Scrapie Plays Surge

Another big area of stock speculation involves the USDA's plan to electronically track livestock to help contain outbreaks and better understand how they occur.

"USDA has worked with partners at the federal and state levels and in industry for the past year and a half on the adoption of standards for a verifiable nationwide animal identification system to help enhance the speed and accuracy of our response to disease outbreaks across many different animal species," Veneman said. "I have asked USDA's chief information officer to expedite the development of the technology architecture to implement this system."

With the national ID system on the fast track and millions of dollars in government contacts possibly at stake, shares of another company that has experience with scrapie, Digital Angel (DOC Quote), have attracted attention. Shares have been extremely volatile in recent sessions, jumping 55 cents, or 14.1%, to $4.44 on Tuesday, on 2.9 million shares, 29 times the normal daily volume.

After the Dec. 23 outbreak, the company released a pair of press releases touting its radio frequency identification devices, or RFID, which can be implanted in animals and used to track them from birth to slaughter.

But investors should be cautious and understand what they're buying into. Digital Angel, which is uncovered by Wall Street analysts, continues to post losses, and had just $727,000 in cash as of the third quarter. Furthermore, the company wasn't able to boost business in Canada after the Canadian outbreak of the disease surfaced on May 20, despite issuing a pair of press release touting its RFID devices.

As of the third quarter, the company's working capital was negative, with $13.5 million in current assets vs. $15.8 million in current liabilities. It has been paying for operations by issuing warrants to lenders. On July 31, the company sold a $2 million convertible note and a five-year warrant to purchase 125,000 shares to Laurus Master Fund. A month later, Digital Angel spent $150,000 to terminate its credit agreement with Wells Fargo and enter a new $5 million one with Laurus.

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