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01-19-2007 LUNA - Luna Innovations Incorporated

CURRENT PRICE: $4.00

TYPE OF PLAY: GROWTH/SITUATIONAL {JDSU}/SECTOR STRENGTH

* Revenues for the 2006 third quarter increased 53% and estimates by analysts for 100% revenue growth in 2007

* Recent IPO trading at a 40% discount to its $6.00 opening price.

* Serves diverse markets (defense, energy, environmental, industrial, and medical).

* Working in the area of carbon nanotubes for next-generation chip design.

* Joint development agreement with JDSU for fiber optics test and measurement.

* Strong balance sheet with over $22 million in cash ($2.27 per share) and only ~$5 million debt.

* Entrance into the tunable laser market.

Luna has two primary divisions: Luna Innovations and Luna Technologies. Since its inception, Luna Innovations has successfully developed products for the energy, telecommunications, life sciences and defense industries. Luna Technologies' products are used for process and control monitoring in telecommunications manufacturing, power generation and distribution, down-hole oil and gas production, aerospace, and defense applications. Its products have won numerous awards and are sold and distributed throughout North America, Europe, the Middle East and Asia.

. Note that JDS Uniphase raised second quarter guidance yesterday citing specific gains in its communications test and measurement segment. Upon close examination, we find that Luna Innovations has recently struck a deal with JDSU for the joint acceleration of new product development in precisely this area. Under the agreement, Luna Technologies will work with JDSU on the development of new products aimed at field deployable platforms for installation and maintenance testing of modern fiber optic networks. The agreement also outlines a joint marketing and distribution arrangement between the two companies for the products introduced as a result of their joint development. Enzo DiLuigi, general manager of JDSU's fiber optics Test and Measurement group stated, "This agreement will allow both companies to take advantage of what each company does best and we are excited about the opportunities it will provide for leading-edge product development." It is important to note that Luna acquired the rights to manufacture and sell a specific line of tunable laser from Coherent, Inc. This move will allow the company to compete more effectively in the fiber optic test and measurement markets in which the aforementioned deal with JDS Uniphase was struck.

Beyond this segment, Luna is working in the area of nanotechnology known as carbon nanotubes which are essentially defect-free materials that conduct electricity much more efficiently than either copper or aluminum. According to a 2005 report from nanotech industry analysts, Cientifica, the nanotube market is poised for big changes. "Massive improvements in capacity are now such that demand for nanotubes will no longer be constrained by production," predicts Cientifica. Tremendous effort is being placed into this field by the largest players in the electronics industry (i.e. Intel, IBM, etc...) These companies are hoping to use carbon nanotubes for next generation chip design which highlights the importance of this material.

LINKS FOR FURTHER READING:
LUNA homepage
SEC filings for LUNA
General LUNA statistics
Article on carbon nanotubes