From the filings.
PRODUCTS FOR IDENTIFICATION OF SUBSTANCES OF CONCERN
CDEX has developed technologies to deliver detection products - either as a
stand-alone system or as an element in a multi-technology system. CDEX allows
for retention of investment costs of deployed screening systems by both
retro-fitting existing systems to incorporate CDEX technology, or enhancing
screening methodology by including stand-alone CDEX detection devices. This
defense-in-depth approach offers a dual or multi-technology detection system
that should improve flow rates and detection rates, and provide "clear"
confirmation easier and even more definitive.
CDEX believes a partnership strategy will help gain faster market acceptance by
working closely with large, established vendors in the market instead of
directly competing against them. CDEX has discussions from time to time with
several such potential partners although we have not yet entered into any formal
agreement.
Application of our products as sensors that easily integrate with existing
systems will also potentially remove barriers to market entry and capitalize on
an industry trend to utilize multiple sources of data/intelligence from which to
build an overall threat assessment.
We have spent considerable time meeting with branches of the U.S. Government to
identify areas of application of our chemical detection technology. We have
determined, based on past experience of our employees and consultants who have
done work for the federal government, and the advice of professional services,
that one of the most cost efficient ways to market developmental technologies is
through identifying those branches of the government that have development money
available to fund private sector efforts. We plan to continue marketing to the
U.S. Government for technology development revenue by co- partnerships with
major integration firms and individually.
Our marketing efforts have captured a level of interest with certain branches of
the U.S. Government which have resulted in two contracts:
In May 2002, CDEX was awarded a seven-month testing sub-contract with a total
value up to $75,940 for performance of initial field experiments and data
gathering, in arid and temperate climates, using an early stage production model
of a landmine detection system, and the related expenses and materials to
perform such contract.
On May 8, 2003, we entered into an agreement with the United States Department
of Defense. Under Phase I of the agreement, we performed a study of the
feasibility of the CDEX technologies to support identification of
chemical/biological agents. We have substantially completed this phase of the
agreement. Whether we proceed to Phase 2 of the agreement is entirely at the
option of the Defense Department and depends upon its internal allocation of
funds and whether it decides to focus its resources in this area. If the Defense
Department elects to proceed to Phase 2, it would involve the design and
building of prototypes. The total consideration payable to CDEX under the
agreement is slightly less than $991,409, $196,483 being allocated for Phase 1
and $794,926 for Phase 2. To date, we have received $196,483 for Phase 1.
Revenues from these contracts have comprised substantially all of our revenues
during the fiscal years ended October 31, 2003 and 2004. The loss of one or both
of these customers would have resulted in a reduction of our revenues during
that period. However, as indicated above, we intend to direct our future
marketing efforts toward selling or licensing products based upon our
technologies in addition to these types of development contracts.
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VALIDATION PRODUCTS FOR ANTI-COUNTERFEITING, BRAND PROTECTION AND QUALITY
ASSURANCE
Marketing activities have generated a number of prospective partnerships in the
healthcare industry, both for field-testing with major medical institutions, and
for product distribution by existing vendors to some of the largest hospital
chains in the United States. Such positive response reinforces our primary
business vision of marketing end units as well as utilizing partners to
penetrate existing healthcare markets with CDEX technology. For the
pharmaceutical and healthcare industries, CDEX has introduced a new name for our
product line, ValiMed, at an industry trade show in June. More information on
the medical products using CDEX's technology can be found on www.Valimed.com. In
January 2005, we received the first payments of $10,000 from sales of our
ValiMed products.
We also plan on developing and marketing products to defend high-end consumer
products where reputation and product distinction are critical components to
driving sales revenue (e.g. high price distilled spirits and cosmetics).
We will continue to explore new markets and applications for our existing and
developing technologies as a critical part of identifying partners and
opportunities for revenue generation.
INTELLECTUAL PROPERTY RIGHTS
We rely on non-disclosure agreements, patent, trade secret and copyright laws to
protect the intellectual property that we have and plan to develop, but such
laws may provide insufficient protection. Moreover, other companies may develop
products that are similar or superior to CDEX's or may copy or otherwise obtain
and use our proprietary information without authorization. In addition, certain
of our know-how and proprietary technology may not be patentable. Policing
unauthorized use of CDEX's proprietary and other intellectual property rights
could entail significant expense and could be difficult or impossible. In
addition, third parties may bring claims of copyright or trademark infringement
against CDEX or claim that certain of our processes or features violate a
patent, that we have misappropriated their technology or formats or otherwise
infringed upon their proprietary rights. Any claims of infringement, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, and/or require CDEX to enter into costly royalty or
licensing arrangements to prevent further infringement, any of which could cause
a decrease in our profits.
We currently have the following patent applications pending:
1. "System and Method for Adapting a Software Control In an Operating
Environment," Application No. 10/268,678;
2. "Methods and Apparatus for Molecular Species Detection, Inspection and
Classification Using Ultraviolet Fluorescence," Application No. 10/717,921;
3. " System and Methods For the Detection and Identification of Chemical
Substances," Application No. 10/784,889; and
4. "Process for Replacing Nursing Co-Signature for Narcotic Waste with
Centralized Validation of Waste in Pharmacy."
We have also filed corresponding international applications for each of these
items.
Our competitive position also depends upon unpatented trade secrets. Trade
secrets are difficult to protect. Our competitors may independently develop
proprietary information and techniques that are substantially equivalent to ours
or otherwise gain access to our trade secrets, such as through unauthorized or
inadvertent disclosure of our trade secrets.
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