Scrapie Plays Surge

"The proceeds for those notes were used for working capital purposes," said Jim Santelli, Digital Angel's CFO, who said the company wasn't a bankruptcy risk. "We disclose in our 10-Q that we expect to have enough cash on hand to operate our business in the next 12 months, both from cash from operations and other funding efforts. We don't see any problem with financing."

While its cash position is tight, Digital Angel said its business prospects were solid. In an interview with TheStreet.com on Monday, Kevin Nieuwsma, president of the company's RFID division, said it has been in discussions with the USDA about the use of its tracking products. On Oct. 7, the company announced a deal to provide the USDA with 300,000 RFID tags and has already used the RFID devices to track millions of endangered fish for the Department of Energy.

Orchid Biosciences and Digital Angel aren't the only companies attracting investor interest and they aren't the only companies with tests, or tracking methods, that the USDA could be interested in. Competition for government contracts can be fierce and there's no guarantee that a small company will land a big deal.

A privately held Fort Collins, Colo.-based company named Optibrand uses retinal scans to track cattle and announced Tuesday a five-year contract to provide privately held Swift & Co., the nation's third-largest beef processor, with its products. Advanced ID (AIDO.OB Quote), an over-the-counter stock, and eMerge Interactive sell RFID-based tracking devices to the beef industry as well. On Tuesday, Advanced ID rose 8 cents, or 8.9%, to 97 cents, while eMerge rose 15 cents, or 12.6%, to $1.34.