Commission File Number 000-49845

CDEX INC.

 (Exact Name of Registrant as Specified in Its Charter)

Nevada (State or other jurisdiction of incorporation or organization)

52-2336836 (I.R.S. Employer Identification No.)

Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

 

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Stockholders' Equity	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7

 

ITEM 2. PROPERTIES

The Company leases approximately 3,000 square feet of office, manufacturing and laboratory space in Tucson, Arizona on a month-to-month basis. Monthly rent as of October 31, 2013 is approximately $1,500. Total rent expense was approximately $21,000 and $19,000 for the years ended October 31, 2013 and 2012, respectively.

ITEM 3. LEGAL PROCEEDINGS

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 new legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On February 10, 2012, we filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On September 4, 2012, the United States Bankruptcy Court for the District of Arizona, Judge James Marlar signed the Order Confirming CDEX' Chapter 11 Plan of Reorganization (“Plan”) and the Plan was effective on October 5, 2012. As a part of the Plan, the shares of common stock that were outstanding prior to the Plan becoming effective underwent a 1 for 10 reverse stock split. Prior to the going effective, the Company had 109,996,717 common shares outstanding; after the Plan became effective, the Company had 11,007,871 common shares outstanding .   In fiscal year 2013, the Company issued 41,295,142 shares and warrants to purchase 39,685,549 shares under the Plan in settlement of its obligations.

Market Information

Our Class A common stock is normally traded on the OTCBB under the symbol "CDEX.OB." Our shares are thinly traded with low average daily volume. This coupled with a limited number of market makers impairs the liquidity of our common stock, not only in the number of shares of common stock that can be bought and sold, but also through possible delays in the timing of transactions, and lower prices for our common stock than might otherwise prevail. This could make it difficult or impossible for an investor to sell shares of our common stock or to obtain a desired price.

Our common stock may be subject to the low-priced security or so called "penny stock" rules that impose additional sales practice requirements on broker-dealers who sell such securities. The Securities Enforcement and Penny Stock Reform Act of 1990 ("Reform Act") requires additional disclosure in connection with any trades involving a stock defined as a "penny stock" (generally defined as, according to recent regulations adopted by the U.S. Securities and Exchange Commission, any equity security that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. The regulations governing low-priced or penny stocks sometimes may limit the ability of broker-dealers to sell our common stock and thus, ultimately, the ability of the investors to sell their securities in the secondary market. Prices for CDEX shares will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for the shares, our results of operations, what investors think of CDEX and the chemical detection and validation industry, changes in economic conditions in the industry and general economic and market conditions. Market fluctuations could have a material adverse impact on the trading price of our shares.

If CDEX is unable to maintain FINRA registered broker/dealers as market makers, the liquidity of our common stock could be impaired, not only in the number of shares of common stock that could be bought and sold, but also through possible delays in the timing of transactions, and lower prices for our common stock than might otherwise prevail. Furthermore, a lack of market makers could result in CDEX shareholders being unable to buy or sell shares of our common stock on any secondary market. We may be unable to maintain such market makers.

The table below sets forth the high and low sales price for our Class A common stock as reported on the OTCBB for each of our last two fiscal years:

		High				Low
Fiscal Year Ended October 31, 2013:
First quarter		$	0.22			$	0.04
Second quarter			0.15				0.06
Third quarter			0.15				0.05
Fourth quarter			0.11				0.06
Fiscal Year Ended October 31, 2012:
First quarter		$	0.10			$	0.02
Second quarter			0.06				0.01
Third quarter			0.02				0.01
Fourth quarter			0.51				0.01

 

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As the foregoing are over-the-counter market quotations, they reflect inter-dealer prices, without retail markup, markdown, or commissions, and may not represent actual transactions.

Stockholder s

As of January 17, 2014, there were approximately 1,600 holders of record of our Class A common stock. However, a large number of our shareholders hold their shares in "street name" in brokerage accounts and, therefore, do not appear on the shareholder list maintained by our transfer agent.

Dividends

We have paid no cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

The following table details information regarding our existing equity compensation plans as of October 31, 2012 (the table retroactively reflects the 1 for 10 reverse stock split effective October 5, 2012):

Equity Compensation Plan Information

Number of

Weighted-

Number of securities

securities to be

average exercise

remaining available for

issued upon

price of

future issuance under equity

exercise of

outstanding

compensation plans

outstanding

options

(excluding securities

Plan category

options

reflected in column (a))

Equity compensation plans approved by security holders

8,410,000

$

0.05

74,856,050

Total

8,410,000

$

0.05

74,856,050

 

Sales of Unregistered Securities and Use of Proceeds

On February 10, 2012, we filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On September 4, 2012, the United States Bankruptcy Court for the District of Arizona, Judge James Marlar signed the Order Confirming CDEX' Chapter 11 Plan of Reorganization (“Plan”) and the Plan was effective on October 5, 2012. As a part of the Plan, the shares of common stock that were outstanding prior to the Plan becoming effective underwent a 1 for 10 reverse stock split. Prior to the going effective, the Company had 109,996,717 common shares outstanding; after the Plan became effective, the Company had 11,007,871 common shares outstanding.  In fiscal year 2013, the Company issued 41,295,142 shares and warrants to purchase 39,685,549 shares under the Plan in settlement of its obligations.  Additionally, during the 2013 fiscal year, the Company issued 643,950 shares of restricted stock as compensation to its current directors, former directors, consultants, an employee and an officer.

ITEM 6. SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our audited financial statements and related notes included elsewhere in this document. The following discussion (as well as other discussions in this document) contains forward-looking statements. Please see “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of uncertainties, risks and assumptions associated with these statements.

 

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Results of Operations

The following table summarizes our operating results for fiscal 2013 compared to fiscal 2012:

For the year ended October 31,
						Percent of								Percent of
		2013				Revenue				2012				Revenue
Revenue		$	526,706				100.0	%		$	242,568				100.0
Cost of revenue			127,109				24.1				110,204				45.4
Gross profit			399,597				75.9				132,364				54.6
Operating expenses:
Selling, general and administrative			1,027,418				195.1				715,083				294.8
Research and development			145,557				27.6				136,035				56.1
Total operating expenses			1,172,975				222.7				851,118				350.9
Loss from operations		$	(773,378	)			(146.8	) %		$	(718,754	)			(296.3	)

Revenue was approximately $527,000 and $243,000 for the fiscal years ended October 31, 2013 and 2012, respectively, an increase of $284,000 or 117%. This increase was primarily attributable to the $338,000 sale of our Valimed CCTs to Al-Essa Medical & Scientific Equipment Company in Safat, Kuwait, which also included installation, training and supplies.  We also realized an increase in revenue from the sales of our ID2 Meth Scanner product of approximately $5,000.  Offsetting these increases are approximately $70,000 reductions in maintenance, lease and Pay Per Use revenues.

Cost of revenue was $127,000 and $110,000 for the fiscal years ended October 31, 2013 and 2012, respectively, an increase of $17,000 or 15%. This slight increase was primarily attributable to the lower cost of materials of our older CCT product.  Gross profit margins increased to 76% in fiscal 2013 from 55% in fiscal 2012.

Selling, general and administrative expense was $1,027,000 and $715,000 for the fiscal years ended October 31, 2013 and 2012, respectively, an increase of $312,000 or 44%.  This increase primarily relates to increases in non-cash share-based compensation expenses of approximately $346,000 and compensation of approximately $93,000.  These increases were partially offset by the posting in 2011 of previously unrecognized claims arising from the bankruptcy proceedings of approximately $71,000, and reduction in 2013 of legal and professional expenses of $35,000 and travel and marketing of $35,000.

Research and development expense was $146,000 and $136,000 for the fiscal years ended October 31, 2013 and 2012, respectively, an increase of $10,000 or 7%. The increase primarily relates to an increase in travel of $10,000, employee and consultant compensation expense of approximately $5 ,000 partially offset by a decrease in materials of $5,000.

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 may require financing for operating expense, working capital and other corporate purposes.

 

 

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As of October 31, 2013, we had positive net working capital of $382,000 including $99,000 of cash. We had a net decrease in cash of $462,000 during fiscal year ended October 31, 2013 all of which were used in operating activities during fiscal 2013 primarily related to our net loss of $745,000 and an increase in inventory of $63,000, a decrease in current liabilities of $55,000 and negotiated settlements on accounts payable of $43,000, partially offset by non-cash share-based compensation of $415,000 and depreciation and amortization of $31,000.

Off-Balance Sheet Arrangements

CDEX has not participated in any off balance sheet financing or other arrangements.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 valuation assumptions used in recognizing stock-based compensation expense .

Revenue Recognition

Sales revenues are recognized when persuasive evidence of an agreement with the customer exists, products are shipped and installation, if necessary, completed, title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, collectability is reasonably assured and there are no significant future performance obligations. Service revenues are recognized at the time of performance. Service maintenance revenues are recognized ratably over the term of the agreement.  Deferred revenue represents amounts invoiced or received but not recognized as revenue if the above revenue recognition terms are not met.

Inventory

Inventory is valued at the lower of actual cost based on a first-in, first-out basis or market. Inventory includes the cost of component raw materials and manufacturing.

Stock-Based Compensation

We typically determined stock-based compensation expense based on the fair value of awards at the measurement date. In the case of employees, the measurement date is the date of grant. In the case of outside consultants, the measurement date is typically the date at which performance is complete. When the measurement date is not the date of grant, the total cost is typically re-measured at the end of each reporting period based on the fair value on that date. Expense related to share-based payments is recognized over the period during which services are provided.

ITEM A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

All financial statements and supplementary data that are required by this Item are listed in Part IV, Item 15 of this annual report and are presented beginning on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in or disagreements with accountants on accounting and financial disclosure .

ITEM 9A. CONTROLS AND PROCEDURES

Management's Report on Internal Control over Financial Reporting

Our Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) for our Company. Our Company's internal control over financial reporting is designed to provide reasonable assurance, not absolute assurance, regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our Company's assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, and that our Company's receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As required by Rule 13a-15(c) promulgated under the Exchange Act, our management, with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated the effectiveness of our internal control over financial reporting as of October 31, 2013. Management's assessment took into consideration the size and complexity of the Company and was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control over Financial Reporting - Guidance for Smaller Public Companies. In performing the assessment, management concluded that internal control over financial reporting was not effective based on criteria set forth by the COSO. The material weaknesses identified in internal control over financial reporting at October 31, 2013 included the Company’s inability to maintain the proper protection of its accounting system database records and required improvements over the Company’s oversight of processing financing transactions relative to the Company’s notes payable and equity. Concerning this material weakness, management continues to examine the Company’s procedures to include compensating controls to minimize the risk associated with having limited resources.

Notwithstanding these material weaknesses, management believes that the Company’s financial condition, results of operations and cash flows presented in this annual report are fairly presented in all material respects. Management bases its conclusion on our ability to substantiate, with a high degree of confidence, the small number of significant general ledger accounts that comprise the Company’s financial statements.

This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

 

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ITEM 9B. OTHER INFORMATION

None.

 

 

 

 

 

 

 

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INDEX TO FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Stockholders' Equity	F-5
Statements of Cash Flows	F-6
Notes to Financial Statements	F-7

 

 

 

 

 

 

F-1

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S.E.Clark & Company, P.C.

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Registered Firm:  Public Company Accounting Oversight Board

Report of Independent Registered Public Accounting Firm

Board of Directors

and Stockholders

CDEX Inc.

Tucson, Arizona

We have audited the accompanying balance sheets of CDEX Inc. (the “Company”) as of October 31, 2013 and 2012 and the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of CDEX Inc. as of October 31, 2013 and 2012 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the financial statements, the accumulation of losses and shortage of capital raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 14  The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

/s/ S.E.Clark & Company, P.C.

Tucson, Arizona

January 31, 2014

 

 

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742 N. Country Club Road, Tucson, AZ 85716  (520) 323-7774, Fax (520) 323-8174, seclarkcpa@aol.com

 

F-2

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CDEX INC.

BALANCE SHEETS

AS OF OCTOBER 31,

 

		2013				2012
Assets
Current assets:
Cash		$	98,967			$	561,858
Accounts receivable - net			23,573				28,313
Inventory - net			240,232				177,692
Deferred costs			9,108				-
Total current assets			371,880				767,863
Property and equipment - net			37,889				63,814
Patents - net			51,559				56,826
Other assets			1,504				1,504
Total assets		$	462,832			$	890,007
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses		$	8,140			$	105,667
Deferred Revenue			72,985				52,898
Total current liabilities			81,125				158,565
Total liabilities			81,125				158,565
Commitments and contingencies
Stockholders' equity
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 6,250 outstanding at
October 31, 2012 and 6,675 outstanding at October 31, 2011			31				31
Class A common stock - $.005 par value per share, 300,000,000
shares authorized and 52,946,963 outstanding at October 31,
2013 and 52,369,517 outstanding at October 31, 2012			264,732				261,846
Additional paid-in capital			35,336,108				34,943,618
Accumulated deficit			(35,219,164	)			(34,474,053	)
Total stockholders' equity			381,707				731,442
Total liabilities and stockholders' equity		$	462,832			$	890,007

 

The accompanying notes are an integral part of these Financial Statements.

 

F-3

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CDEX INC.

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED OCTOBER 31,

		2013				2012
Revenue		$	526,706			$	242,568
Cost of revenue			127,109				110,204
Gross profit			399,597				132,364
Operating expenses:
Selling, general and administrative			1,027,418				715,083
Research and development			145,557				136,035
Total operating expenses			1,172,975				851,118
Loss from operations			(773,378	)			(718,754	)
Other income/(expenses):
Note discount amortization			-				(156,953	)
Interest expense			-				(671,255	)
Other income/(expenses)			28,267				(2,685	)
Total other income/(expense)			28,267				(830,893	)
Net loss		$	(745,111	)		$	(1,549,647	)
Basic net loss
per common share:		$	(0.01	)		$	(0.03	)
Basic weighted average
common shares outstanding			52,872,994				52,427,847

 

The accompanying notes are an integral part of these Financial Statements.

 

F-4

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CDEX INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

																		Additional
		Series A Preferred Stock								Class A Common Stock								Paid-in				Accumulated
		Shares				Amount				Shares				Amount				Capital				Deficit				Total
Balance, October 31, 2011			6,675			$	33				52,366,980			$	261,833			$	30,585,452			$	(32,924,406	)		$	(2,077,088	)
Share-based compensation expense			-				-				-				-				69,225				-				69,225
conversion of preferred to  common stock			(425	)			(2	)			2,537				13				(11	)			-				-
Bankruptcy plan going effective			-				-				-				-				4,288,952				-				4,288,952
Net loss			-				-				-				-				-				(1,549,647	)			(1,549,647	)
Balance, October 31, 2012			6,250			$	31				52,369,517			$	261,846			$	34,943,618			$	(34,474,053	)		$	731,442
Share-based compensation expense			-				-				643,950				3,219				435,030				-				438,249
Forgiveness of debt			-				-				(66,504	)			(333	)			(42,540	)			-				(42,873	)
Net loss			-				-				-				-				-				(745,111	)			(745,111	)
Balance, October 31, 2013			6,250			$	31				52,946,963			$	264,732			$	35,336,108			$	(35,219,164	)		$	381,707

 

The accompanying notes are an integral part of these Financial Statements.

 

 

 

 

 

 

F-5

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CDEX INC.

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED OCTOBER 31,

		For the year ended October 31
		2013				2012
Cash flows from operating activities:
Net loss		$	(745,111	)		$	(1,549,647	)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation and amortization			31,192				36,759
Note discount amortization			-				156,953
Share-based compensation (see below)			415,458				69,225
Negotiated settlements on accounts payable			(42,872	)			-
Loss recognized on disposal of equipment			-				296
Noncash interest expense			-				671,655
Changes in operating assets and liabilities:
Accounts receivable			4,740				(10,983	)
Inventory			(62,540	)			41,076
Prepaid expenses and other assets			(9,108	)			7,320
Current liabilities			(54,650	)			302,711
Net cash used by operating activities			(462,891	)			(274,635	)
Cash flows from investing activities:
Purchase of property and equipment			-				(12,736	)
Net cash used by investing activities			-				(12,736	)
Cash flows from financing activities:
Proceeds received under bankruptcy financing			-				828,552
Repayment of notes payable			-				(24,837	)
Net cash provided by financing activities			-				803,715
Net increase (decrease) in cash			(462,891	)			516,344
Cash, beginning of the year			561,858				45,514
Cash, end of the year		$	98,967			$	561,858
Supplemental cash flow information:
Conversion of accrued expenses and accounts      payable into notes payable			-				2,093
Transfer from deferred costs to fixed assets			-				783
Previously unrecognized claims cleared through   implementation of Bankruptcy plan			-				72,722
Liabilities resolved through implementation of  Bankruptcy plan			-				4,216,230
Issuance of stock accrued for in prior year			22,790				-

 

The accompanying notes are an integral part of these Financial Statements.

 

F-6

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

1. Organization of Business and Basis of Presentation

CDEX Inc. (“CDEX,” “we,” “us,” “our” or the “Company”) 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 "CDEX.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:

1.           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);

2.           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

3.           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).

The Company is also exploring unique opportunities in select market verticals where its proprietary technology may provide low cost/real time solutions to a growing concern such as conducting urine, blood and saliva analysis for detecting illegal drugs and performance enhancement substances.

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.

 

 

F-7

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

2. Summary of Significant Accounting Policies

Revenue Recognition

Sales revenues are recognized when persuasive evidence of an agreement with the customer exists, products are shipped and installation, if necessary, completed, title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, collectability is reasonably assured and there are no significant future performance obligations. Service revenues are recognized at the time of performance. Service maintenance revenues are typically recognized ratably over the term of the agreement.   Deferred revenue represents amounts invoiced or received but not recognized as revenue if the above revenue recognition terms are not met.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts based on the expected collectability of our accounts receivable. We perform credit evaluations of significant customers and establish an allowance for doubtful accounts based on the aging of receivables, payment performance factors, historical trends and other information. In general, we reserve a portion of those receivables outstanding more than 90 days and 100% of those outstanding more than 120 days. We evaluate and revise our reserve on a monthly basis based on a review of specific accounts outstanding and our history of uncollectible accounts. As of fiscal the years ended October 31, 2013 and 2012 we had no allowance for doubtful accounts.

Inventory

Inventory is valued at the lower of actual cost based on a first-in, first-out basis, or market. Inventory includes the cost of component raw materials and manufacturing. Due to the nature of our inventory, we analyze inventory on an item-by-item basis for obsolescence. The changes to obsolescence reserve for the years ended October 31, 2013 and 2012 are as follows:

 

		Year Ended October 31,
		2013				2012
Balance, beginning of the year		$	25,365			$	13,493
Inventory obsolescence adjustments			(533	)			11,872
Balance, end of the year		$	24,832			$	25,365

 

Property and Equipment

Property and equipment are recorded at historical cost and are depreciated using the straight-line method over the estimated useful lives of the related assets, which range from two to seven years. Depreciation expense was approximately $26,000 and $31,000 for the years ended October 31, 2013 and 2012, respectively.

Beneficial Conversion Features

The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.

 

 

F-8

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

Research and Development Costs

Research and development costs include compensation for employees and contractors, rent, professional services, materials, lab equipment and disposals.

Share-Based Payments

Share-based compensation costs are recognized as a component of selling, general and administrative expense in the Statements of Operations. Compensation expense for share-based payment arrangements with our employees is based on the grant date fair value of awards. We apply the Black-Scholes option pricing model to determine the fair value of stock options and apply judgment in estimating key assumptions that are important elements in the model and in expense recognition, such as the expected stock-price volatility, expected stock option life, expected dividends and expected forfeiture rates. Restricted stock awards with performance based vesting provisions are expensed based on our estimate of achieving the specific performance criteria on a straight-line basis over the requisite service period. We perform periodic reviews of the progress of actual achievement against the performance criteria in order to reassess the likely vesting scenario and, when applicable, realign the expense associated with that outcome.

For share-based payments to non-employee consultants, the fair value of the share-based consideration issued is typically used to measure the transaction, as management believes this to be a more reliable measure of fair value than the services received. We apply the Black-Scholes option pricing model to determine the fair value of stock options or warrants that are granted. Consideration for services rendered by non-employee consultants is generally measured at the fair value of the Company's common stock or stock options on the date that performance is complete.

Patents

The Company capitalizes the costs of obtaining patents when patents are granted. Patents are amortized over their useful lives, which is generally ten years.  Amortization expense relative to patents was approximately $5,000 and $6,000 for fiscal 2013 and 2012, respectively.

Income Taxes

Deferred tax assets and liabilities are recognized currently for the future tax consequences attributable to the temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely that such assets will not be realized. We consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred tax asset. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. We record a valuation allowance to reduce our deferred tax assets and review the amount of such allowance annually. When we determine certain deferred tax assets are more likely than not to be utilized, we will reduce our valuation allowance accordingly.

As of October 31, 2013 and 2012, we did not recognize any assets or liabilities relative to uncertain tax positions, nor do we anticipate any significant unrecognized tax benefits will be recorded during the next 12 months.  Any interest or penalties related to unrecognized tax benefits is recognized in income tax expense. Since there are no unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest. We are subject to tax audits for our U.S. federal and certain state tax returns for tax years 2007 to 2013. Tax audits by their very nature are often complex and can require several years to complete.

Fair Value Measurements

The carrying amounts of items reflected in current assets and current liabilities, as well as notes payable, approximate their fair value due to the short-term nature of their underlying terms.

 

 

F-9

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

Concentrations

For fiscal 2013 and 2012, our revenues consisted of transactions with 24 and 26 customers, respectively.  In fiscal 2013, approximately 64% of our revenues were derived from our sale to our distributor in Kuwait for ten ValiMed CCT units and 12% was from our ValiMed Maintenance fees. In fiscal 2012, approximately 47% of our revenues were derived from our ValiMed Maintenance fees.

At times, the Company maintains cash balances that exceed federally insured limits.  Our cash balances are maintained with financial institutions with high credit standing and accordingly, the Company does not believe that this results in any significant credit risk.

Net Loss Per Common Share

Basic net loss per share was determined by dividing the net loss by the weighted average number of common shares outstanding during each year. The effect of common stock equivalents is not considered as it would be anti-dilutive.

Recently Issued Accounting Pronouncements

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, balance sheet or cash flow.

3. Inventory

Inventory consisted of the following at October 31, 2013 and 2012:

		2013				2012
Raw materials		$	170,444			$	115,556
Finished goods			94,620				87,501
Subtotal			265,064				203,057
Obsolescence reserve			(24,832	)			(25,365	)
Total inventory		$	240,232			$	177,692

 

 

4. Property and Equipment

Property and equipment consisted of the following at October 31, 2013 and 2012:

 

		2013				2012
Furniture, fixtures and leasehold improvements		$	2,931			$	2,931
Equipment			594,795				594,795
Leased equipment			70,654				70,654
			668,380				668,380
Less: Accumulated depreciation			(630,491	)			(604,566	)
Property and equipment - net		$	37,889			$	63,814

 

 

F-10

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

5. Patents

Patents consisted of the following at October 31, 2013 and 2012:

 

		2013				2012
Patents		$	100,000			$	100,000
Less: Accumulated amortization			(48,441	)			(43,174	)
Patents - net		$	51,559			$	56,826

 

Future amortization expense for our patents for the next five fiscal years is as follows:

 

Five-Year Projected Patent Amortization
Fiscal Years Ending October 31,		Amount
2014		$	4,647
2015			4,100
2016			3,618
2017			3,192
2018			2,817

 

6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following at October 31, 2013 and 2012:

 

		2013				2012
Accounts payable		$	4,900			$	34,133
Accrued compensation			625				57,480
Legal fees			240				11,679
Accrued payable to a distributor			2,375				2,375
		$	8,140			$	105,667

 

7. Income Taxes

The benefit from income taxes reflected in the accompanying financial statements, all of which is deferred, varies from the amounts that would have been computed using statutory rates as follows:

 

		2013				2012
Federal income taxes at the  maximum statutory rate		$	253,338			$	526,880
State income taxes, net of  federal tax effect			34,275				71,284
Permanent differences			11,445				10,898
Increase in valuation allowance			(299,058	)			(609,062	)
Benefit from income taxes		$	-			$	-

 

F-11

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

Deferred income taxes consisted of the following as of October 31, 2013 and 2012:

		2013				2012
Stock-based compensation		$	526,521			$	366,154
Fixed asset basis difference			76,826				76,826
Receivables excluded from income for income
tax reporting purposes			9,099				10,929
Accounts payable and accrued expenses  deducted for financial
statement purposes, but not for income tax reporting			3,142				40,787
Net operating loss carryforwards			8,207,282				8,041,108
Deferred tax asset			8,822,870				8,535,804
Valuation allowance			(8,822,870	)			(8,535,804	)
Total		$	-			$	-

 

For income tax purposes, the Company has net operating loss carryforwards of approximately $20.8 million at October 31, 2013 that, subject to applicable limitations, may be applied against future taxable income. If not utilized, the net operating loss carryforwards will expire between 2023 and 2027 .

8. Share-Based Payments

Stock Options and Stock Grants

The Company has a 2002 Stock Incentive Plan, a 2003 Stock Incentive Plan and a 2013 Equity Incentive Plan (the “Plans”) (and the “2013 Plan”). Both the 2002 Plan and the 2003 Plan have terminated and all future equity incentive issuances will be charged to the 2013 Plan. The Plans provide for the issuance of stock options and stock grants.  The 2013 Plan permits the issuance of up to 75,000,000 shares through April 19, 2023. As of October 31, 2013, there are 74,856,050 shares available for grant from the 2013 Plan.

.  During the year ended October 31, 2013, the Company granted stock options for the purchase of 8,350,000 Class A Common Shares with an aggregate grant date fair value of $455,538 .   No options were granted during the fiscal year ended October 31, 2012.  We have a practice of issuing new stock to satisfy the exercises of stock options. Stock options were granted with an exercise price equal to the market price of the stock at the date of grant. Options granted were exercisable pursuant to vesting schedules from immediate to six years.

During the year ended October 31, 2013, the Company awarded 643,950 restricted shares of Class A Common Shares to its members of its Board of Directors, employees and contractors.  The restricted stock awards vest over six months and have an aggregate grant date fair value of $118,637.  No restricted shares were granted during the fiscal year ended October 31, 2012.  We have a practice of issuing new stock to satisfy restricted stock grants. At October 31, 2013, there were no unrecognized compensation costs related to unvested restricted stock awards, and no unrecognized compensation costs related to unvested stock options.

Stock option activity for fiscal years 2013 and 2012 under the Plan is as follows (the table retroactively reflects the 1 for 10 reverse stock split effective October 5, 2012):

 

 

F-12

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

										Weighted
						Weighted				Average
		Number of				Average				Remaining				Aggregate
		Shares				Exercise				Contractual				Intrinsic
		Issuable				Price				Term (Years)				Value
Outstanding at October 31, 2011			978,000			$	0.50				4.67			$	250
Options Expired			(67,500	)		$	0.84
Outstanding at October 31, 2012			910,500			$	0.50				4.40				-
Options Granted			8,350,000			$	0.05
Options Cancelled/Forfeited			(800,000	)		$	0.52
Options Expired			(50,500	)		$	0.50
Outstanding at October 31, 2013			8,410,000			$	0.05				4.20			$	83,500
Exercisable at October 31, 2013			8,410,000			$	0.05				4.20			$	83,500

 

 

Total compensation expense related to stock awards for employees and consultants was $ 415,458 and $69,225 for the years ended October 31, 2013 and 2012, respectively.

The fair value of restricted stock was estimated using the closing price of our Class A Common Stock on the date of award and fully recognized upon vesting.

We determine the fair value of share-based awards at their grant date, using a Black-Scholes Option Pricing Model, for options granted in fiscal year 2013, we estimated expected terms as being equal to the life of the grant. Actual compensation, if any, ultimately realized by option recipients may differ significantly from the amount estimated using an option valuation model.   No options were issued during fiscal 2012 so those pricing assumptions in the following table are blank.

 

 

		For the Year Ended October 31,
		2013				2012
Weighted average grant date fair value		$	0.06			$	-
Expected volatility		75%				0%
Expected dividends		0%				0%
Expected term (years)		5.00					-
Risk free rate		0.77% - 0.79 %					-

 

Warrants

As a part of the Bankruptcy plan discussed in note 11, all warrants were cancelled on the Plan effective date of October 5, 2012.  Warrants under the plan were issued subsequent to October 31, 2012.  In fiscal year 2013, the Company issued 41,295,142 shares and warrants to purchase 39,685,549 shares under the Plan in settlement of its obligations.  The following summarizes activity for fiscal years 2013 and 2012 for warrants to purchase our common stock (the table retroactively reflects the 1 for 10 reverse stock split effective October 5, 2012):

 

 

F-13

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

										Weighted
						Weighted				Average
		Number of				Average				Remaining
		Shares				Exercise				Contractual
		Issuable				Price				Term (Years)
Outstanding and exercisable at October 31, 2011			934,817			$	0.80
Expired			(934,817	)		$	0.80
Outstanding at October 31, 2012			-			$	-
Issued			40,185,549			$	0.19				4.11
Outstanding and exercisable at October 31, 2013			40,185,549			$	0.19				4.11

 

9. Notes Payable

During the fiscal year ended October 31, 2012, we receive approximately $132,000 “Administrative Expense” financing allowed for under section 364(a) of the Bankruptcy code.

During the fiscal year ended October 31, 2012, cash payments totaling approximately $16,000 were made on the Administrative Expense financing and payments totaling $8,000 were made on the Company’s non-interest bearing notes.

On October 5, 2012, the Company’s Bankruptcy plan became effective.  As a result of this all notes payable were satisfied through the issuance of stock and warrants.

1 0 . Stockholders’ Equity

During the three months ended January 31, 2012 a shareholder converted 425 shares of Preferred Stock Series A into 25,374 shares of Class A common stock .

The financial statements for the fiscal year ended October 31, 2012 reflect the impact of Company’s Bankruptcy Plan going “effective” on October 5, 2012. As a part of the Plan, the Company underwent a 1 for 10 reverse stock split of its common stock. Additionally, as a part of the Plan approximately $3.5 million in liabilities, $116,000 of administrative financing and $700,000 were be resolved with the issuance of approximately 43 million shares of Series A common stock and warrants for approximately 43 million shares of Series A common stock.

Due to administrative delays, the stock and warrants issued under the Plan were being issued after October 31, 2012.  In fiscal year 2013, the Company issued 41,295,142 shares and warrants to purchase 39,685,549 shares under the Plan in settlement of its obligations.

11. Bankruptcy

On September 4, 2012, the United States Bankruptcy Court for the District of Arizona, Judge James Marlar, signed the Order Confirming CDEX' Chapter 11 Plan of Reorganization (“Plan”) as prepared by CDEX' attorney, Eric Slocum Sparks.  The effect of the Order is to create a new contract between CDEX and its creditors as set forth in the Plan.   The following outlines the resolution of the claims to the Company under the Plan.  In fiscal year 2013, the Company issued 41,295,142 shares and warrants to purchase 39,685,549 shares under the Plan in settlement of its obligations.

Reverse Stock Split: At the time of filing, outstanding shares in CDEX total approximately 110,000,000. Current outstanding shares in CDEX will undergo a 1 for 10 Reverse Stock Split, which will bring the amount of outstanding shares to approximately 11,000,000.  As part of the Plan, CDEX will implement the 1 for 10 Reverse Stock Split of the Old CDEX Common Stock, such that each 10 shares shall, following the Reverse Stock Split (and subject to adjustment for fractional entitlements), be consolidated into one (1) share of New Common Stock.  The aggregate fractional share interests of each holder of Old CDEX Common Stock shall be rounded up to the nearest whole number. On the Effective Date or as soon as practicable thereafter, the Reorganized Debtor expects to apply to have the New Common Stock listed on the Over the Counter Stock Exchange (“OTC”) or, if Reorganized Debtor is unable to have the New Common Stock listed on the OTC, other national securities exchange. All existing warrants to purchase shares of Old CDEX Common Stock will be extinguished upon consummation of the Plan.  The financial statements reflect the reverse stock split as if it occurred retroactively.

 

F-14

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

Classification, CDEX’ Plan divides claims against CDEX into multiple separate classes that are in accordance with the Bankruptcy Code.  Unless otherwise expressly stated in the Plan, distributions to holders of allowed claims are in full satisfaction of their allowed claims.  All claims against the Debtor arising prior to confirmation will be discharged by performance of the Plan on the Effective Date to the extent that such claims are dischargeable under the Bankruptcy Code.  For the purposes of the Plan, claims are classified and treated as follows:

Class One - Administrative Claims.

>           Class One consists of all claims for the cost of administration of CDEX’ bankruptcy estate.  Included in this class are all claims for administrative expenses entitled to priority under Bankruptcy Code §507(A)(1), such as professional fees and costs, as approved by the Bankruptcy Court of the attorneys, accountants, and other professional persons employed by CDEX, and all actual and necessary expenses of operating CDEX’ business pursuant to Bankruptcy Code §503(b), including without limitation, all fees charged against CDEX’ business pursuant to Chapter 123 of Title 28, United States Code. Debtor believes claims in this class may exceed $150,000.00.

>           Treatment: The Plan provides for the payment in cash, in full, of all allowed Administrative Claims on the later of the Effective Date or the date upon which such Claims become Allowed Claims, or as otherwise ordered by the Bankruptcy Court.  Class One claims will be paid from assets of the estate.  As of October 31, 2012, there were Class One claims totaling approximately $132 ,000.

Class Two - Claims of Governmental Units

>           Class Two claims consist of all allowed claims of the United States Internal Revenue Service (“IRS”) and/or State of Arizona, Department of Revenue (“DOR”) and/or the Department of Economic Security (“DES”), City of Tucson or other government agency which are entitled to priority pursuant to Section 507(a)(8) of the Bankruptcy Code except ad valorem taxes.  Debtor is aware of a proof of claim filed by Internal Revenue in this class in the amount of $594.72.

>           Treatment: Each holder of a Class Two allowed claim shall retain its lien or claim, in accordance with Section 1129 of the Bankruptcy Code.  The claim shall bear simple interest at a fixed rate equal to that rate which would be required to be paid as of the Effective Date under Section 6621 and/or 6622 of the Internal Revenue Code, or such other interest rate as the Bankruptcy Court determines is sufficient to confer upon the tax claim a value as of the Effective Date equal to the principal amount of such claim.  The allowed claim shall be payable in two equal monthly installments of principal, along with accrued interest.  The first payment shall commence on the first day of the month immediately following the month of the Effective Date.  The claim is subject to prepayment at any time without penalty or premium and shall have such other terms as required by law.

Class Three - Employee Priority Claims

>           Class Three consists of allowed claims arising under Bankruptcy Code Section 507(a)(3) and (4) including claims for accrued vacation, sick days, holidays and wages earned by employees of CDEX within 90 days before the filing of the bankruptcy petition. Debtor estimates claims in this class at $23,000.

>           Treatment: The Plan provides that each and every holder of a Class Three Allowed Claim shall receive shares of stock on account of its claim.  Each allowed claim will be divided by .05 in order to obtain a share value exchange of its claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.10 effective for five years after the date of issuance. Any liens held by the Class Three creditors shall be null and void and removed as of the Effective Date. CDEX estimates that Class Three Creditors will receive approximately 458,000 shares of New Common Stock and 458,000 warrants.

Class Four - Unsecured Claims of Senior 10% Noteholders

>           Class Four consists of allowed unsecured claims of the holders of 10% Senior Convertible Notes.  Debtor estimates claims in this class at $2,773,000.

>           Treatment: The Plan provides that each and every holder of a Class Four Allowed Claim shall receive shares of stock on account of its claim.  Each allowed claim will be divided by .15 in order to obtain a share value exchange of the claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.30 effective for five years after the date of issuance. Any liens held by the Class Four creditors shall be null and void and removed as of the Effective Date.  CDEX estimates that Class Four Creditors will receive approximately 18,484,000 shares of New Common Stock and 18,484,000 warrants.

 

F-15

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

  

Class Five - Unsecured Claims of Non-Interest Noteholders

>           Class Five consists of allowed unsecured claims of the holders of Non-Interest Notes.  Debtor estimates claims in this class at $15,000.

>           Treatment: The Plan provides that each and every holder of a Class Five Allowed Claim shall receive shares of stock on account of its claim.   Each allowed claim will be divided by .25 in order to obtain a share value exchange of the claim.  Any liens held by the Class Five creditors shall be null and void and removed as of the Effective Date.  CDEX estimates that Class Five Creditors will receive approximately 59,000 shares of New Common Stock.

Class Six - Unsecured Deferred Compensation Claims

>           Class Six consists of allowed unsecured deferred compensation claims.  CDEX estimates claims in this class at $258,000.

>           Treatment: The Plan provides that each and every holder of a Class Six Allowed Claim shall receive shares of stock on account of its claim.   Each allowed claim will be divided by .05 in order to obtain a share value exchange of the claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.10 effective for five years after the date of issuance. Any liens held by the Class Six creditors shall be null and void and removed as of the Effective Date.  CDEX estimates that Class Six Creditors will receive approximately 5,167,000 shares of New Common Stock and 5,167,000 warrants.

Class Seven - Unsecured Claims of George Cohen

>           Class Seven consists of the allowed unsecured claims of George Cohen for past due convertible notes.  Debtor estimates claims in this class at $46,000.

>           Treatment: The Plan provides that each and every holder of a Class Seven Allowed Claim shall receive shares on account of its claim.   Each allowed claim will be divided by .15 in order to obtain a share value exchange of the claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.30 effective for five years after the date of issuance. Any liens held by the Class Seven creditor shall be null and void and removed as of the Effective Date.  CDEX estimates that Class Seven Creditors will receive approximately 307,000 shares of New Common Stock and 307,000 warrants.

 

Class Eight - Unsecured Trade Claims

>           Class Eight consists of the allowed unsecured claims of trade creditors.  Debtor estimates claims in this class at $308,000.

>           Treatment: The Plan provides that each and every holder of a Class Eight Allowed Claim shall receive shares on account of their claim.   Each allowed claim will be divided by .25 in order to obtain a share value exchange of the claim.  Any liens held by the Class Eight creditors shall be null and void and removed as of the Effective Date.  CDEX estimates that Class Eight Creditors will receive approximately 1,230,000 shares of New Common Stock.

 

Class Nine - Client Deposits

>           Class Nine consists of the allowed unsecured claims of Dr. Jason Terrell and Governor Juan F. Louis Hospital & Medical Center for deposits for the purchase of company products.  Debtor estimates claims in this class at $57,000.

>           Treatment: The Plan provides that each and every holder of a Class Nine Allowed Claim shall receive shares on account of its claim.   Each allowed claim will be divided by .05 in order to obtain a share value exchange of the claim and the claimant will receive that amount of shares of stock plus an equal number of warrants for future purchase at an exercise price of $0.10 effective for five years after the date of issuance. Any liens held by the Class Nine creditor shall be null and void and removed as of the Effective Date.  CDEX estimates that Class Nine Creditors will receive approximately 1,140,000 shares of New Common Stock and 1,140,000 warrants.

Class Ten - Contingent, Unliquidated and Disputed Claims.

>           Class Ten consists of all contingent, unliquidated and disputed claims.

>           Treatment: Class Ten creditors shall receive no distribution under the Plan.  As of October 31, 2012, there are no claimants that fall within this Classification.

 

F-16

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

Class Eleven - Interest of Equity Holders.

>           Class Eleven consists of the equity interest holders of CDEX.

>           Treatment: The equity holders in Debtor shall be allowed to retain their current percentage of interest or a percentage thereof subject to the Reverse Stock Split as set forth in the Plan.  CDEX estimates that Class Eleven Equity Holders will receive approximately 11,000,000 shares of New Common Stock .

 

Class Twelve - Claims of Participating Investors.

>           Class Twelve consists of the claims of participating investors.

>           Treatment:   Unless participating investors contribute substantial capital required to fund this Plan they will receive no percentage of the equity interest of CDEX and no distribution under the Plan.  Participating investors will receive common stock at the rate of one share for every $0.05 invested and one warrant for every share of stock purchased.  Each warrant will have a $0.10 exercise price and be effective for five years after the date of issuance.  As of October 31, 2012, $700,000 of Participating Investors fell within this Classification.

Four debt holders, representing liabilities of $42,872, opted out of receiving stock and warrants under the bankruptcy plan.

12. Commitments and Contingencies

Operating Leases

The Company leases approximately 3,000 square feet of office and laboratory space in Tucson, Arizona on a month-to-month basis. Monthly rent as of October 31, 2013 is approximately $1,500. Total rent expense was approximately $21,000 and $19,000 for the years ended October 31, 2013 and 2012, respectively.

Litigation

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 new legal proceedings.

 

F-17

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

 

13. Selected Quarterly Financial Data (Unaudited)

The following table summarizes the unaudited quarterly results of operations as reported for fiscal 2013 and 2012:

 

		Fiscal Year Ended October 31, 2013
		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter
Revenue		$	39,732			$	389,232			$	30,574			$	67,168
Gross profit			23,184				336,079				4,819				35,515
Income (loss) from operations			(559,666	)			92,219				(175,768	)			(130,163	)
Net income (loss)			(561,616	)			122,104				(175,436	)			(130,163	)
Basic and diluted net
loss per common share			(0.01	)			0.002				(0.003	)			(0.002	)
Basic and diluted weighted
average common
shares outstanding			52,686,021				52,924,937				52,934,055				52,946,963
		Fiscal Year Ended October 31, 2012
		First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter
Revenue		$	63,665			$	70,164			$	62,040			$	46,699
Gross profit			31,226				45,349				33,093				22,696
Loss from operations			(177,946	)			(149,314	)			(123,704	)			(267,790	)
Net loss			(382,277	)			(769,969	)			(125,380	)			(272,021	)
Basic and diluted net
loss per common share			(0.01	)			(0.01	)			(0.002	)			(0.01	)
Basic and diluted weighted
average common
shares outstanding			52,426,554				52,427,822				52,427,822				52,429,189

 

14. Going Concern

The Company has incurred losses since its inception of approximately $35.0 million and has had limited product sales from its inception through fiscal 2013. The Company plans to raise cash to fund its operations and pay its outstanding obligations from credit facilities or the sale of its securities in the future. Nonetheless, there can be no guarantee that the Company will be able to raise cash or maintain its current workforce through any of these plans.

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. The Company's ability to continue as a going concern and meet its obligations as they come due is dependent upon its ability to raise sufficient cash as discussed above. The Company's continued operations, as well as the implementation of our business plan, will depend upon its ability to raise additional funds through bank borrowings, equity or debt financing. The Company continues to seek prospective investors who may provide some of this funding. The Company also anticipates it will need to maintain its current workforce to achieve commercially viable sales levels. There can be no guarantee that these needs will be met or that sufficient cash will be raised to permit operations to continue. Should the Company be unable to raise sufficient cash to continue operations at a level necessary to achieve commercially viable sales levels, the liquidation value of the Company's assets may be substantially less than the balances reflected in the financial statements and the Company may be unable to pay its creditors. There is no assurance that the Company will succeed in these fund-raising efforts. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

F-18

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CDEX INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED OCTOBER 31, 2013 and 2012

15. Subsequent Events

The Company’s management has evaluated subsequent events occurring after October 31, 2013, the date of our most recent balance sheet, through the date our financial statements were issued.

 

 

 

 

 

 

F-19

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