Knobias ClipReport (7-30-2007)

Submitted from Knobias ClipReport

Friday’s session saw the continuation of the sell off in the face of good economic news. For most of the session it seemed like a replay with many worrying about deal financing which had been the driver in the past few weeks. The reduction of deals in the near future could signal the end to merger mania and private equity buyouts.

The news that Cadbury Schweppes was delaying the sale of its beverage unit supports the theory that investor concerns surrounding the issue are causing a reaction.

With the large cap market seeing the pressure of the eroding financing conditions, it may be time to look for emerging small cap plays. One name has caught the eye of many traders and has in the past been a focal point of some traders.

Nutrition 21, Inc (NXXI) is a nutritional biosciences company that develops and markets proprietary and clinically-substantiated nutritional supplements and therapeutics that address significant age-related health care concerns, including obesity, insulin resistance, diabetes, cardiovascular disease, mental health and joint health. Nutrition 21 holds 32 US patents for nutrition products, 22 of which are for chromium compounds and their uses, and more than 65 foreign patents for nutrition products.

The Company currently has an Omega-3 fatty acid product for cardiovascular health, a Chromium product (Chromax) for obesity/pre-diabetes, another Chromium product (Diachrome) for diabetes, Selonmax for immune system boosting, and another Omega 3 fatty acid product for joint health. The Company has Phil Simms, ex NY Giants quarterback as the main spokesperson.

Last quarter, they reported total revenue for the quarter of $16.1 million compared to $2.5 million for the same period. Revenues from branded product sales were $13.6 million, comprised of $8.8 million of direct response sales and $4.8 million of sales of branded products to retailers. Net loss for the third fiscal quarter was $2.2 million, or ($0.04) per diluted share, compared to a net loss of $2.3 million, or ($0.06) per diluted share, for the same period in the prior year.

The Company ingredient’s division experienced an increase in quarter-to quarter sales in fiscal 2007 partially as a result of securing two new customers, Ross/Abbott for its Glucerna(R) line of products, the #1 diabetes brand in the US; and Coca Cola, Inc. for its new Minute Maid(R) Multi Formulation. This increase in quarter-to quarter sales further confirms the importance of their Chromax(R) chromium picolinate and validates their research efforts and awareness campaigns.

To date, the Company’s products have seen an increase in demand and have caused the Company to operate in the red for some time because of their development and pre marketing costs. The Company is about to release another product which it feels could catapult the name into the green and has done the majority of pre market efforts already.

The product, which is aimed at cognitive health, has been seen to increase memory and mental abilities by as much as 100%. With the majority of the pre marketing development finished, the company noted in a presentation at the CE Unterberg Towbin Conference that the initial guidance for 2008 could see revenue in the $80 million plus range. Also noted in the release was the talk with banks over a line of credit to finance the marketing efforts of the new product.

With the aging population and their increasing risks of diabetes, joint pain, and cognitive function, the name has a sizeable market that is always expanding. Major retailers such as CVS and Walgreens and others already signed on, it is easy to see that the Company could realize other retailer additions. With the successful closure of the financing deal and traction from the new product expected to be released in the second half of 2007, the name is certainly one to follow. Investors would be wise to watch.


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