SICHENZIA ROSS FRIEDMAN FERENCE LLP
Attorneys at Law
July 13, 2006
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E
Washington, DC 20549
Attention: Edward M. Kelly, Senior Counsel
Christopher B. Edwards, Special Counsel
Pamela A. Long, Assistant Director
Re: Luna Technologies International, Inc.
Amendment No. 1 to Registration Statement on Form SB-2
Filed May 25, 2006
File No. 333-133727
Ladies and Gentlemen:
The following response addresses the comments of the reviewing Staff of
the Commission (the "Staff") as set forth in its letter dated June 7, 2006
relating to the Registration Statement on Form SB-2 (the "Registration
Statement") of Luna Technologies International, Inc. (the "Company"). On behalf
of the Company, we respond as follows.
General
1. Provide an explanation of whether AJW Offshore or any of its affiliates are
affiliates of Luna Technologies International, Inc. or Luna. In determining
whether a security holder is an affiliate in PIPE transactions, such as this
one, we will disregard the existence of ownership caps in the contracts between
the security holder and the company. The fact that Luna is registering
24,863,789 shares on behalf of AJW Offshore and its affiliates and, according to
Luna's Form I 0-QSB for the quarter ending March 31, 2006, that Luna had
20,748,398 shares of common stock outstanding on May 19, 2006, indicate that AJW
Offshore and its affiliates are likely affiliates of Luna. Thus, this does not
appear to be a valid secondary offering that can be registered as a continuous
and delayed offering under Rule 415. Please advise.
SRFF
1065 Avenue of thr Americas | New York, New York 10018
T 212 930 9700 | F 212 930 9725 | www.SRFF.com
Response:
We respectfully disagree with the foregoing comment. The AJW entities
are not affiliates of Luna and cannot be considered affiliates of Luna
Technologies International, Inc. (the "Company"). As defined in Rule 144 as
promulgated pursuant to the Securities Act of 1933, as amended, "an affiliate of
an issuer is a person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer." The AJW entities neither control nor are under common control with
the Company. They do not participate in the Company's management, either
directly or indirectly, have no power to control the policies of the Company and
are merely holders of Notes and warrants issued by the Company. Further, the
actual number of shares issued upon conversion of the Notes will depend upon the
market price of the Company's common stock at the time of the conversion. The
number could be substantially less or greater than the estimate included in the
SB-2. Second, the Notes may never be converted and the warrants may never be
exercised. The determination to convert the Notes will depend on numerous
factors which cannot be determined at the present time. The debentures may in
fact be repaid in cash. The exercise of the warrants will also depend on market
factors and other variables.
The Notes and Warrant Agreements issued by the Company to each of the
AJW entities clearly prohibits the issuance of shares of the Company which would
result in ownership of the holder and its affiliates of more than 4.99% of the
outstanding shares of the Company. We are uncertain as to why the Commission
would choose to ignore the ownership caps contained in the Agreement which was
negotiated and executed by the parties. The cap on the investors' ownership is a
material and valid term of the parties' agreement, and one which the Courts have
found to be effective to limit beneficial ownership. To disregard the cap
appears to be arbitrary. Moreover, in practical terms the 4.99% limitation is a
very real limitation. In most offerings of this type the investor never exceeds
the 4.99% limitation, but rather sells the converted shares into the market
before receiving additional shares. Based on this practice, the investor never
effectively controls more than 4.99% of the Company's outstanding common stock
and never exercises any control over the Company through voting power,
management or otherwise. The entire concept of an affiliate is one who controls
the issuer or has access to information to which others are not privy. Since the
AJW affiliates cannot control the Company through management or ownership, and
section 2(d) of the purchase agreement between the Company and the AJW
affiliates strictly prohibits the disclosure of non-public information to the
AJW affiliates (unless such disclosure is then afforded to the public markets),
we do not believe there is any indicia of affiliation between the AJW affiliates
and the Company.
In addition, in accordance with our conversation with the Staff, we are
reducing the number of shares being registered and believe this offering is a
valid secondary offering by bonafide selling security holders. Accordingly, we
are also filing herewith a request for acceleration of the registration
statement's effectiveness.
SRFF
1065 Avenue of thr Americas | New York, New York 10018
T 212 930 9700 | F 212 930 9725 | www.SRFF.com
Risk Factors, page 6
2. Refer to prior comment 3. As requested previously, expand the fourth risk
factor to quantify exchange losses, if any, during the periods presented in the
financial statements.
Response:
We have revised the fourth risk factor in accordance with your comment.
See page 5 of the Registration Statement.
We trust that the foregoing appropriately addresses the issues raised
by your recent comment letter. Thank you in advance for your prompt review and
assistance.
Very truly yours,
/s/ Marcelle S. Balcombe
Marcelle S. Balcombe
SRFF
1065 Avenue of thr Americas | New York, New York 10018
T 212 930 9700 | F 212 930 9725 | www.SRFF.com