Form 10QSB for CDEX INC
14-Jun-2006
Quarterly Report
Excerpted
The Meth Gun is transitioning from a marketing demonstrator prototype, to a beta-test product with a bona-fide law enforcement agency in the Missouri State Highway Patrol, acting as a committed beta-test partner for CDEX. CDEX management anticipates that the "Illicit Drug Detector" could become a significant product portfolio for the company over the next five (5) years. In order for the company to take this product through a successful beta-test program, revise its design, start up a production line, and introduce it into the market by Q2 2007, CDEX must receive additional investment to implement its business plan, successfully complete the pilot test program with MSHP, establish a national and international reseller and distribution network, and enter into production. This will require investment to fund the production start up, marketing and sales initiatives, and provide working capital in order to purchase production materials and parts inventories. If the company is unable to obtain the required funding that it needs through debt or equity financing, in the near term, the potential of the "Illicit Drug Detector" product portfolio cannot be realized.
LIQUIDITY AND CAPITAL RESOURCES
To date, CDEX has incurred substantial losses, and will require financing for working capital to meet its operating objectives. We anticipate that we will require financing on an ongoing basis unless and until we are able to support our operating activities with additional revenues.
As of April 30, 2006, we had negative working capital of $184,237, including $86,698 of cash and cash equivalents. We anticipate the need to raise approximately $3,000,000 over the next eighteen months to satisfy our current budgetary projections. Our continued operations, as well as the implementation of our business plan, therefore will depend upon our ability to raise additional funds through bank borrowings, equity or debt financing. If the company is not successful in raising the working capital, it may default in its payments to its creditors and could result in the filing of bankruptcy protection. Currently, the company has sufficient cash to fund operations through the end of June 2006. The company is actively seeking new investments from its current accredited investors as well as new accredited investors.
RISKS RELATED TO OUR BUSINESS
A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT MAY AFFECT CDEX'S ABILITY TO SURVIVE.
We have a history of operating losses and an accumulated deficit. Since our principal activities to date have been limited to organizational activities, research and development, product development and limited marketing and sales, CDEX has produced only limited revenues. In addition, we have only limited assets. As a result, we cannot be certain that CDEX will continue to generate revenues or become profitable in the future. If we are unable to obtain customers and generate sufficient revenues to operate profitably, our business will not succeed.
CDEX HAS RECEIVED A GOING CONCERN OPINION FROM ITS INDEPENDENT AUDITORS THAT EXPRESSES UNCERTAINTY REGARDING ITS ABILITY TO CONTINUE AS A GOING CONCERN.
We have received a report from our independent auditors for the fiscal year ended October 31, 2005 containing an explanatory paragraph that expresses uncertainty regarding our ability to continue as a going concern due to historical negative cash flow. We cannot be certain that our business plans will be successful or what actions may become necessary to preserve our business. Any inability to raise capital may require us to reduce operations or could cause our business to fail.
Our limited operating history makes our future operating results unpredictable rendering it difficult to assess the health of our business or its likelihood of success. The inability to assess these factors could result in a total loss of an investor's investment in CDEX.
CDEX could experience operating losses or even a total loss of our business which, as a result of the foregoing factors, would be difficult to anticipate and could thus cause a total loss of capital invested in CDEX.
THE ABSENCE OF A PERMANENT FULL-TIME CHIEF FINANCIAL OFFICER LEAVES CDEX WITHOUT THE BENEFIT OF THIS TYPE OF EXPERTISE AND CONSISTENT MONITORING OF CONTROLS AND PROCEDURES WHICH A FULL-TIME CHIEF FINANCIAL OFFICER WOULD AFFORD.
In April 2004 we retained a qualified part-time chief financial officer on a consultancy basis. However, we have not retained a permanent, full-time chief financial officer. The responsibilities of the principal accounting and financial officer are currently being handled by our CEO.
LACK OF ADDITIONAL FINANCING COULD PREVENT US FROM OPERATING PROFITABLY WHICH, EVENTUALLY, COULD RESULT IN A TOTAL LOSS OF OUR BUSINESS.
AI
