DELTATHREE, INC. & CRITICAL THERAPEUTICS, INC.

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Hello Readers,

No, we did not close any positions since the last Newsletter, but, we should be closing a lot of them over the next few months. That is if our suspicions about this year’s market action are correct. We are looking for a very powerful 2007 market. There are a few things, of course, that could mess up the works, such as natural disasters, major terrorists attacks, rising interest rates, and overly zealous Democrats.

Keep an eye on the first five or six trading days of this month. If they are good, then January should be good, and if January is good, then the year should be good, according to many markets pundits. The only worry we have about the first few trading days are what the Democrat controlled Congress will do in those “first 100 hours” they keep mentioning.

Here are the headlines since our last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.

Neose Technologies (NTEC) (12/20/06). Neose and BioGenerix extend GlycoPEG-GCSF collaboration; undisclosed protein collaboration is dropped.

CardioTech (CTE) (12/20/06). Partner CorNova gets CE mark for its Valecor coronary stent system.

Lantronix (LTRX) (12/5/06). Securities lawsuit appears to be almost over. Coverage on the stock initiated by Boenning & Scattergood.

WJ Communications (WJCI) (12/5/06). Launches 4W 28V InGaP HBT (GaAs) power amplifier modules for WCDMA infrastructure applications.

Alfacell (ACEL) (11/20/06). Files for FDA orphan drug designation for ONCONASE. Announces exclusive licensing pact in southeast Europe with Genesis Pharma.

YM Biosciences (YMI) (11/5/06). Partners with TTY Biopharm to develop Tesmilifene in Taiwan.

Terabeam (TRBM) (11/5/06). Town of Pepperell, MA selects Proxim Wireless Tsunami point-to-multipoint product line. Virginia’s Arlington County deploys Proxim wireless network to support emergency management.

ImmunoGen (IMGN) (10/20/06). Extends Sanofi-Aventis deal.

HealthStream (HSTM) (10/20/06). Investment manager increases stake in HSTM.

Autobytel (ABTL) (10/5/06). To receive $20 million settlement.

Point Therapeutics (POTP) (7/5/06). Announces finalization of data from Phase 2 non-small cell cancer study. We know the stock has dropped like a rock since we picked it, but the balance sheet still appears to be healthy, so, we’re inclined not to panic, just yet.

02 Diesel (OTD) (5/20/06). Secures $1 million in additional funding to continue its fuel development program for the DOD.

Kintera (KNTA) (5/5/06). Announces immediate availability of gadgets to expand fundraising for nonprofits. Closes $5 million funding deal.

Cytogen (CYTO) (3/20/06). ACS Journal article reports new data regarding repeated administration of Quadramet.

TII Network (TIII) (3/20/06). Completes $5 million secured line of credit.

Lipid Sciences (LIPD) (2/20/06). Stock is pressured as company closes $6.2 million private placement.

Gateway (GTW) (2/5/06). The usual 10 or more articles in which GTW is mentioned. Company founder and ex-CEO sells shares.

MIND C.T.I. (MIND) (2/5/06). Expands its SIP billing project with Mexican cable operator Megacable.

Castelle (CSTL) (1/5/06). Announces integration of its network fax servers with Sharp OSA multifunction devices.

Digital Angel (DOC) (12/20/05). Wins multi-year contract extension. Names new CFO.

Memory Pharma (MEMY) (11/5/05). Lazard Capital gives the stock a “buy” rating. Closes second tranche of $32.2 million financing.

EntreMed (ENMD) (9/5/05). Says Panzem demonstrates antitumor activity in brain tumor model. Closes $17.2 million offering.

Zi Corp (ZICA) (8/5/05). Last month, we placed ZICA on the “Endangered List” as the stock sunk to under a dollar. Now, it gives us great pleasure to bring it back to the land of the living as the stock has screamed upward to nearly $2.50, propelled mainly on the launch of Qix with T-Mobile in the U.K. Company also reconstitutes board. Signs licensing agreement with ACCESS.

N.A. Scientific (NASI) (8/5/05). Slates earnings call for January 11.

Applied Micro Circuits (AMCC) (11/20/04). Nasdaq stays delisting.

Chordiant (CHRD) (9/20/04). Gets anticipated non-compliance letter from NASD.

Palatin (PTN) (4/5/04). PTN and King Pharma complete enrollment in Phase 2 trial for female dysfunction drug candidate.

Our selections for this issue are a software/services provider and another biotech, both trading on NASDAQ.

DELTATHREE,INC. (NASDAQ: DDDC) – $1.25. Twelve-month hi-low has been $3.50 – $1.22. Based in New York City, with about 115 employees, this software and services provider has 29.8 million shares outstanding, $17.88 million in total current assets, $22.62 million in total assets, little debt, and $6.1 million in total liabilities. Institutional ownership is around 9%. Two analysts have the stock on “hold” www.corp.deltathree.com

Periodically, we happen across a head-scratcher. The one with a good balance sheet and a string of profitable quarters, but the stock got battered because expectations may have been too high, or some other snagged cropped up. Such appears to be the case with Deltathree, Inc.

Founded in 1996, and public since 1994 – the stock hit nearly $55 during the Net Craze heyday – Deltathree provides Internet telephony products, services and infrastructure for service providers worldwide. It offers private-label VoIP (voice over Internet) products, such as personal computer-to-phone, phone-to-phone, virtual calling cards, and broadband phone solutions. The company also provides back-office suit, which includes billing operations management, marketing support, and network management services to service providers. DDDC provides its solutions under iConnectHere, Deltathree, or white-label brand names.

The company’s services assist service providers and other businesses in diversifying their product offerings to their customer base. In addition, Deltathree offers VoIP products directly to consumers and small businesses online, as well as providing outsourced platform solutions for medium sized cable and Internet service provider customers. Other than the U.S., it also operates in Europe, South America, the Far East, and the Middle East. DDDC has partnerships with Microsoft, Cisco, Ecosystem, EarthLink, and Priceline.com.

The stock took a hit in October when the company lowered its FY2006 guidance because of the effect changing regulations imposed on VoIP service providers in select foreign countries, particularly the Middle East, and increasing competition. However, Deltathree is optimistic that it will add to its 306,000 active accounts due to increased efforts in other areas. At the end of December, the company announced that Telecom Argentina will provide DDDC access to its vast termination network in Latin America. In November, UBIFone selected Deltathree’s outsourced platform solution for VoIP phone service; UBIFone has a customer base spread over 150 countries.

For FY2005, ending 12/31/05, revenue was $29.7 million with $854,000 in losses. During the first nine months of the current FY, ending 9/30/06, revenue has been $29.25 million with $614,000 in net income.

Maybe there is something here we can’t see, but even with a lower 2006 guidance, shouldn’t this stock be higher? Seems cheap enough.

Our 24-month target for the stock is $2.25 to $2.75.

For more information, contact DDDC at 212-500-4888; ir@deltathree.com

CRITICAL THERAPEUTICS, INC. (NASDAQ: CRTX) – $2.00. Twelve-month hi-low has been $7.41 – $1.45. Located in Lexington, MA, with about 175 employees, this biotech has 42 million shares outstanding, $45.28 million in total current assets, $48.6 million in total assets, and $10.2 million in total liabilities, of which $1.75 million is debt. Institutional ownership is around 15%. One analyst rates the stock a “strong buy”, one as a “moderate buy”, and three have it as a “hold”. www.criticaltherapeutics.com

Too often, stocks get clocked after secondary offerings, and, perhaps, justifiably so; after all, the float becomes more diluted. However, these offerings give companies new money, which should be good for their long-term health. With Critical Therapeutics, Inc., the recent $20 million secondary just adds to an already attractive balance sheet, and this is cash that should help CRTX gets its promising drug candidates off of the ground.

Founded in 2000 as Medicept, Inc., and public for just under three years, Critical Therapeutics bills itself as a biopharmaceutical that is developing drug candidates to treat respiratory, inflammatory, and critical care diseases through regulating the body’s inflammatory response. The company’s primary product, for which it owns worldwide rights, is the asthma drug ZYFLO (zileuton tablets) as well as other forms of zileuton. Zileuton is said to have therapeutic benefits in various other diseases and conditions, such as acute asthma exacerbations, chronic obstructive pulmonary disease, and nasal polyposis. CRTX claims that ZYFLO is the only 5-lipoxgenase inhibitor approved for marketing by the FDA and is indicated for the prevention and chronic treatment of asthma in adults and children over twelve.

Critical Therapeutics is also developing other products, including CTI-01, a Phase 2 clinical trial product, for preventing complications that occur in patients after cardiopulmonary bypass; HMGB1, a preclinical trial, to treat inflammation mediated diseases; and Alpha-7, also in a preclinical trial, for oral anticytokine therapy for acute and chronic diseases. The company also has collaborations with MedImmune and Beckman Coulter for developing the HMGB1 product.

In mid-December, the company announced an NIH-sponsored study to investigate the efficacy of ZYFLO in patients with acute exacerbations of COPD; the trial is slated to start early this year and enroll 520 patients.

Critical Therapeutics is another biotech whose P&L reads like cancer. For FY2005, ending 12/31/05, revenue was $6.22 million with $47.1 million in losses. During the first nine months of the current FY, ending 9/30/06, revenue has been $10.15 million with $40 million in losses. To help abate the losses, the company is now restructuring and was to eliminate 60 positions by the end of 2006.

With a new chunk of change to help its promising drug pipeline, the stock should be worth a flier.

Our 24-month target for the stock is $3.25 to $3.50.

For more information, contact CRTX’s Linda Lenox at 781-402-5708; investor.relations@crtx.com

Look for the January 20, 2007 Newsletter to be posted on 1/16 or 1/17.

E-A-G-L-E-S. EAGLES!!!!!

Happy New Year!
George