partnership and other strategic opportunities in order to commercialize and advance Luna’s products, reduce costs, establish strategic partnerships, and deliver value to Luna’s stockholders.

Prior to 2013, Luna’s operations also included a number of other businesses, including fiber optic shape sensing technology that it was developing for robotic and minimally invasive surgical systems and Luna’s secure computing and communications group, or SCC, which developed technology to ensure the integrity of integrated circuits used in defense systems. Over the past two years, Luna narrowed its strategic focus by selling SCC in early 2013 and its medical fiber optic shape sensing business in early 2014. With its narrowed strategic focus and a stronger balance sheet as a result of these transactions, Luna began exploring other opportunities that were complementary to its core test and measurement business.

API is a leading test and measurement company with three product lines: High-Speed Optical Receiver (HSOR) devices that are used in the telecommunication market by both telecommunication equipment manufacturers and in test and measurement equipment utilized in the manufacturing of telecommunications equipment; Optoelectronic solutions which enables manufacturers to measure physical properties, including temperature, particular counting, color, and fluorescence for medical and process control applications; and Terahertz sensor products targeted at the industrial process control and quality control nondestructive testing markets for the

measurement of subsurface physical properties, like multi-layers thicknesses, density, moisture content and anomaly detection. The API board of directors, together with management, reviews API’s strategic alternatives from time to time.

In the spring of 2013, API retained B. Riley & Co., Inc.,LLC, or B. Riley,to assist in a comprehensive review of strategic alternatives focused on the sale of one or more of API’s principal product lines and the strengthening of API’s balance sheet. In mid to late 2013, B. Riley approached 18 third parties to determine their level of interest in acquiring API’s HSOR business. API received twopreliminary indicative offers of interest but none of them exceeded $8 million in value and none of them was deemed worthy of pursuing by the API board of directors, and no meaningful sale negotiations ensued. Thereafter, in late 2013 and early 2014, API directly approached several potential acquirers of API’s Optoelectronics business. Based on preliminary negotiations with those parties (in one case, including the negotiation of a proposed term sheet providing for an $11 million purchase price), the API board of directors determined that the realistically achievable sale price would not be adequate.

API was first introduced to Luna in September 2013 by an unrelated third party. The initial introduction was followed by a meeting at API headquarters in October 2013 between My Chung, Luna’s president and chief executive officer, and Richard Kurtz, API’s president and chief executive officer, at which the parties exchanged overviews of their respective businesses and prospects. Following that meeting, the parties executed a mutual non-disclosure agreement, or NDA, and held a follow-up meeting at Luna’s headquarters on December 5, 2013, at which meeting the members of each company’s management teams presented more detailed reviews of their respective businesses and prospects and discussed, in general terms, the benefits of a potential business combination between Luna and API. However, neither party made any immediate effort to follow up on these initial conversations and these discussions ceased.

In February 2014, Mr. Chung received an unsolicited inquiry from a third-party public company, referred to as Party A, regarding a potential acquisition of Luna. Luna and Party A executed an NDA for the purpose of evaluating a potential strategic transaction between Luna and Party A. Following the execution of the NDA, in early March 2014, Luna management gave a presentation to Party A regarding Luna’s business and Party A management gave a presentation to Luna regarding Party A’s business. On March 13, 2014, Luna received a non-binding letter of intent from Party A regarding a potential stock-for-stock acquisition of Luna by Party A.

On March 18, 2014, the Luna board of directors met to discuss the proposed offer. The board directed Luna management to request that Party A improve the economic terms of its proposed offer. The board also determined to engage an investment banking firm to assist the company in respect of the potential transaction, as well as to conduct a “market check.” Later, on March 18, 2014, Party A provided a revised non-binding letter of intent to Luna reflecting an increased purchase price.

Thereafter, Luna interviewed potential investment bankers, and on March 25, 2014, Luna engaged Mooreland Partners, LLC, or Mooreland,to assist it in evaluating potential strategic opportunities, including the potential transaction with Party A. At a meeting of the Luna board of directors on March 27, 2014, Luna’s board of directors and management discussed the potential transaction, as well as, with the input from Mooreland, the stand-alone value and business prospects of Luna. Following the meeting, Luna management requested that Party A further increase the proposed offer price. Luna and Party A continued negotiating the terms of a non-binding letter of intent. Additionally, Mooreland contacted, and Luna management engaged in preliminary discussions with another third-party public company, referred to as Party B, to explore whether Party B would be interested in a strategic transaction.

Following further negotiations, Party A ultimately provided Luna with a non-binding letter of intent reflecting a stock-for-stock acquisition of Luna. On April 1, 2014, the Luna board authorized management to execute this non-binding letter of intent, and following the board meeting, Luna provided Party A with a counter-signed letter of intent. Because the letter of intent included an exclusivity period, Luna suspended discussions with Party B at that time.

During April and May 2014, Party A engaged in continued due diligence on Luna, including document review and in person meetings with Luna management. However, on May 30, 2014, Party A’s chief executive officer notified Mr. Chung that Party A was not going to proceed with a proposed transaction because there was not a sufficient strategic fit with Luna to warrant an acquisition.

During late 2013 and early 2014, API continued to explore potential strategic transactions with third parties including the potential sale of its Terahertz technology (or the exclusive licensing of limited rights to its technology) and potential acquisition/merger transactions involving the entire company. None of those discussions resulted in any meaningful negotiations. Throughout this period, management and the API board continued to develop and to execute a business plan under which API would continue to operate independently and without divesting any of its major product lines. In furtherance of that plan, in June 2014, API completed a public offering of its common stock underwritten by B. Riley, which raised approximately $2.9 million, after payment of commissions and expenses.

Following Party A’s decision not to proceed with a potential acquisition of Luna, Luna management began an extensive evaluation of potential strategic opportunities with the assistance of Mooreland. Opportunities were analyzed, reviewed and discussed over the course of several months. The Luna Boardboard of directors authorized Mooreland and Luna management to contact eleven potential transaction parties, including API. Of these eleven, six participated in introductory phone calls or meetings. Of these six parties, two parties—API and Party B—would eventually engage in substantial discussions and due diligence with Luna.

On June 10, 2014, Mooreland initially contacted Mr. Kurtz of API and reported that Luna was interested in buying or merging with another public company with whom it might realize potential operational synergies and in order to benefit from a larger revenue base and achieve efficiencies in the cost of complying with the regulations governing public companies. On July 15, 2014, Mooreland representatives again spoke with Mr. Kurtz about a potential strategic transaction with Luna, including product fit and cost synergies. Mr. Kurtz indicated that API had deferred active consideration of its strategic alternatives pending the results of its second and third fiscal quarters. The parties agreed to stay in touch.

On June 18, 2014, Luna signed an NDA with Party B for the purpose of evaluating a potential strategic transaction with Party B, and over the ensuing three months, Luna and Party B engaged in discussions regarding a potential transaction.

On September 29, 2014, Mr. Chung contacted Donald Pastor, API’s chairman, regarding the potential for a business combination. Both parties expressed an interest in exploring a potential transaction and scheduled a meeting in Durham, North Carolina the following week. On October 1, 2014, Luna and API entered into an NDA.

On October 2, 2014, Luna management, representatives of Mooreland, Mr. Kurtz and Mr. Pastor met in Durham, North Carolina, and exchanged business information and discussed a potential merger transaction. Luna and API generally discussed some of the synergies that might be achieved by a combination of the two companies. During the course of the discussion, Mr. Kurtz indicated that he understood that his continued services would not be required in the event a merger between the two parties was consummated. The parties agreed to meet again to discuss potential benefits of a business combination in greater detail.

During late September and early October 2014, representatives of Mooreland and Luna management continued engaging in discussions with Party B to explore a potential strategic transaction. Additionally, Richard Roedel, Luna’s chairman, had an introductory call with the chairman of Party B. In the course of these discussions, Party B expressed its position that any potential transaction would require a commitment that the surviving company invest substantial funds in Party B’s subsidiary, which although presently unprofitable, Party B believed had great potential value. Party B also expressed, as a condition of any transaction with Luna, Carilion Clinic would be required to modify its rights under to the terms of the Series A Preferred Stock.

On October 17, 2014, Luna management, Mooreland and API’s management met again in Raleigh, North Carolina to exchange views on how the businesses, if combined, might be perceived in the market place and the financial community and potential operational and financial synergies that might be realized in a Merger. This meeting was followed by the exchange and analysis of financial forecasts of API and Luna.

At a series of meetings of the Luna board of directors in late October 2014, Mooreland and Luna management apprised the Luna board of directors of the status of the company’s efforts to explore a potential strategic transaction with a third party. Mooreland advised the board of directors that it had approached eleven prospective merger candidates and that, for various reasons, nine of them had decided to pass. Mooreland provided detailed information about Party B and API, including potential synergies and cost savings, and presentations regarding Mooreland’s efforts toward a strategic transaction with Party B or API. The Luna board of directors discussed the potential benefits of a transaction with Party B or API, including potential cost savings, synergies and positive effects on stockholder value. The board also discussed the risks of a potential transaction, including Party B’s desire for a commitment from the surviving company to fund its unprofitable subsidiary. In light of this, the Luna board expressed its belief that Luna should engage in substantial additional due diligence on Party B before any further discussions with Party B. Luna’s board of directors also discussed the merits of Luna pursuing its business plan on a stand-alone basis and pursuing other potential strategic alternatives.

In late October and early November 2014, Luna management and Mooreland representatives continued to engage in discussions with Party B and API concerning their businesses and the potential merits of a merger with Luna. Additionally, Luna engaged in additional due diligence on Party B’s business plan and its products and technology, including the engagement of a consultant to evaluate Party B’s subsidiary.

On November 4, 2014, Mr. Chung, Dale Messick, Luna’s chief financial officer, and Scott Graeff, Luna’s chief strategy officer, met with API’s senior operating officers in Ann Arbor, Michigan and received an in depth briefing as to the API business. On November 12 and 13, 2014, Messrs. Chung and Graeff visited the headquarters of API’s Optosolutions business in Camarillo, California, where they toured the facility and met with the general manager, along with Mr. Kurtz.

On November 18, 2014, Mr. Roedel met with Mr. Pastor in Charlotte, North Carolina to discuss API’s business, the potential merits of a merger between API and Luna and the specific terms of a potential transaction.

At a meeting of the Luna board of directors on November 19, 2014, Mr. Roedel briefed the Luna board of directors on his discussions with the respective chairmen of Party B and API. Luna management also updated the board on the potential risks and benefits of a strategic transaction with each of Party B and API, including the results of the consultants’ analysis of Party B and its subsidiary. Following a discussion, the board of directors decided Luna should focus on a transaction with API, rather than Party B, given API’s better strategic fit with Luna’s fiber optic technologies and telecom presence and, relatedly, prospects for integration, as well as the risks associated with a transaction with Party B, including the likely need for an agreement from Carilion Clinic to modify the terms of its Series A Preferred Stock. Accordingly, the board of directors directed management to proceed towards a letter of intent for a merger with API on terms to be recommended by management, Mooreland and outside legal counsel.

Following the meeting, representatives of Mooreland contacted Mr. Pastor, indicating that Luna’s board of directors decided to continue discussing a strategic transaction with API, and informed Party B that Luna was no longer interested in exploring a strategic transaction with Party B at that time.

On November 20, 2014, Luna delivered to API a letter of intent proposing a reverse triangular merger in which API would be merged with a wholly owned subsidiary of Luna and the stockholders of API would receive 0.34466 shares of Luna common stock for each share of API common stock owned by them. Prior to the delivery of such letter, Messrs. Kurtz, Pastor and Chung had several conversations concerning the proposed exchange ratio. The letter of intent as proposed by Luna also provided that the board of directors of the combined

businesses would be composed of three current directors of API, three current directors of Luna, and the chief executive officer of Luna. On November 21, 2014, at the suggestion of Mr. Pastor, Luna modified this provision to permit the API board designees to be persons who were not current API directors.

During October and November 2014, Mr. Kurtz and Mr. Pastor kept each board member contemporaneously apprised of the meetings and discussions that had been taking place with Luna. Accordingly, a consensus was reached to move forward with the proposed transaction with Luna, and on November 21, 2014 Mr. Kurtz executed the Letter of Intent on behalf of API.

On November 23, 2014, the API board of directors met to discuss the proposed letter of intent from Luna. At that meeting it was determined to defer action on the matter pending further discussion and consideration by the directors.At the meeting, Mr. Kurtz, Jeff Anderson, API’s chief financial officer, and Robin Risser, API’s chief

operating officer, briefed the directors on the continued slowdown of capital expenditures in the telecommunications industry and the potential effect of those developments on the API’s business. It was noted that current internal forecasts indicated that API might not be able to meet its covenants under its existing credit facilities (specifically covenants requiring API to maintain a minimum liquidity ratio and to achieve certain EBITDA targets) in the fourth quarter if these trends did not improve. On February 5, 2015, API gained covenant relief by entering into that certain Eighth Amendment to Loan and Security Agreement (Ex-IM Loan Facility) and that certain Tenth Amendment to Loan and Security Agreement, each with Silicon Valley Bank, and that certain Modification No. 5 to Land and Security Agreement with Partners for Growth III, L.P., wherein the adjusted EBITDA requirement and the minimum liquidity ratio were reduced. For a more detailed discussion of API’s covenants under its existing credit facilities and the consequences of API’s failure to comply with the terms of such covenants, see “Risks Relating to API’s Financial Condition and Performance – API has previously violated certain covenants under the SVB Loan Agreements and the PFG Loan Agreement.”

At a meeting of Luna’s board of directors on November 26, 2014, Mr. Graeff provided an update on the potential strategic transaction with API, noting a letter of intent had been sent to API.

On December 3, 2014 and December 4, 2014, Messrs. Pastor, Kurtz and Risser and Steven Williamson, API’s chief technology officer, met with representatives of Luna in Charlottesville, Virginia, where several of Luna’s Technology Development Division groups are located, and on December 5, 2014, Messrs. Pastor, Risser and Williamson met with representatives of Luna’s Lightwave Division in Blacksburg, Virginia. Mr. Pastor and API’s executive officers periodically discussed these and their other meetings with representatives of Luna (including their discussions as to expected synergies, the exchange ratio and the composition of the Board of the combined businesses) with the individual directors of API and were encouraged by them to continue to pursue such discussions.

At a meeting of the Luna board of directors on December 8, 2014, Mr. Graeff gave a status update on discussions with API. A full discussion ensued regarding the potential composition of the board of directors of the combined company. Following this discussion, Luna’s board of directors confirmed that the combined company’s board of directors should include three directors designated by API, three directors from Luna and Luna’s chief executive officer.

On December 9, 2015, Messrs. Risser and Williamson met with Mr. Chung at the Detroit Airport and discussed the governance practices at their respective companies, potential synergies that might be derived from a business combination, and the status of Luna’s efforts to achieve the $8 million technical specification milestone payment provided for in connection with the sale of its medical shape sensing business.

On December 11, 2014, API’s chief executive officer provided an executed letter of intent and term sheet to Luna.

On December 12, 2014, Talfourd Kemper, Jr., Luna’s general counsel, and representatives of Luna’s outside counsel, Cooley LLP, or Cooley, spoke with Mr. Kurtz and representatives of API’s outside counsel, Tarter Krinsky & Drogin LLP, or Tarter Krinsky. This conversation included discussions regarding API’s severance payment obligations for certain API employees. The parties also briefly discussed API’s fiscal third quarter outlook, which Mr. Kemper later relayed to Luna management.

On December 15, 2014, Mr. Roedel met with Messrs. Risser and Williamson and discussed the potential board composition of the combined company.

On December 16, 2014 and December 17, 2014, respectively, each of Luna and API opened access to their respective electronic data rooms to the other party to begin the formal due diligence process. Thereafter and continuing through January 2015, management of Luna and API and their respective consultants and advisors conducted detailed due diligence on each other’s respective businesses, and during that time members of Luna and API senior management continued to participate in discussions regarding the businesses of both companies and the preparation of financial projections and cost synergies analyses.

On December 17, 2014, API retained B. Riley as its financial advisor in connection with the proposed transaction. The nature of B. Riley’s engagement was to provide an opinion to the API board of directors that the exchange ratio contemplated in the Merger was fair from a financial point of view to the stockholders of API.

Later on December 19, 2014, at a meeting of the Luna board of directors, Luna management provided an update on the status and ongoing due diligence with respect of the potential merger with API, noting that API’s fiscal

third quarter appeared to be weaker than previously forecast and discussing API’s severance obligations under existing employment agreements with members of API senior management, if their employment were to be terminated without cause.

On December 22, 2014, Luna provided API and Tarter Krinsky with an initial draft of the Merger Agreement and form of voting agreement that Luna expected would be signed by the directors and executive officers of each of Luna and API. Both documents were generally consistent with the terms of the transaction as outlined in the letter of intent signed by the parties.

At a meeting of the API board of directors on December 22, 2014, API’s board of directors, along with the Board’s advisors and API management reviewed the reasons for and the risks and benefits of the proposed transaction, including, among other things (i) that the two companies would expect to realize significant savings from consolidating their public company reporting and other compliance obligations; (ii) Luna had favorable gross margins on its products and substantial revenue from research contracts that appeared to be recurring and self-sustaining; (iii) that there were synergies that could be expected to be derived from combining the two businesses, including integration of the two companies’ sales forces and significant potential synergies with respect to manufacturing activities; (iv) Luna’s 2009 bankruptcy had no lasting effect on the technology or business operations of Luna; (v) API was projecting a very weak third and fourth quarter for the 2014 fiscal year which would strain its cash resources and potentially cause it to be in breach of the financial covenants contained in its outstanding loan agreements; (vi) that Luna’s strong balance sheet and large cash reserves could help API secure better financing terms and support it through temporary business setbacks, particularly those that API was encountering in the telecommunications segment of its business. After a full discussion, which included the foregoing risks and benefits, the API Board formally ratified and approved the execution and delivery of the letter of intent, dated November 21, 2014, with Luna and the retention of B. Riley as API’s financial advisor.

On December 26, 2014, API delivered to Luna updated financial forecasts for the fiscal years ending March 2015 and 2016. The forecasts included a projected slowdown in API sales that extended for a longer period than had been anticipated in the original forecast provided to Luna by API. Following the receipt of the updated financial forecasts, Mr. Graeff spoke with API management and Mooreland representatives on multiple occasions on December 27, 2014 and December 28, 2014. A subsequent meeting was held in Orlando, Florida on December 30, 2014, attended by Messrs. Chung, Graeff, Messick, Kurtz and Risser, to review the API forecasts in depth.

Following that meeting, a representative of Mooreland called Mr. Pastor to advise him that, in light of the changes to API’s forecasts, Luna was considering proposing a change in the exchange ratio reflected in the non-binding letter of intent.

At a meeting of the Luna board of directors on January 2, 2015, Mr. Chung provided an update on the status of the potential Merger with API, noting that API signed and returned the non-binding letter of intent. He discussed the expected revenue shortfalls in API’s fiscal third quarter and how he and Messrs. Messick and Graeff had visited with API’s executives in Florida to better understand the situation. A representative of Mooreland said he believed that API’s fiscal third quarter shortfalls and the change in API forecasts would necessitate a change to the exchange ratio reflected in the original non-binding letter of intent, based on further financial analysis.

From January 6, 2015 to January 7, 2015, Mr. Messick met with Messrs. Kurtz, Risser and Anderson in Ann Arbor, Michigan. On those same dates, Luna’s auditors, Grant Thornton LLP, assisted in conducting certain onsite due diligence procedures in Ann Arbor, Michigan.

On January 7, 2015, API provided a revised draft of the Merger Agreement and form of voting agreement to Luna and Cooley.

At a meeting of the Luna board of directors on January 9, 2015, Luna management presented its due diligence findings from their meeting with API management on December 30, 2014. Mooreland advised that the results of this further due diligence would be included in Mooreland’s financial analysis and its recommendation to the Board on a revised exchange ratio.

Also on January 9, 2015, a representative of Mooreland informed Mr. Pastor, that in light of the revised API financial forecast, Luna proposed to lower the exchange ratio in the proposed merger to a level that would give the API stockholders a 38% ownership interest in the combined business on a fully diluted basis. On January 10, 2015, Mooreland emailed B. Riley and API’s chairman regarding a revised exchange ratio. On January 13, 2015, the B. Riley engagement letter was amended to provide analyses of the new, proposed exchange ratio and to advise API with respect to the development of a counter proposal. Between January 9, 2015 and January 15, 2015, the parties, in consultation with their respective financial advisors, continued to discuss the appropriate exchange ratio, and on January 15, 2015, Messrs. Pastor and Chung agreed to recommend to their respective boards of directors an exchange ratio of 0.31782, whereby API’s stockholders would own 43% of the common stock of the combined company on a fully diluted basis.

At a meeting of the Luna board of directors on January 16, 2015, Mr. Chung provided an update on the status of the potential merger with API, including, among other things, the revised exchange ratio and the anticipated support of API’s board of directors and management in favor of the transaction. Mr. Chung noted that Luna management had concluded its business due diligence of API, noting that API’s explanations for its weak fiscal third quarter appeared credible. A representative of Mooreland led the Board through a detailed presentation of API and the respective valuations of API and Luna, as well as the potential cost savings and potential market perception of the combined company. Mr. Kemper summarized the terms of the proposed Merger Agreement, a draft of which had been distributed to Luna’s directors. A representative of Cooley discussed the potential timeline for completion of the transaction, in view of SEC filing requirements and the necessity of receiving approvals from both companies’ stockholders.

On January 16, 2015, Luna provided revised drafts of the Merger Agreement and form of voting agreement to API and Tarter Krinsky. From January 16, 2015 through January 18, 2015 representatives of Luna and API, in consultation with their respective financial and legal advisors, continued to negotiate the terms of the Merger Agreement and the form of voting agreement and discuss the exchange ratio.

On January 18, 2015, Mooreland provided B. Riley and API with an updated exchange ratio proposal, along with the underlying calculations, of 0.31782 shares of Luna common stock for each share of API common stock, based on the closing prices of the companies’ respective shares of common stock on January 16, 2015, and Mr. Graeff spoke with API management regarding the updated exchange ratio.

The Luna board of directors met on January 23, 2015 to discuss the status of the potential merger with API. On January 26, 2015 and January 29, 2015, Mr. Roedel spoke with API’s chairman regarding governance matters of the combined company.

At a meeting of the board of directors of API held on January 28, 2015, B. Riley discussed with API’s board of directors its analysis of the proposed transaction and on January 29, 2015, B. Riley delivered to API’s board of directors its formal opinion that the exchange ratio contemplated in the Merger is fair from a financial point of view to the stockholders of API as of January 29, 2015. See the section entitled “The Merger—Opinion of B. Riley & Co., LLC to the Board of Directors of API” beginning on page 90.91. The Board also discussed the candidates, that API’s Nominating Committee unanimously recommended, to serve as API’s designees on the Board of Directors of the combined company. After discussion of the professional backgrounds of Gary Spiegel and Ed Coringrato Jr. and the reasons underlying the Nominating Committee’s recommendation, the API Board unanimously agreed (with Mr. Pastor abstaining) that Messrs. Spiegel and Coringrato should be named as two of API’s three designees to the Board of Directors of the combined company and that Mr. Pastor should be named as API’s third designee with Mr. Pastor being named to the class with a term expiring at the annual meeting of Luna to be held in 2018.

The API board of directors met again on the morning of January 30, 2015 to consider the potential business combination transaction with Luna. The API board of directors received an update regarding the status of the potential transaction, and reviewed the terms of the proposed Merger Agreement and related agreements. Representatives of Tarter Krinsky and the law firm of Morris, Nichols, Arsht and Tunnell LLP, special Delaware counsel to API, reviewed the API board’s fiduciary duties with respect to the transaction and the provisions of the Merger Agreement and voting agreements and responded to questions from the directors with respect thereto. After deliberation, including an active discussion among the directors with respect to the risks and benefits of the proposed transactions, including the liquidity issues that API was facing, its ongoing discussions with its lenders with respect to the modification of existing loan covenants, the prospects for Luna to attain certain milestone payments that it could earn in connection with its sale of its medical sense shaping business, and other factors, the API board of directors unanimously adopted the resolutions declaring the Merger Agreement to be advisable and in the best interest of the stockholders and determined to recommend that the stockholders vote in favor of adoption of the Merger Agreement. In addition, the API board of directors approved the related voting agreements.

That same morning, the Luna board of directors held a meeting with representatives of Mooreland and Cooley present. During this meeting, Cooley reviewed the board’s fiduciary duties with respect to the proposed transaction with API. The Luna board of directors also engaged in a thorough review with representatives of Cooley of key provisions of the Merger Agreement and voting agreements, and representatives of Cooley and Mr. Kemper responded to questions from directors regarding these agreements. Mooreland presented its financial analysis of the exchange ratio and delivered an oral opinion, subsequently confirmed in writing, that, as of January 30, 2015 and based upon and subject to the assumptions, factors and qualifications set forth in the written opinion, the exchange ratio of 0.31782 shares of Luna common stock for each outstanding share of API common stock pursuant to the Merger Agreement was fair from a financial point of view to Luna’s common stockholders. See the section entitled “The Merger—Opinion of Mooreland Partners LLC to the Board of

Directors of Luna” beginning on page78.page79. After further discussion, the Luna board of directors unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement were advisable and fair to and in the best interest of Luna and its common stockholders and approved the Merger Agreement and voting agreements. The Luna board of directors also resolved unanimously to recommend to the Luna stockholders that they vote to approve the issuance of shares of Luna’s common stock pursuant to the Merger Agreement.

Following the approval of the transaction by the Luna and API board of directors, the Merger Agreement was executed by the parties, and voting agreements were delivered by each of Luna’s and API’s executive officers and directors, on the night of January 30, 2015. On the morning of February 2, 2015, Luna and API each issued a

press release announcing the Merger. Copies of these press releases, along with the Merger Agreement and form of voting agreements, were filed as exhibits to Current Reports on Form 8-K, filed by each of Luna and API with the SEC on February 2, 2015.

Recommendation of the Luna Board of Directors and its Reasons for the Merger

At a meeting held on January 30, 2015, among other things, the Luna board of directors unanimously:

Accordingly, the Luna board of directors unanimously recommends that Luna stockholders vote “FOR” the proposal of the issuance of Luna common stock in the Merger pursuant to the terms of the Merger Agreement.

In connection with the Merger, Luna’s financial advisor, Mooreland, delivered a written fairness opinion to the Luna board of directors regarding the fairness, from a financial point of view, of the Exchange Ratio to the Luna stockholders. The full text of Mooreland’s written opinion, dated January 30, 2015, is attached to this joint proxy statement/prospectus as Annex B. Luna encourages you to read this opinion carefully in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken. The opinion is addressed to Luna’s board of directors and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the Merger.

In reaching its decision to approve the Merger, the Luna board of directors consulted with Luna’s management regarding the strategic aspects of the Merger, Luna’s legal counsel regarding the legal terms of the Merger and Luna’s financial advisors regarding the financial aspects of the Merger and the fairness, from a financial point of view, of the Exchange Ratio to Luna’s stockholders. In evaluating the Merger, Luna also considered a number of factors in reaching its decision to take the foregoing actions, including, but not limited to the following:

There can be no assurance that the anticipated strategic and financial benefits of the Merger will be achieved, including that the anticipated synergies resulting from the Merger will be achieved or reflected in the trading price of Luna common stock following the completion of the Merger.

In addition, Luna’s board of directors identified and considered a variety of risks and other countervailing factors in its deliberations concerning whether to recommend the proposal regarding the issuance of Luna common stock in connection with the Merger to Luna’s stockholders, including, but not limited to, the following:

The Luna board of directors concluded, however, that these negative factors could be managed or mitigated by Luna or by the combined company or were unlikely to have a material impact on the Merger or the combined company, and that, overall, the potentially negative factors associated with the Merger were outweighed by the potential benefits of the Merger.

In considering the recommendation of the Luna board of directors with respect to the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, you should be aware that some of Luna’s directors and executive officers may have interests in the Merger that are different from, or in addition to, yours. The Luna board of directors was aware of and considered these interests, among other matters, in evaluating the Merger Agreement and the transactions contemplated by the Merger Agreement, and in recommending that the Merger Agreement be adopted by Luna stockholders. See the section entitled “—Interests of Directors, Executive Officers and Affiliates of Luna”Luna” beginning on page 106109 of this joint proxy statement/prospectus.

The above discussion of the material factors considered by the Luna board of directors is not intended to be exhaustive, but does set forth the principal factors considered by it. The Luna board of directors collectively reached the unanimous conclusion to approve the Merger Agreement, the Merger and the transactions contemplated thereby in light of the various factors described above and other factors that each member of the Luna board of directors felt were appropriate. In view of the wide variety of factors considered by it in connection with its evaluation of the Merger and the complexity of these matters, the Luna board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, the Luna board of directors made its recommendation based on the totality of information presented to and the investigation it conducted. In considering the factors discussed above and in making their determinations, individual directors may have given different weights to different factors.

Recommendation of the API Board of Directors and its Reasons for the Merger

At a meeting held on January 30, 2015, the API board of directors unanimously (1) approved the Merger Agreement and the transactions contemplated by the Merger Agreement, upon the terms and subject to the conditions set forth in the Merger Agreement, (2) authorized management to submit the Merger Agreement to the API stockholders for adoption at the API stockholder meeting and (3) recommended that API’s stockholders adopt the Merger Agreement and approve the transactions contemplated by the Merger Agreement.

In connection with the Merger, API’s financial advisor, B. Riley, delivered a written fairness opinion to the API board of directors concerning the fairness, from a financial point of view, of the Exchange Ratio being used in connection with the Merger, to API stockholders. The full text of B. Riley’s written opinion, dated January 29, 2015, is attached to this joint proxy statement/prospectus as Annex C. API encourages you to read this opinion carefully in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken. The opinion is addressed to API’s board of directors and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the Merger.

Accordingly, the API board of directors unanimously recommends that API stockholders vote “FOR” the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby at the API stockholder meeting.

The API board of directors believes that the Merger presents a strategic opportunity to create value for API’s stockholders. In reaching its decision to approve the Merger Agreement and recommend the adoption of the Merger Agreement to its stockholders, the API board of directors consulted with management, as well as its legal advisors and financial advisors, and considered a number of factors, including, among others, the following:

The API board of directors also weighed the factors described above against certain factors and potential risks associated with entering into the Merger Agreement, including, among others, the following:

•

the fact that the termination fee or reimbursement fee to be paid to Luna under the circumstances specified in the Merger Agreement may discourage other parties that might otherwise have an interest in a business combination with, or an acquisition of, API (see the section entitled “The“The Merger Agreement—Termination Fee”Fee” beginning on page 120126 of this joint proxy statement/prospectus);

In considering the recommendation of the API board of directors with respect to the proposal to adopt the Merger Agreement and approve the transactions contemplated by the Merger Agreement, you should be aware that some of API’s directors and executive officers may have interests in the Merger that are different from, or in addition to, yours. The API board of directors was aware of and considered these interests, among other matters, in evaluating the Merger Agreement and the transactions contemplated by the Merger Agreement, and in recommending that the Merger Agreement be adopted by API stockholders. See the section entitled “—“—Interests of Directors, Executive Officers and Affiliates of API”API” beginning on page 105109 of this joint proxy statement/prospectus.

The foregoing discussion of the information and factors considered by the API board of directors in reaching its conclusions and recommendations is not intended to be exhaustive, but includes the material factors considered by the API board of directors. In view of the wide variety of factors considered in connection with its evaluation of the Merger Agreement and the transactions contemplated by the Merger Agreement, and the complexity of these matters, the API board of directors did not find it practicable to, and did not attempt to, quantify, rank or assign any relative or specific weights to the various factors considered in reaching its determination and making its recommendation. In addition, individual directors may have given different weights to different factors. The API board of directors considered all of the foregoing factors as a whole and based its recommendation on the totality of the information presented.

Opinion of Mooreland Partners LLC to the Board of Directors of Luna

Luna retained Mooreland Partners LLC (“Mooreland”) to act as its financial advisor in connection with the Merger and to render an opinion as to the fairness, from a financial point of view, to the holders of Luna common stock of the exchange ratio pursuant to the Merger Agreement.

Mooreland, founded in 2002, is a leading independent investment bank providing M&A and private capital advisory services to the global technology industry, serving clients from its offices in Silicon Valley, Greenwich

(CT), and London. Mooreland provides industry domain and transaction expertise across all major technology sectors including communications technology, mobile and digital media, enterprise software and services, as well as industrial technology and electronics.

On January 30, 2015, Mooreland delivered its oral opinion, which it subsequently confirmed in writing, to the Luna Board of Directors that, as of that date and based upon and subject to the assumptions and other matters described in the written opinion, the exchange ratio of 0.31782 pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of Luna common stock.

Mooreland provided its opinion for the information and assistance of the Luna board of directors in connection with and for the purpose of the Luna board of directors’ evaluation of the transactions contemplated by the Merger Agreement.

Mooreland’s opinion relates only to the fairness, from a financial point of view, to the holders of Luna common stock of the exchange ratio,Exchange Ratio, which was determined through arm’s length negotiations between Luna and API. While Mooreland provided independent financial advice to the Luna board of directors during the course of negotiations between Luna and API, the decision to approve and recommend the Merger was made independently by the Luna board of directors. Mooreland’s opinion does not address any other aspect of the Merger, or any related transaction, and does not constitute a recommendation to any stockholder of Luna as to how that stockholder should vote or act on any matter relating to the Merger.

The complete text of Mooreland’s opinion, which sets forth the assumptions made, procedures followed, matters considered, and qualifications and limitations on and scope of the review undertaken by Mooreland, is attached to this joint proxy statement/prospectus as Annex B and is incorporated by reference in this joint proxy statement/prospectus. The summary of Mooreland’s opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Luna stockholders should read this opinion carefully and in its entirety.

In connection with its opinion, Mooreland made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Mooreland also took into account its assessment of general economic, market and financial conditions, as well as its experience in business valuation matters. For purposes of its opinion, Mooreland, among other things:

In connection with its review and in arriving at its opinion, Mooreland assumed and relied on the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by it for purposes of its opinion and did not independently verify, nor did Mooreland assume responsibility for independent verification of, any of that information. Mooreland assumed the accuracy of the representations and warranties contained in the Merger Agreement and all agreements related thereto relevant to ourits analysis. In

addition, Mooreland assumed that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986 and will be consummated on the terms and subject to the conditions set forth in the draft Merger Agreement furnished to Mooreland without waiver, modification or amendment of any material term, condition or agreement thereof and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the Merger, no delay, limitation, restriction or condition will be imposed that would have an adverse effect on Luna, API or the contemplated benefits of the Merger. In addition, Mooreland assumed that the financial forecasts for Luna and API provided to Mooreland by Luna management were reasonably prepared on bases reflecting the best currently available estimates and judgments of management, at the time of preparation, of the future operating and financial performance of Luna and API and the combined companies, and Mooreland relied, without independent verification, upon the estimates of Luna and API management of the potential cost savings and other synergies, including the amount and timing thereof, that may be achieved as a result of the Merger. Mooreland expressed no opinion with respect to any of those forecasts, including those costs savings and other synergies, or the assumptions on which they were based.

Mooreland did not assume any responsibility for or make or obtain any independent evaluation, appraisal or physical inspection of the assets or liabilities of API, Luna or any of their respective subsidiaries nor did Mooreland evaluate the solvency or fair value of API, Luna or any of their respective subsidiaries under any state or federal laws relating to bankruptcy, insolvency or similar matters. Mooreland’s opinion states that it was based on economic, monetary and market conditions as they existed and could be evaluated as of its date, and Mooreland assumed no responsibility to update or revise its opinion based upon circumstances and events occurring after its date. Mooreland’s opinion is limited to the fairness, from a financial point of view, to the holders of Luna common stock of the exchange ratioExchange Ratio pursuant to the Merger Agreement and Mooreland expressed no opinion as to the fairness of the Merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors or other constituencies of Luna, or as to Luna’s underlying business decision to engage in the Merger or the relative merits of the Merger as compared to other business strategies that might be available to Luna. In addition, Mooreland expressed no opinion with respect to the amount or nature or any other aspect of any compensation payable to or to be received by any officers, directors or employees of any party to the Merger, or any class of those persons, relative to the exchange ratioExchange Ratio pursuant to the Merger Agreement or with respect to the fairness of any such compensation. Mooreland did not express any opinion as to what the value of Luna common stock will be when issued pursuant to the Merger or the prices at which API common stock or Luna common stock will actually trade at any time.

Luna imposed no limitations on Mooreland with respect to the investigations made or procedures followed by Mooreland in rendering its opinion.

In preparing its opinion, Mooreland performed a variety of financial and comparative analyses. The following paragraphs summarize the material financial analyses performed by Mooreland in arriving at its opinion. The order of analyses described does not represent relative importance or weight given to those analyses by Mooreland. Some of the summaries of the financial analyses include information presented in tabular format.

The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by Mooreland, the tables must be read together with the full text of each summary. The following quantitative information, to the extent it is based on market data, is, except as otherwise indicated, based on market data as it existed on or prior to January 29, 2015, and is not necessarily indicative of current or future market conditions.

Historical Trading Range.Range

Mooreland presented to the Luna board of directors the trading range of API’s common shares for the 52-week period ended January 29, 2015, with closing prices ranging from a low of $0.29 per share to a high of $0.81 per share, and compared that to the closing price of API’s common shares on January 29, 2015 of $0.34 per share. Mooreland also reviewed with the Luna board of directors the Volume Weighted Average Price (“VWAP”) of API’s common stock for the 52-week period ended January 29, 2015, which was $0.51 per share, and compared

that to the implied per share equity value of the Merger Consideration of $0.52, calculated as of January 29, 2015. Over the 52-week period ended January 29, 2015, the closing price of API’s common shares was at or above the “Implied Offer Price per Share” of $0.52 for 133 days out of 253 trading days.

Mooreland also presented to the Luna board of directors the trading range of Luna’s common shares for the 2-year period ended January 29, 2015, with closing prices ranging from a low of $1.13 per share to a high of $2.50 per share, and compared that to the closing price of Luna’s common shares on January 29, 2015 of $1.64 per share. Over the 2-year period ending January 29, 2015, the closing price of Luna’s common shares was at or above the January 29, 2015 closing price of $1.64 for 23 days out of 505 trading days.

Mooreland noted that the historical trading range analysis is not a valuation methodology and that such analysis was presented merely for reference purposes only and not as a component of the determination as to the fairness of the transaction.

Historical Stock Trading Ratio Analysis.

Mooreland reviewed the historical trading prices of API common stock and Luna common stock as of and for various periods ended January 29, 2015, the last full trading day prior to the date of Mooreland Partner’s opinion, in order to determine the various stock price ratios that existed for those periods and to compare those average stock price ratios to the exchange ratioExchange Ratio in the Merger of 0.31782. The following table presents the average stock price ratios for January 29, 2015, and the three month, six month, one year, and two year periods ending on January 29, 2015. “Average stock price ratio” data representrepresents the daily closing price of API common stock divided by the daily closing price of Luna common stock averaged over the respective periods.

Relative Contribution Analysis.Analysis

Mooreland reviewed and analyzed the implied percentage contribution of each of Luna and API to pro forma projected combined operating results. In calculating the pro forma projected combined operating results, Mooreland used API management’s financial forecasts of API’s projected calendar years 2014 through 2015 operating results and Luna management’s standalonestand-alone company financial forecasts of projected calendar years 2014 through 2015 operating results. Mooreland reviewed, among other things, the implied percentage contributions to pro forma combined revenues and gross profit. Mooreland also reviewed contributions to

earnings before interest, taxes, depreciation, amortization, or EBITDA, but determined that the results were not meaningful because of both companies’ negative last twelve months (“LTM”) EBITDA. Mooreland also reviewed the implied percentage contributions to pro forma combined net cash using API and Luna’s forecasted balance sheets as of March 31, 2015. The following tables present the results of this analysis and the estimated percentage ownership of the combined company on a pro forma basis by the API stockholders and the Luna stockholders and estimated pro forma equity value contributions of API and Luna, based on the exchange ratioExchange Ratio of 0.31782.

Mooreland also reviewed and factored both API management and Luna management’s forecasted balance sheet ending March 31, 2015 to adjust the relative contribution. API’s management forecast for net cash (debt) position was $0.1 million in cash minus total debt of $4.1 million. Luna’s management forecast for net cash position was computed by adding Luna’s forecasted cash position of $12.9 million, minus $0.3 million of debt minus $8.0 million which represents the $4.69159 per share liquidity preference associated with the 1,321,514 outstanding shares of Series A Preferred Stock and the related 393,277 shares of unregistered, unpaid accrued dividends on the Series A Preferred Stock.

Mooreland calculated an implied Luna enterprise value and divided Luna’s implied enterprise value by the Mean of Luna’s Implied Relative Contributions from Operations of 45.9% to derive an implied enterprise value, which Mooreland defines as fully-diluted equity value using the treasury stock method, plus debt, preferred stock and minority interests, less cash and cash equivalents (“EV”), for API. Mooreland then adjusted the respective implied enterprise values for the “Forecasted Balance Sheet Adjustments” in order to compute the Pro forma equity ownership. Mooreland also performed these calculations assuming that Luna receives the $8 million payment from Intuitive upon Intuitive’s accomplishment of certain technical specifications with respect to the medical shape sensing technology Luna sold to Intuitive in 2014 (the “Technical Specification Payment”).

The results of the equity ownership analysis are not necessarily indicative of the contributions that the respective businesses may have in the future, and may not rely on the exact same approximations as in other places in this joint proxy statement/prospectus.

Selected Public Company Analysis for API.API

Using publicly available information, Mooreland compared selected financial data of API with data for publicly traded companies engaged in similar businesses that also had financial parameters that Mooreland judged to be analogous to API’s business or aspects thereof. The companies were as follows:

For each company listed above, Mooreland calculated and compared various financial multiples and ratios based on publicly available financial data as of January 29, 2015. Among other calculations, Mooreland calculated, for each of the companies, the multiples of EV to historical and estimated revenue and gross profit projections of API, as well as API’s estimated December 26, 2014 tangible book value.

The following table sets forth information concerning the following multiples for the selected companies and for API:

Mooreland calculated the “Implied Offer Multiples” based on the closing stock price for Luna of $1.64 on January 29, 2015 and the exchange ratio of 0.31782 and using API’s forecasted December 26, 2014 balance sheet as a means to calculate EV. All financial information in this analysis excludes the impact of non-recurring items. Projected calendar year 2014E and 2015E results for API were based on API management’s stand-alone company financial forecasts.

Selected Public Company Analysis for Luna.Luna

Using publicly available information, Mooreland compared selected financial data of Luna with data for publicly traded companies engaged in similar businesses that also had financial parameters that Mooreland judged to be analogous to Luna’s business or aspects thereof. The companies were as follows:

For each company listed above, Mooreland calculated and compared various financial multiples and ratios based on publicly available financial data as of January 29, 2015. Among other calculations, Mooreland calculated for each of the companies the multiples of EV to historical and estimated revenue and gross profit projections of Luna, as well as Luna’s estimated December 31, 2014 tangible book value. Projected calendar year 2014E and 2015E results for Luna were based on Luna management’s stand-alone company financial forecasts.

Based on this information, Mooreland calculated and compared the following multiples for Luna and the selected companies:

Mooreland calculated the “Luna Multiples” based on the closing stock price for Luna of $1.64 on January 29, 2015 and using Luna’s forecasted December 31, 2014 balance sheet as a means to calculate enterprise value. Mooreland calculated the “Luna Multiples Assuming Technical Specifications Payment” by adjusting the enterprise value to reflect the impact on enterprise value in the event the Technical Specifications Payment was to be collected.

None of the selected companies reviewed is identical to API or Luna, as applicable, and certain of these companies may have characteristics that are materially different from those of API and Luna, as applicable. These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of Mooreland’s analysis, may be considered similar to those of API and Luna, as applicable, based on sector participation, financial metrics and form of operations. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than would affect API and Luna, as applicable.

Mooreland also reviewed for the selected public companies’ EV as a multiple of EBITDA, but determined that the results were not meaningful because of both API’s and Luna’s negative LTM EBITDA.

Selected Transactions Analysis.Analysis

Mooreland analyzed publicly available financial information for the following selected merger and acquisition transactions, which represent transactions completed since January 1, 2010 that involved target companies that were involved in lines of business that may be considered similar to or have similar characteristics with API’s lines of business and with EV of less than $150 million (based on the reported transaction value):

In reviewing the selected transactions, Mooreland calculated, for the selected transactions EV as a multiple of LTM revenues. Mooreland also reviewed, for the selected transactions, EV as a multiple of LTM EBITDA, but

determined that the results were not meaningful because of API’s negative LTM EBITDA. Mooreland calculated the “API Implied Multiple by Merger” as an enterprise value as a multiple of LTM revenue multiple using API management’s December 26, 2014 forecast, Luna’s closing stock price on January 29, 2015 and the exchange ratioExchange Ratio of 0.31782.

The following table sets forth information concerning the multiples described above for the selected transactions and the same multiple implied by the Merger.

Premiums Paid Analysis.Analysis

Mooreland analyzed publicly available financial information for 12 merger and acquisition transactions, which represent transactions announced and closed between January 1, 2009 and January 29, 2015 that involved all stock consideration, acquired companies that were publicly-traded on U.S. listed exchanges, and had an equity value between $10 and $100 million. In reviewing these transactions, Mooreland analyzed the premium of consideration offered to the acquired company’s stock price one trading day prior and 30 calendar days prior to the announcement of the transaction.

Mooreland calculated premiums for API based on the “Implied Offer Price per Share” and the API closing stock price of $0.34 on January 29, 2015. The following table sets forth information concerning the stock price premiums in the selected transactions and the stock price premiums implied by the Merger.

Present Value of Future Share Price Analysis for API.

Mooreland performed an analysis of the present value of the implied future price per share of API common stock, which is designed to provide an indication of the present value of a theoretical future value of a company’s

equity per share as a function of the company’s estimated future revenue and gross profit and its assumed EV to LTM revenue and EV to LTM gross profit multiples. Mooreland applied the median multiples of 0.8x EV / LTM revenue and 1.5x EV / LTM gross profit, respectively, to estimated revenues and gross profits of API for each of the calendar years 2015, 2016, and 2017 as provided by API’s management. These selected medians of revenues and gross profit were based upon the median multiples from the “Selected Public Company Analysis for API.” Mooreland then discounted the 2015, 2016, and 2017 values back to present by using a discount rate of 14.0%, reflecting an estimate of “Selected Public Company Analysis for API” weighted average cost of capital (“WACC”), which takes into account certain company-specific metrics, including a company’s equity value, as well as certain financial metrics for the United States financial markets generally. This analysis resulted in a range of implied equity per share values for API of $0.27 to $0.70 per share. Mooreland noted that the per share value implied by the assumed exchange ratio of 0.31782 and the Luna closing stock price on January 29, 2015 was $0.52.

Present Value of Future Share Price Analysis for Luna.Luna

Mooreland also performed an analysis of the present value of the implied future price per share of Luna common stock. Mooreland applied an enterprise value to LTM revenue of 0.7x to estimated revenues of Luna for each of the calendar years 2015, 2016, and 2017 revenue forecast, as provided by Luna’s management. This selected

multiple was the median multiple based upon the “Selected Public Company Analysis for Luna.” Mooreland then discounted the 2015, 2016, and 2017 values back to present by using a discount rate of 14.0%, reflecting an estimate of “Selected Public Company Analysis for Luna” WACC. Mooreland also reviewed and calculated the potential impact of the “Technical Specifications Payment.” These analyses resulted in a range of implied equity per share values for Luna of $1.18 to $1.66 per share.

No company, transaction or business used in the “Selected Public Company Analysis,” “Selected Transactions Analysis” or “Premiums Paid Analysis” as a comparison is identical to API, Luna or the Merger. Accordingly, an evaluation of the results of these analyses is not entirely mathematical; rather, it involves complex considerations and judgments concerning differences in the financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the selected companies or selected transactions or the business segment, company or transaction to which they are being compared.

The summary set forth above does not purport to be a complete description of the analyses performed by Mooreland in connection with the rendering of its opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analyses and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Accordingly, Mooreland believes that its analyses must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying its analyses and opinion. Mooreland did not attribute any specific weight to any factor or analysis considered by it. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis.

In performing its analyses, Mooreland made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond API’s or Luna’s control. Any estimates contained in or underlying these analyses, including estimates of future performance, are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those estimates. Additionally, analyses relating to the values of businesses or assets do not purport to be appraisals or necessarily reflect the prices at which businesses or assets may actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. Mooreland’s opinion and its related analyses were only one of many factors considered by Luna’s board of directors in their evaluation of the Merger and should not be viewed as determinative of the views of Luna’s board of directors or management with respect to the exchange ratioExchange Ratio or the Merger.

Mooreland is a financial institution engaged in various activities, which may include financial advisory, mergers, acquisitions, divestitures, capital raising activities, among others. Mooreland has not provided investment banking or financial advisory services to API or Luna for which compensation was received before the signing of their letter of engagement with Luna on March 25, 2014. Under the terms of its engagement letter with Mooreland, Luna has paid or agreed to pay Mooreland fees in amounts that Luna and Mooreland believe are customary in transactions of this nature. These fees include retainer fees of $100,000, which are creditable against the fee for the consummation of the Merger, a non-refundable fee for rendering the Mooreland fairness opinion of $200,000 and a transaction fee payable upon consummation of the Merger of $750,000. In addition, Luna has agreed to reimburse Mooreland for certain of its out-of-pocket expenses and to indemnify Mooreland and related persons against various liabilities, including certain liabilities under the federal securities laws. In the future, Mooreland may perform additional financial advisory and investment banking services for Luna, for which it may receive customary fees and expenses.

Mooreland, its members, affiliates, directors and officers may at any time invest on a principal basis, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account in securities of Luna, API, or any other company (including debt, equity and convertible securities), or any currency or commodity, that may be involved in this transaction.

Nature of Financial Projections Reviewed by the Luna Board of Directors and Luna’s Financial Advisor

Luna does not make public disclosure of forecasts or projections of its expected financial performance because of, among other things, the inherent difficulty of accurately predicting future periods and the likelihood that the underlying assumptions and estimates may prove incorrect. In connection with its evaluation of the Merger, however, Luna management prepared and provided to the Luna board of directors and Mooreland Partners, some non-public internal financial projections regarding Luna’s anticipated future operations and estimated synergies arising in connection with the Merger. In addition, Luna management provided to Mooreland Partners and the Luna board of directors certain non-public internal financial projections for API prepared by API management. A summary of these financial projections and estimated synergies is included below to provide Luna stockholders and API stockholders access to specific non-public information that was considered by the Luna board of directors for purposes of evaluating the Merger and provided to Mooreland Partners for its use in evaluating the fairness, from a financial point of view, of the Exchange Ratio to Luna stockholders.

The financial projections and estimated synergies summarized below were not prepared for purposes of public disclosure, nor were they prepared on a basis designed to comply with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of projections, or U.S. GAAP. Luna’s independent registered public accounting firm, which is listed as an expert below in “Experts,“Experts,” did not compile, examine or perform any procedures with respect to the projections or estimated synergies summarized below, and has not expressed any opinion or any other form of assurance on this information or its achievability, and assumes no responsibility for, and disclaims any association with, these projections and estimated synergies. The reports of the independent registered public accounting firms included in this joint proxy statement/prospectus relate to historical financial statements. They do not extend to any prospective financial information and should not be seen to do so.

Although presented with numerical specificity, the projections and estimated synergies were prepared in the context of numerous variables, estimates and assumptions that are inherently uncertain and may be beyond the control of Luna, and which may prove not to have been, or to no longer be, accurate. The projections and the estimated synergies are subject to many risks and uncertainties. Important factors that may affect actual results and cause actual results to differ materially from these projections and synergies include risks and uncertainties relating to Luna’s and API’s businesses (including their ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance, the regulatory environment, general business and economic conditions, market and financial conditions, various risks set forth in Luna’s and API’s reports filed with the SEC, and other factors described in “Risk Factors” or referenced under “Cautionary Statement Concerning Forward-Looking Statements,” beginning on pages 2021 and 59,60, respectively, of this joint proxy statement/

prospectus. The projections and estimated synergies also reflect assumptions that are subject to change and are susceptible to multiple interpretations and periodic revisions based on actual results, revised prospects for Luna’s and API’s businesses, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the projections and estimated synergies were prepared. In addition, other than with respect to the estimated synergies discussed below, the projections do not take into account any of the transactions contemplated by the Merger Agreement, including the Merger and associated expenses, or Luna’s and API’s compliance with their respective covenants under the Merger Agreement. Moreover, the projections and estimated synergies do not take into account any circumstances, transactions or events occurring after the date the projections and estimated synergies were prepared. Accordingly, actual results will likely differ, and may differ materially, from those contained in the projections and estimated synergies. Neither Luna nor API can assure you that these projections and estimated synergies will be realized or that future financial results of Luna or API will not materially vary from these projections and estimated synergies.

The inclusion of a summary of the projections and estimated synergies in this joint proxy statement/prospectus should not be regarded as an indication that any of Luna, API or their respective affiliates, officers, directors, financial advisors or other representatives consider the projections or estimated synergies to be necessarily predictive of actual future events, and neither the projections nor the estimated synergies should be relied upon as

such. None of Luna, API or their respective affiliates, officers, directors, financial advisors or other representatives gives any stockholder of Luna, stockholder of API or other person any assurance that actual results will not differ materially from the projections and estimated synergies, and, except as otherwise required by law, none of them undertakes any obligation to update or otherwise revise or reconcile the projections or estimated synergies to reflect circumstances existing after the date the projections and estimated synergies were generated or to reflect the occurrence of future events, even in the event that any or all of the assumptions and estimates underlying the projections or estimated synergies are shown to be in error.

No one has made or makes any representation to any Luna stockholder, API stockholder or anyone else regarding, nor assumes any responsibility for the validity, reasonableness, accuracy or completeness of, the information included in the projections and estimated synergies set forth below. Readers of this joint proxy statement/prospectus are cautioned not to rely on the projections and estimated synergies. Luna has not updated and, except as otherwise required by law, does not intend to update or otherwise revise the projections or estimated synergies, even in the short term, to reflect circumstances existing after the date when the projections or estimated synergies were made or to reflect the occurrence of future events, including the Merger. Moreover, the projections and estimated synergies do not take into account the effect of any failure of the Merger to occur and should not be viewed as accurate or continuing in that context.

A summary of these financial projections and estimated synergies is included solely to give Luna stockholders and API stockholders access to the information that was made available to the Luna board of directors and Mooreland Partners, as described below, and is not included in this document in order to influence your decision whether to vote for or against the proposals regarding the issuance of Luna common stock in connection with the Merger or adoption of the Merger Agreement, as applicable, at the Luna stockholder meeting or the API stockholder meeting. The inclusion of this information should not be regarded as an indication that the Luna board of directors, its advisors or any other person considered, or now considers, this information to be material or to be a reliable prediction of actual future results. Luna management’s internal financial projections upon which the Luna Projections (as defined below) were based, as well as the estimated synergies that may result from the Merger, are subjective in many respects. Neither Luna nor API can assure you that these projections or estimated synergies will be realized or that actual results will not be significantly higher or lower than forecasted. The projections included below cover multiple years, and this information by its nature becomes subject to greater uncertainty with each successive year. The financial projections and summary information should be evaluated, if at all, in conjunction with the historical financial statements and other information contained in Luna’s and API’s respective public filings with the SEC.

Summary of Financial Projections Reviewed by the Luna Board and Mooreland Partners

As part of its evaluation of the Merger, Luna’s management prepared the unaudited financial projections regarding Luna’s future operations for fiscal years ending December 31, 2014 through 2017 that are summarized below (which projections are referred to in this document as the “Luna Projections”). In addition, API’s management provided various unaudited financial projections to Luna’s management (which projections are referred to in this document as the “API Projections”). The API Projections were derived from API’s internal fiscal year projections and were converted to a calendar year format to facilitate comparative financial analysis of Luna, which has a December 31 fiscal year, and the API Projections are summarized under “Nature of Financial Projections Reviewed by the API Board of Directors and API’s Financial Advisor” beginning on page 100103 of this joint proxy statement/prospectus).prospectus. As part of its evaluation of the Merger, both the Luna Projections and the API Projections were provided to the Luna board of directors for use in its evaluation of the Merger and were provided to Mooreland Partners for its use in evaluating the fairness, from a financial point of view, of the Exchange Ratio to Luna stockholders.

The following tables present a summary of the Luna Projections:

Luna’s management also prepared estimates of annual cost savings synergies that Luna would realize beginning in the first year following completion of the Merger and provided these estimates to the Luna board of directors and to Mooreland for purposes of its financial analyses. These estimates are summarized in the following table. Based on these synergies, Luna’s management estimated that Luna would realize approximately $3.0 million in annual cost savings.

Opinion of B. Riley to the Board of Directors of API

The API board of directors retained B. Riley to provide a fairness opinion, from a financial point of view, to API’s stockholders, of the Exchange Ratio being used in connection with the Merger. The API board of directors engaged B. Riley for such opinion due to its experience in similar transactions, institutional knowledge of the optical technology sector and intimate familiarity with API’s business and financial condition.

A complete copy of the fairness opinion, dated January 29, 2015, provided by B. Riley is attached as Annex C to this joint proxy statement/prospectus and is incorporated herein by reference. The description of the B. Riley opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion and related documents. Holders of API common stock are urged to read the B. Riley opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by B. Riley in connection with the opinion. The B. Riley opinion is for the benefit of the API board of directors and only addresses the fairness, from a financial point of view, to API’s stockholders, of the Exchange Ratio being used in connection with the Merger as of the date of the B. Riley opinion. The B. Riley opinion does not address the relative merits of the Merger as compared to any alternative transaction or opportunity that might be available to API, nor does it address the underlying business decision by API to engage in the Merger, and it does not constitute a recommendation to any holder of API common stock as to how such holder should vote on the Merger or any matter related thereto. The B. Riley opinion is necessarily based on economic, market, monetary and other conditions as they existed and could be evaluated, and the information made available to B. Riley, as of the date of the B. Riley opinion. B. Riley has assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of the opinion. The following is only a summary of the B. Riley opinion. API stockholders are urged to read the entire opinion, a copy of which is attached as Annex C.

The API board of directors held a meeting on January 28, 2015 to review the proposed terms of the Merger. During this meeting B. Riley rendered its oral opinion, subsequently confirmed in writing on January 29, 2015, that as of that date based upon and subject to the procedures followed, assumptions made, matters considered and

qualifications and limitations on the review undertaken by B. Riley, the Exchange Ratio being used in connection

with the Merger was fair to API’s stockholders, from a financial point of view. The API board of directors and API management represented that there were no material changes to the draft of the Merger Agreement reviewed by B. Riley prior to delivering its opinion. The API board of directors held a subsequent meeting on January 30, 2015 to approve the terms of the Merger.

In preparing its opinion to the board of directors, B. Riley held discussions with members of senior management of API and Luna concerning their evaluations of the Merger and the business, operating and regulatory environment, financial condition, prospects, and strategic objectives of API and Luna, as well as such other matters as B. Riley deemed necessary or appropriate for purposes of rendering the opinion. Additionally B. Riley reviewed and analyzed documents and materials related to the proposed Merger. Included in this were the following:

In addition to reviewing these materials, B. Riley also performed the following actions, among other things:

In preparing the opinion, at the direction of the API board of directors, B. Riley has relied, without assuming responsibility or liability for independent verification, upon the accuracy and completeness of all financial and other information available from public sources and all other information provided to B. Riley or otherwise discussed with or reviewed by B. Riley. B. Riley has assumed, at the direction of the API board of directors and with its consent, that the financial and other projections prepared by API and Luna’s management and the assumptions underlying those projections, including the amounts and the timing of all financial and other performance data, have been reasonably prepared in accordance with industry practice and represent API and Luna management’s best estimates and judgments as of the date of their preparation. B. Riley has assumed at the direction of the API board of directors no responsibility for and expresses no opinion as to such analyses or forecasts or the assumptions on which they are based. B. Riley has also assumed that there have been no material changes in the assets, financial condition, results of operations, business or prospects of API and Luna since the

respective dates of the last financial statements made available to B. Riley. B. Riley has further relied, with the API board of directors’ consent, upon the assurances of the management of API and Luna that they are not aware of any facts that would make the information and projections provided by them inaccurate, incomplete or misleading.

In rendering its opinion to the board of directors, B. Riley assumed that:

B. Riley did not express any opinion as to legal, tax and regulatory matters with respect to the proposed Merger. The B. Riley opinion is limited to the fairness, from a financial point of view, to API’s stockholders of the Exchange Ratio being used in connection with the Merger. B. Riley expressed no opinion as to the fairness of the Merger to the holders of any other class of securities, creditors or other constituencies of API or as to the underlying decision by API to engage in the Merger. The B. Riley opinion does not address any other aspect or implication of the Merger, the Merger Agreement, or any other agreement or understanding entered into in connection with the Merger or otherwise. B. Riley also expressed no opinion as to the fairness of the amount or nature of the compensation to any of API’s officers, directors or employees, or any class of such persons relative to the Exchange Ratio in connection with the Merger. B. Riley expressed no opinion as to the prices or trading ranges at which API or Luna common stock would trade at any time before consummation of the Merger. Furthermore, B. Riley did not express any opinion as to the impact of the Merger on the solvency or viability of API, or the ability of API to pay its obligations when they become due before consummation of the Merger.

B. Riley’s opinion is necessarily based upon economic, market, monetary, regulatory and other conditions as they existed and can be evaluated, and the information made available to B. Riley, as of the date of the opinion. B. Riley assumes no responsibility for updating or revising B. Riley’s opinion based on circumstances or events occurring after the date of the opinion.

The following is a brief summary of the material financial analyses that B. Riley deemed appropriate for this type of transaction and that were performed by B. Riley in connection with rendering its opinion. The summary of B. Riley’s analyses described below is not a complete description of the analyses underlying its opinion. The preparation of a fairness opinion is a complex analytical process involving determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances, and, therefore, is not readily susceptible to summary description. In arriving at its opinion, B. Riley considered the results of all of the analyses and did not attribute any particular weight to any factor or analysis considered by it; rather, B. Riley made its determination as to the fairness, from a financial point of view, to API’s stockholders, of the Exchange Ratio being used in connection with the Merger, on the basis of its experience and professional judgment after considering the results of all of the analyses.

In its analyses, B. Riley considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of API. No company or business used in B. Riley’s analyses as a comparison is identical to API or Luna, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial, operating, and geographical characteristics and other factors that could affect the public trading or other values of the companies analyzed. The estimates contained in B. Riley’s analyses and the ranges of

valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, B. Riley’s analyses are inherently subject to substantial uncertainty.

The financial analyses summarized below include information presented in tabular format. In order to fully understand B. Riley’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of B. Riley’s financial analyses.

Historical Trading Range

B. Riley presented to the API board of directors the trading range of API’s common stock for the 52-week period ended January 27, 2015, which ranged from $0.26 per share to $0.85 per share, and compared that to the closing price of API’s common shares of $0.33 on January 27, 2015 and the implied per share equity value based on the Exchange Ratio of $0.51, calculated as of January 27, 2015. B. Riley also reviewed with the API board of directors the trading range of Luna’s common stock for the 52-week period ending January 27, 2015, which ranged from $1.20 per share to $2.70 per share, and compared that to the closing price of Luna’s common stock of $1.61 on January 27, 2015. The implied per share equity value of API of $0.51 as used throughout this summary was calculated based on the Exchange Ratio of 0.31782 multiplied by the closing stock price of Luna on January 27, 2015 of $1.61. B. Riley noted that the historical trading range analysis is not a valuation methodology and that such analysis was presented merely for reference purposes only and not as a component of its fairness analysis.

Comparable Companies Analysis

Using publicly available information, B. Riley compared selected financial data of API with similar data for publicly traded companies engaged in businesses that B. Riley judged to be sufficiently analogous to API’s business segments or aspects thereof. The companies were as follows:

Optoelectronics:

High Speed Optical Receivers:

Terahertz:

Using publicly available information, B. Riley compared selected financial data of Luna with similar data for publicly traded companies engaged in businesses that B. Riley judged to be sufficiently analogous to Luna’s business or aspects thereof. The companies were as follows:

Technology Development Division (TDD):

Lightwave Division:

None of the selected companies reviewed is identical to API or Luna, as applicable, and certain of these companies may have characteristics that are materially different from those of API and Luna, as applicable. These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of B. Riley’s analysis, may be considered similar to those of API or Luna, as applicable, based on sector participation, financial metrics and form of operations. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than would affect API or Luna, as applicable.

For each company listed above, B. Riley calculated and compared various financial multiples and ratios based on publicly available financial data as of January 27, 2015. The financial multiples reviewed included:

Based on the results of this analysis, B. Riley applied multiple reference ranges of 0.59x to 1.35x for EV/LTM Revenue, 0.84x to 1.16x for EV/2014E Revenue, 0.80x to 1.49x for EV/2015E Revenue, 1.68x to 4.27x for EV/LTM Gross Profit, 2.10x to 3.58x for EV/2014E Gross Profit, 2.07x to 3.00x for EV/2015E Gross Profit and 8.09x to 9.56x for 2015E EV/EBITDAS. The aforementioned multiple ranges were applied to API’s estimates for revenue, gross profit, and EBITDAS, respectively, which were provided by API management to B. Riley. Based on this methodology, B. Riley arrived at the following implied equity value per share ranges for API:

The ranges of implied equity value for API were compared to the closing price of API’s common shares of $0.33 on January 27, 2015 and the implied per share equity value based on the Exchange Ratio of $0.51 per share, calculated as of January 27, 2015.

The table below sets forth the upper quartile, mean, median and lower quartile of certain of the financial multiples reviewed:

Based on the results of this analysis, B. Riley applied multiple reference ranges of 0.65x to 0.93x for EV/LTM Revenue, 0.78x to 0.91x for EV/2014E Revenue, 0.73x to 0.86x for EV/2015E Revenue, 1.74x to 2.57x for EV/LTM Gross Profit, 1.86x to 1.99x for EV/2014E Gross Profit, and 1.48x to 1.66x for EV/2015E Gross Profit. The aforementioned multiple ranges were applied to Luna’s estimates for revenue and gross profit, respectively,

which were provided by Luna management to B. Riley. Due to Luna’s forecasted negative 2015E EBITDAS, B. Riley did not consider EBITDAS multiples. Based on this methodology, B. Riley arrived at the following implied equity value per share ranges for Luna:

The ranges of implied equity value for Luna were compared to the closing price of Luna’s common shares of $1.61 on January 27, 2015.

Selected Transaction Multiples Analysis

Using publicly available information, B. Riley examined selected transactions involving businesses that B. Riley judged to be sufficiently analogous to API’s business or aspects thereof. For each of the selected transactions, B. Riley calculated the ratio of the target’s EV to the target’s revenue for the last twelve months (“LTM”) as of the date of transaction announcement.

Optoelectronics:

High Speed Optical Receivers: