CDEX INC - FORM 10-Q - March 17, 2011

Attached files

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EX-32.2 - CDEX INC	ex32_2.htm
EX-31.1 - CDEX INC	ex31_1.htm
EX-31.2 - CDEX INC	ex31_2.htm
EX-32.1 - CDEX INC	ex32_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended January 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From _____ to ____

Commission File Number 000-49845

CDEX INC.

(Exact Name of Registrant as Specified in Its Charter)

	Nevada		52-2336836
	(State or other jurisdiction of		(I.R.S. Employer
	incorporation or organization)		Identification No.)

	4555 South Palo Verde Road, Suite 123, Tucson, Arizona		85714
	(Address of Principal Executive Offices)		(Zip Code)

Registrant's Telephone Number, Including Area Code 520-745 5172

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer: o Accelerated filer: o Non-accelerated filer: o Smaller reporting company: x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

On March 7, 2011, 67,698,165 shares of the registrants Class A common stock, par value $.005 per share, were outstanding.

CDEX, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Part I FINANCIAL INFORMATION

Item 1. Condensed Financial Statements		1

	Condensed Balance Sheets as of January 31, 2011 (unaudited) and October 31, 2010	1

	Condensed Statements of Operations for the three months ended January 31, 2011 and 2010 (unaudited)	2

	Condensed Statements of Cash Flow for the three months ended January 31, 2011 and 2010 (unaudited)	3

	Notes to Condensed Financial Statements (unaudited)	4

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		9

Item 4T. Controls and Procedures		12

Part II OTHER INFORMATION

ITEM 1. Legal Proceedings		13

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		13

ITEM 6. Exhibits		13

Signatures		14

PART I - FINANCIAL INFORMATION

ITEM 1. Condensed Financial Statements

CDEX INC.

CONDENSED BALANCE SHEETS

	January 31, 2011			October 31. 2010
	Unaudited
Assets
Current assets
Cash	$	47,478		$	312,844
Accounts receivable - net		29,365			22,301
Inventory - net		201,149			212,585
Prepaid expenses		19,095			10,890
Total current assets		297,087			558,620
Property and equipment, net		40,862			45,948
Patents, net		68,512			70,418
Other assets		39,173			41,673
Total assets	$	445,634		$	716,659

Liabilities and stockholders' deficit
Current liabilities
Accounts payable and accrued expenses	$	426,352		$	413,285
Notes payable and accrued interest		108,843			113,449
Advance payments		377,806			513,084
Total current liabilities		913,001			1,039,818
Notes payable and accrued interest - net		3,238,094			3,067,473
Total liabilities		4,151,095			4,107,291

Commitments and Contingencies

Stockholders' deficit
Preferred stock - undesignated - $.005 par value per share,
350,000 shares authorized and none outstanding		-			-
Preferred stock - series A - $.005 par value per share,
150,000 shares authorized and 6,675 outstanding at
January 31, 2011 and October 31, 2010		33			33
Class A common stock - $.005 par value per share, 100,000,000
shares authorized and 67,698,165 outstanding at January 31,
2011 and 66,453,462 outstanding at October 31, 2010		339,465			332,242
Additional paid in capital		27,786,866			27,644,626
Accumulated deficit		(31,831,825	)		(31,367,533	)
Total stockholders' deficit		(3,705,461	)		(3,390,632	)
Total liabilities and stockholders' deficit	$	445,634		$	716,659

The accompanying notes are an integral part of these financial statements.

CDEX INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

	For the three months ended
	January 31,
	2011			2010

Revenue	$	125,254		$	65,546

Cost of revenue		49,173			15,590

Gross profit		76,081			49,956

Operating Expenses
Selling, general and administrative		269,592			217,000
Research and development		53,127			30,199
Total operating expenses		322,719			247,199

Loss from operations		(246,638	)		(197,243	)

Other expense
Interest expense		(217,654	)		(114,289	)

Total other (expense)		(217,654	)		(114,289	)

Net loss	$	(464,292	)	$	(311,532	)

Basic net loss
per common share:	$	(0.01	)	$	(0.00	)

Basic weighted average
common shares outstanding		67,232,383			64,406,301

The accompanying notes are an integral part of these financial statements.

CDEX INC.

CONDENSED STATEMENT OF CASH FLOWS

(unaudited)

	For the three months ended
	January 31,
	2011			2010
Cash Flows from Operating Activities
Net loss	$	(464,292	)	$	(311,532	)
Adjustments to reconcile net loss to cash used by
operating activities
Depreciation and amortization		7,673			7,568
Loan discount amortization		128,003			25,020
Stock-based compensation		97,717			55,199
Noncash interest expense		89,652			61,761
Changes in operating assets and liabilities
Accounts receivable		(7,064	)		39,030
Inventory		11,436			6,168
Current liabilities		(122,211	)		45,949
Net cash used by operating activities		(259,086	)		(70,837	)

Cash Flows from Investing Activities
		-			-
Net cash used by investing activities		-			-

Cash Flows from Financing Activities
Proceeds from issuance of convertible notes payable		-			64,950
Repayment of notes payable		(6,280	)		-
Net cash provided (used) by financing activities		(6,280	)		64,950

Net decrease in cash		(265,366	)		(5,887	)

Cash and cash equivalents, beginning of the period		312,844			7,769

Cash and cash equivalents, end of the period	$	47,478		$	1,882

Supplemental Cash Flow Information
Conversion of notes payable and accrued interest
to common stock	$	42,860		$	50,000
Warrants issued for oncology agreement	$	8,886		$	-

The accompanying notes are an integral part of these financial statements.

CDEX, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JANUARY 31, 2011

(Unaudited)

1. Basis of Presentation

The accompanying interim unaudited condensed financial statements include the accounts of CDEX, Inc. as of January 31, 2011 (collectively, “CDEX”, “we”, “our”, “us” or the “Company”). In the opinion of management, all adjustments (which include normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented have been made. The results for the three-month period ended January 31, 2011, may not be indicative of the results for the entire year. The interim unaudited condensed financial statements should be read in conjunction with the company's audited financial statements contained in our Annual Report on Form 10-K. Our lack of earnings history and continued future losses could adversely affect our financial position and prevent us from fulfilling our contractual obligations, and if we are unable to generate funds or obtain funds on acceptable terms, we may not be able to continue operations.

The following unaudited condensed financial statements are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading.

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles, which requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein. Significant estimates include revenue recognition, the valuation of inventory and stock-based compensation expense.

Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (“FASB”) FASB issued the FASB Accounting Standards Update (“ASU”) No. 2010-28 “Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”).Under ASU 2010-28, if the carrying amount of a reporting unit is zero or negative, an entity must assess whether it is more likely than not that goodwill impairment exists. To make that determination, an entity should consider whether there are adverse qualitative factors that could impact the amount of goodwill, including those listed in ASC 350-20-35-30. As a result of the new guidance, an entity can no longer assert that a reporting unit is not required to perform the second step of the goodwill impairment test because the carrying amount of the reporting unit is zero or negative, despite the existence of qualitative factors that indicate goodwill is more likely than not impaired. ASU 2010-28 is effective for public entities for fiscal years, and for interim periods within those years, beginning after December 15, 2010, with early adoption prohibited. The adoption of the standard is not expected to have a significant impact on the company’s financial statements.

In December 2010, the FASB issued the FASB ASU No. 2010-29 “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”). ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this Update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amended guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of the standard is not expected to have a significant impact on the company’s financial statements.

CDEX, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JANUARY 31, 2011

(Unaudited)

2. Accounts Receivable - Net

Accounts receivable are expected to be collected within one year. The allowance for doubtful accounts at January 31, 2011 represents an estimate for potentially uncollectible accounts receivable customers which is based upon a review of the individual accounts outstanding and the Company's prior history of uncollectible accounts receivable.

Our accounts receivables consisted of the following:

	January 31, 2011		October 31, 2010

Accounts receivable	$	32,175	$	25,111

Less: Allowance for doubtful accounts		2,810		2,810

Net accounts receivable	$	29,365	$	22,301

3. Inventory - Net

Our inventories consisted of the following:

	January 31, 2011			October 31, 2010

Raw materials	$	113,176		$	119,958
Finished goods		96,811			101,465
Subtotal		209,987			221,423
Obsolescence reserve		(8,838	)		(8,838	)
Total inventory	$	201,149		$	212,585

CDEX, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JANUARY 31, 2011

(Unaudited)

4. Property and equipment, net

Our property and equipment consisted of the following:

	January 31, 2011			October 31, 2010

Furniture, fixtures and leasehold improvements	$	2,931		$	2,931
Equipment		665,698			677,803
Leased equipment		67,348			67,348

Total		735,977			748,082

Less accumulated depreciation		(695,115	)		(702,134	)

Net property and equipment	$	40,862		$	45,948

5. Patents, net

Our patents consisted of the following:

	January 31, 2011			October 31, 2010

Patents	$	100,000		$	100,000

Less accumulated amortization		(31,488	)		(29,582	)

Net patents	$	68,512		$	70,418

6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

	January 31, 2011		October 31, 2010
Legal fees	$	32,342	$	31,508
Deferred compensation		118,986		118,986
Accounts payable		261,904		252,951
Accrued payable to a distributor		13,120		9,840

	$	426,352	$	413,285

7. Notes Payable

During the three months ended January 31, 2011, payments totaling $6,280 were made on the company’s non-interest bearing notes. Additionally, Gemini Master Fund Ltd. (“Gemini”) converted $42,860 of accrued interest on their note into 857,205 shares of CDEX Class A common stock.

During the three months ended January 31, 2010, the Company received $49,800 in proceeds under a 12.0%, 24 month convertible notes payable with an entity controlled our former CEO and an additional $15,150 in proceeds under similar convertible notes payable with other former Directors. These notes are convertible at the option of the note holders into common stock and warrants. The price for the stock and warrants in the conversion of these notes will be equal to the corresponding conversion price provided to Gemini, in the Gemini/ CDEX 12% Senior Convertible Note or Common Stock Purchase Warrant, both originally issued on June 25, 2008, or the best terms given to any investor during the 12 months following the note date. However, the note holders shall only receive the best terms that do not result in a resetting of conversion or warrant prices or a penalty associated with the Gemini note.

CDEX, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JANUARY 31, 2011

(Unaudited)

The Company has been approached by a noteholder of one of our Convertible Notes to exercise their right to convert said note to shares of the Company's Class A common stock. The Company is unable to issue the stock for the conversion at this time as the issuance would cause the Company to exceed its authorized shares of Class A common stock.

8. Share-Based Compensation

For the three months ended January 31, 2011, share-based compensation expense was approximately $97,000. For the three months ended January 31, 2010, share-based compensation expense was approximately $27,691. There were no related income tax benefits recognized because our deferred tax assets are fully offset by a valuation allowance.

During the three months ended January 31, 2011, we granted an option for 8,000,000 shares to our CEO with a grant date fair value of $232,462. The option grant has an exercise price equal to the market value of our common stock on the effective date of the grant. The option has a seven-year term and vest 50% upon grant and 50% over the remaining seven years depending on the attainment of certain performance goals. The options granted in the first quarter of 2011 have a weighted average exercise price of $0.05 per share. A total of 50,000 options expired in the quarter with a weighted average exercise price of approximately $0.05. We have a practice of issuing new stock to satisfy the exercises of stock options. Additionally, as compensation for their participation on the Company’s Board, the Company issued 598,098 restricted stock awards to its independent directors which will vest over six months and have an aggregate grant date fair value of approximately $30,000. Also, 260,600 shares of restricted stock awards were returned to the company and cancelled from Thomas Payne, who had resigned from the Board.

During the three months ended January 31, 2010, no options were granted or were cancelled/forfeited.

We determine the fair value of share-based awards at their grant date, using a Black-Scholes Option Pricing Model applying the assumptions in the following table. For options granted in fiscal year 2011 and 2010, we use the simplified method of estimating expected terms as described in Staff Accounting Bulletin No. 107. Actual compensation, if any, ultimately realized by option recipients may differ significantly from the amount estimated using an option valuation model.

	For the three months ended January 31,
	2011	2010
Weighted average grant date fair value	$0.03		-
Expected volatility	75%		-
Expected dividends	0%		-
Expected term (years)	4.17		-
Risk free rate	2.74%		-

As of January 31, 2011, there was approximately $109,000 of unrecognized compensation costs related to unvested stock options, and approximately $35,000 of unrecognized compensation costs related to unvested restricted stock awards. These costs are expected to be recognized on a weighted-average basis over periods of less than one year for both restricted stock awards for unvested stock options.

CDEX, Inc.

NOTES TO CONDENSED FINANCIAL STATEMENTS

JANUARY 31, 2011

(Unaudited)

9. Stockholders' Equity

During the three months ended January 31, 2011 Gemini Master Fund Ltd. (“Gemini”) converted $42,860 of accrued interest on their note into 857,205 unrestricted shares of CDEX Class A common stock, or approximately $0.05 per share. The Company also issued 598,098 restricted stock awards to its independent directors which will vest over six months. Also, 260,600 shares of restricted stock awards were returned to the company and cancelled from Thomas Payne, who had resigned from the Board. Additionally, the Company issued 50,000 shares of restricted common stock, with a grant date fair value of $2,500, to a consultant for services performed.

During the three months ended January 31, 2010, Gemini converted a portion of its note payable and accrued interest in the amount of $50,000 into 1,000,000 Class A Common Shares, or approximately $0.05 per share.

10. Advance Payments

During the fourth quarter of fiscal year 2010, the Company received approximately $483,000 under our Exclusive Distribution Agreement (“Agreement”) effective August 20, 2010, with a number of signatories including PEMCO, LLC and Messrs. Peter Maina, Thomas Payne (a former Director of the Company), Robert Stewart, and Scott Newby (“the “Signatories”). The Agreement grants exclusive United States distribution rights for all products developed by CDEX for application in the field of Oncology. The term of the Agreement is for five years from the effective date of the Agreement. The financing tranche is available for up to $1.5 million. We may continue to raise money under this agreement. The Agreement grants the Signatories detachable three-year warrants for a total of 670,000 shares at an exercise price of $0.25. Revenue is being amortized on a straight-line basis over the five year term of the agreement resulting in revenue recognition of approximately $19,000 during the quarter ended January 31, 2011.

11. Commitments and Contingencies

Litigation

Due to the lack of liquidity, the Company is in arrears on a number of its financial obligations. To date, most creditors have been willing to renegotiate the obligations as they become due or forestall any recourse they may have to collect their debts; however, we have received a demand letter from one of our creditors. Should any of these other creditors pursue recourse; the Company may not be able to continue as a going concern.

In addition, we may from time to time be involved in legal proceedings arising from the normal course of business. As of the date of this report, we have not received notice of any other legal proceedings and the Company is not aware of any pending claims or assessments, other than as described above, which may have a material adverse impact on the Company’s financial position or results of operations.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operation

Our discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the related disclosures included elsewhere herein and in Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of our Annual Report on Form 10-K for the fiscal year ended October 31, 2010.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the securities laws. Forward-looking statements include all statements that do not relate solely to the historical or current facts, and can be identified by the use of forward looking words such as "may", "believe", "will", "expect", "expected", "project", "anticipate", "anticipated”, “estimates", "plans", "strategy", "target", "prospects", ”should”, “intends”, “estimates” "continue" and other words of similar meaning. These forward looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations, as well as future results of operations and financial condition and may cause our actual results, performances or achievements to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Important factors that could cause our actual results to differ materially from our expectations are described as Risk Factors in our Annual Report on Form 10-K for the fiscal year ended October 31, 2010. In making these forward-looking statements, we claim the protection of the safe-harbor for forward-looking statements contained in the Private Securities Reform Act of 1995. Although we believe that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. We do not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements.

OVERVIEW

CDEX Inc. is a technology development company incorporated in the State of Nevada on July 6, 2001 with a corporate office and research and development facility in Tucson, Arizona. Our Class A common stock is currently being traded on the OTCBB under the symbol "CEXI.OB." Our long term strategic plans focus on applying our patented and patents pending chemical detection technologies to develop products in various markets including the healthcare, security and brand protection markets, as addressed below:

Healthcare - Validation of medications, training and quality assurance (e.g., validation of prescription and compounded medications to provide for patient safety, training of medical staff regarding compounding practices and detection of the diversion of narcotics and controlled substances);

Security and Public Safety - Identification of substances of concern (e.g., explosives, illegal drugs and the detection of counterfeit drugs and medications to assist in the protection of the nation's drug supply); and

Brand Protection - Detection of counterfeit or sub-par products for brand protection (e.g., inspection of incoming raw materials, outgoing final products and products in the distribution channel).

Virtually all CDEX product development has been based on applying the same underlying technologies. CDEX anticipates developing and/or acquiring other technologies in the future through partnering and investment. However, unless and until such time as we acquire or develop other technology assets, all of the Company's revenues will come from products developed from our current suite of patents and patents pending technologies, or through licensing arrangements with companies with related intellectual property.

Our Technology

Our research and development efforts have centered on, but are not limited to, the use of excitation energy sources and patented/patents pending processing technology for substance verification, authentication and identification. When certain substances are exposed to excitation energy the substances produce photons at specific wavelengths that form unique spectral fingerprints, which can be used as signatures to validate and authenticate the substances.

CDEX creates reference signatures of substances of interest, such as selected narcotics, explosive compounds and medicines. CDEX software validates a substance of interest by comparing its signature against the known reference signature of the substance of interest.

The CDEX advantage is that substances of interest are tested at the base levels and their signatures are compared to the known signatures of the substance of interest. This provides rapid validation and authentication that the substance is genuine. CDEX technology is not centered on packaging schemes such as holograms, inks, ingredient taggants or RFID tags, all of which can be defeated by determined counterfeiters.

Products

We are currently focusing our resources on marketing and improving real-time (within seconds) chemical detection products using proprietary, patented and patents pending technologies. Our primary area of focus in 2010 and beyond continues to be products in the medical and security markets with our principal product lines noted below:

Healthcare Market.

ValiMed™ Medication Validation System (MVS) Product Line - Validation of substances, training and quality assurance. This product line, with stand-alone units and ancillary products providing a recurring revenue stream, is installed in a number of hospitals and addresses three problem areas in the healthcare market: (i) human error in the compounding of medications, with an emphasis on, but not limited to high risk medications and soon to address multi compounded cocktails, such as total parenteral nutrition and Oncology admixtures, through the fourth generation of the ValiMed device which will be call the G4. (ii) harmful counterfeit medications; and (iii) diversion of hospital narcotics.

Security Market.

CDEX ID2™ Product Line – real time detection of specified illegal drugs. This product line currently comprises two instruments. Both of the devices are hand held models that detect methamphetamine. The ID2 Meth Scanner is a device that is used for the detection of methamphetamine in the home inspection and remediation industries, as well as housing authorities and the hotel industry. The Pocket ID2 is a pocket sized hand held device that currently detects visible and prosecutable quantities of methamphetamine, with other drugs such as cocaine, heroin, OxyContin and Ecstasy expected to come in the near future. We are currently in the early stages of applying the ValiMed technology to a table top device that is expected to be portable and able to detect trace amounts of specified illegal drugs and explosives in virtually real time. The products mentioned above will most likely be of interest by all areas of law enforcement, such as police and sheriff departments, U.S. border patrol, port authorities, the TSA, the FBI, all of the U.S. Military, and many other agencies.

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 ours 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 our proprietary and other intellectual property rights could entail significant expense and could be difficult or impossible to do. 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’s attention, and/or require CDEX to enter into costly royalty or licensing arrangements to prevent further infringement, any of which could adversely affect our operating results. The Company makes business decisions regarding which inventions to patent, and in what countries.

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.

RESULTS OF OPERATIONS

COMPARISON OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010:

	2011			2010

Revenue	$	125,254		$	65,546
Cost of revenue		49,173			15,590
Selling, general and administrative		269,592			217,000
Research and development		53,127			30,199
Other expense		(217,654	)		(114,289	)

Net loss	$	(464,292	)	$	(311,532	)

REVENUE

Revenue was approximately $125,000 and $66,000 during the three months ended January 31, 2011 and 2010, respectively. The increase in revenue of approximately $59,000 resulted primarily from increased sales of the ID2 Meth Scanner, an increase in Pay Per Use revenue as well as the accrual of revenue from our Oncology Distribution agreement partially offset by a reduction of revenue from Cuvette sales.

COST OF REVENUE

Cost of revenue was approximately $49,000 and $16,000 during the three months ended January 31, 2011 and 2010, respectively, an increase of approximately $33,000 which includes an $11,000 increase in costs allocated to the oncology distribution agreement.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were approximately $270,000 during three months ended January 31, 2011, compared with $217,000 during the three months ended January 31, 2010. The increase of approximately $53,000 resulted primarily from increases in non-cash share-based expense and employee compensation of $62,000 as well as consulting costs of $9,000 partially offset by decreases in legal expenses of $16,000 and travel and marketing of $10,000.

RESEARCH AND DEVELOPMENT

Research and development costs were approximately $53,000 during the three months ended January 31, 2011, compared with $30,000 during the three months ended January 31, 2010, an increase of approximately $23,000 primarily attributable the increased focus on the further development of our Pocket ID2 Meth Scanner.

OTHER EXPENSE

Other expense for the three months ended January 31, 2011 was approximately $218,000 compared to $114,000 for the three months ended July 31, 2009. The increase in of approximately $104,000 in the first quarter of 2011 reflects primarily the increase of the amortization of discount associated with the GEMINI and other debt in the quarter of $61,000 as well as an increase in interest expense of $43,000.

NET LOSS

The net loss was approximately $464,000 during the three months ended January 31, 2011, compared with a net loss of $312,000 during the three months ended January 31, 2010, due to the foregoing factors.

LIQUIDITY AND CAPITAL RESOURCES

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. To date, CDEX has incurred substantial losses, and will require financing for operating expense, working capital and other corporate purposes. 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 January 31, 2011, we had negative working capital of approximately $3,705,000 including $47,000 of cash. We anticipate the need to raise additional capital or increase revenue over the next twelve 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 increase product sales, raise additional funds through borrowings, equity or debt financing. If we are not successful in raising the required additional capital, we may default in our payments to creditors and could result our filing of bankruptcy protection. The Company is actively seeking new investments from its current accredited investors as well as new accredited investors. There is no assurance that we will succeed in our fund raising efforts. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We had a net decrease in cash and cash equivalents of approximately $265,000 during the three months ended January 31, 2011. During first three months of fiscal 2011, we used $259,000 of cash in operating activities. This amount is comprised primarily of our net loss of $464,000, our return of $100,000 proceeds from the oncology distribution agreements and an increase in our accounts receivable of $7,000 offset by loan discount amortization of $128,000, non-cash share based compensation expense of $98,000, interest expense of $90,000, a reduction of inventory of $11,000 and depreciation and amortization of $8,000. As part of our total cash used during the first three months of fiscal 2011, we had no investing activities but we did use $6,000 in the repayment of notes payable. These repayments are on non-interest bearing notes that mature within a year.

ITEM 4T. Controls and Procedures

Disclosure Controls and Procedures.

The Company’s President and Chief Executive Officer and its Vice President of Finance and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of January 31, 2011, have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, as amended, is recorded, processed and summarized and reported on a timely basis and is accumulated and communicated to the Company’s management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

In connection with their evaluation, the certifying officers identified no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended January 31, 2011 that materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

On November 3, 2010, the Company issued 857,205 unrestricted shares of common stock to Gemini Master Fund Ltd. in consideration of the capital contribution of $42,860 through the conversion of the interest and/or unpaid principal due under that certain promissory Note dated February 15, 2010. No underwriters were used. The securities were sold pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933. The recipient of the stock was intimately acquainted with the Company’s business plan and proposed activities at the time of issuance, is an accredited investor and possessed information on the Company necessary to make an informed investment decision.

ITEM 6. Exhibits

31.1	Certification of Chief Executive Officer.

31.2	Certification of Chief Financial Officer.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 16, 2011.

CDEX INC.

By:		/s/ Jeff Brumfield
		Jeff Brumfield
		Chief Executive Officer


By:		/s/ Stephen A. McCommon
		Stephen A. McCommon
		Chief Financial Officer and
		Vice President of Finance

CDEX INC - FORM 10-Q - March 17, 2011

Attached files

CDEX INC Reports