Cdex, Inc. (fka CDEX)

[Crow3]

RYLES was not alone in thinking that CHAP 7 would be advisable.

Here, ex parte, is what GEMINI had to say about it in its objection to the amount and source of the money from the "SAVIOURS White KNIGHTS..etc. AKA the LUBBOCK PEMCO LLC BUNCH"

Note especially the part tinted red by me.

Gemini is Debtor’s largest creditor, owed in excess of $900,000. It also holds an
approximately 8.35 percent equity position.2 Because Debtor has no secured debt and
scheduled its assets as worth about $400,000, Gemini, and all the unsecured creditors,
would remain in the money if the case were converted to Chapter 7.


1 An amended Schedule B was filed earlier this week at Docket No. 46.
2 Gemini has periodically been approached about working with Debtor to restructure the
debt, both within and outside of bankruptcy. But Debtor’s Supplemental Reply
mischaracterizes the nature of a meeting between investor Robert Stewart and Gemini’s
principal. That meeting did not involve an “offer,” as Debtor suggests. Rather, Mr.
Stewart simply requested that Gemini write off the debt.

priority in a Chapter 7 case, pursuant to 11 U.S.C. § 364(c). If the new financing exceeded
$400,000, this would wipe out any value for the the unsecured creditors. If Debtor
emerged from bankruptcy, the promissory notes would convert to equity at a maximum of
$0.05 per share. The investors would also receive warrants.
Exhibit A to Debtor’s Supplemental Reply identifies the investors, including the
size of their potential investments. Although Debtor claims that the investments could
total about $1.5 million, only about $550,000 has been pledged. Half of that, about
$275,000, has been placed in escrow. Therefore, aside from that $275,000 — or at best,
the $550,000 that has been pledged — the potential financing is purely speculative.
Moreover, Debtor’s cash projections, which are attached as Exhibit B to its
Supplemental Reply, show that it needs only about $150,000 in cash to operate for 30
days. For the 30 days after that, Debtor purports to need only about $85,000, and about
$60,000 for the 30 days after that. And it has offered only bare-bones descriptions of how
it plans to use those funds. For example, it claims to need $100,000 for research and
development over the next 30 days, but has not explained what research and development
is necessary, or why it will cost $100,000.
Argument
The facts counsel in favor of a cautious approach to DIP financing. At this stage,
there is no need to encumber all of Debtor’s assets and potentially wipe out the unsecured
creditors. Rather, the financial projections in Exhibit B show that Debtor can operate for
several months before it would require the $400,000 in financing that would encumber all
the assets. And there is certainly no need to authorize $1.5 million now.
Based on Debtor’s projections, it should be able to operate for 60 days with little
more than $200,000 in new financing. Although the projections list $235,000 in
expenditures over the next 60 days, the vagueness in the projections suggests that the
number may be inflated. Therefore, a reduction to $200,000 is appropriate. In 60 days,
the exclusivity period will be on the verge of terminating, and it will be much clearer

whether Debtor has any hope of emerging from bankruptcy.3 In fact, at the March 22
hearing on the Motion, this Court asked Debtor to file a reorganization plan quickly in
hopes of confirming a plan within 45 to 60 days. If this occurs, there would be no need for
additional interim financing. If no viable plan is on track, conversion to Chapter 7 would
likely be the next step, and perhaps no additional financing would be needed. If the Court
prefers to authorize funding for 90 days, the company can operate with the $275,000 that
Exhibit A states is in the escrow account.
Conclusion