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Do you remember when biological weapons were all the rage? I certainly do. It was about 10 years ago, before Americans feared the "mass existence of WMDs" and became convinced we needed to outgun the Middle East. I remember being legitimately frightened by a presentation one of my 11th grade classmates gave on biological warfare.

For years afterward I would shrug off news reports of anthrax-poisoning because I had seen pictures and data relating that chemical to much more lethal and less treatable ones. Wikipedia lists dozens of chemical agents that have been weaponized or potentially could be. Some are known to cause reactions so extreme and fast-acting that they kill in just hours and have no known cure.

My intent here, believe it or not, is not to scare people into investing in Advance Nanotech (OTC:AVNA). Its lone subsidiary, Owlstone Nanotech, engineers and manufactures leading chemical detection equipment. Owlstone's products have only recently been commercialized, and are already setting industry standards with microsized sensors made of insensitive materials.

After 2006 and 2007 revenues were flat around $500,000, Owlstone brought in $3.3M in 2008, the first of three years included in a $3.7M contract with the US Government's Defense Threat Reduction Agency (DTRA). Thus far in 2009, Owlstone has recieved over $1M in orders from UK defense conglomerate Selex Galileo and a new contract from Crowcon Detection Systems.

From an efficiency standpoint, AVNA has restructured in a way that many investors will appreciate. In addition to leaving its 29th floor office on Lexington Avenue in NYC for upstate Montebello, The Company has eliminated all other business interests (AVNA had 20 subsidiaries in 2005) in order to focus on Owlstone. This has reduced the need for administration and other corporate expenses. Furthermore, AVNA majority owners saw enough in Owlstone's CEO, Bret Bader, to appoint him CEO of AVNA late last year.

Given recent cost-cutting and streamlining I see AVNA's poor performance in recent years as a sort of positive, as its market cap is a miniscule $12M. Annual losses in 2007 and 2008 were $4.6M and $4M, respectively, so there's more than hedge-trimming to be done. Costs remained even from 2007 to 2008, giving reason to predict a significant decrease in costs for 2009.

In his November 2008 letter to shareholders, Mr. Bader asserted that Owlstone sensors have significant immediate value in food and chemical processing, among other industrial, environmental and defense applications. He predicted the second half of 2009 will be cash flow positive, and the Selex and Crowcon contracts are a good start. This is a penny stock with very limited cash, but it's pointed in the right direction.

This next company, Competitive Technologies (CTT), is much closer to fruition. From the prospectus:

The Company is a full service technology transfer and licensing provider. It provides technology transfer, selling and licensing services focused on the technology needs of its customers, matching those requirements with commercially viable technology solutions, bridging the gap between market demand and raw innovation.

CTT recently obtained sales and marketing rights from Native Energy, innovator of a non-invasive device for rapid treatment of high-intensity oncologic and neuropathic pain, including pain resistant to morphine and other drugs. With US government agencies alone, CTT has guaranteed contracts of $25M for 2009 and $50M for 2010, both of which are expected to be exceeded. CTT has worldwide distribution rights and is mass-producing the device with Korean partner GEOMC. The device has FDA 510(k) status, CE certification from the Europian Union and has been used on over 3,000 patients in Europe.

Insider buying has been rampant of late and the stock is climbing sharply. CTT has seen almost no revenue since 2006, shrinking its market cap to under $20M. That should grow significantly once sales of this device are reported.

Finally, I suspect that the new administration will be a good change for small defense companies on the cutting edge. Friendships and loyalty with the likes of Halliburton (HAL) have been reduced and the defense budget will do its part in "spreading the wealth."

Disclosure: Long AVNA.OB & CTT

Source: Two Nanotech Companies to Watch