UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended October 31, 2005

              [_] 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 small business issuer in its charter)

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

                         1700 Rockville Pike, Suite 400
                           Rockville, Maryland, 20852
                                  301-881-0080
     (Address of principal executive offices and registrant's phone number)

Securities registered under Section 12(b) of the Exchange Act:
  None.

Securities registered under Section 12(g) of the Exchange Act:
  Common stock, $.005 par value per share.

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]


Issuer's revenues for its most recent fiscal year: $178,607.


Check whether the issuer is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes [ ] No [X]

The aggregate market value of the Class A common stock held by non-affiliates
was approximately $28,618,873 on January 17, 2006 based on the last reported
sale price of the registrant's Class A common stock on the Over-the-Counter
Bulletin Board (OTCBB).

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

The number of shares outstanding of the issuer's common stock as of January 24,
2006 was 35,868,128 shares.

                    DOCUMENTS INCORPORATED BY REFERENCE: none

Transitional Small Business Disclosure Format Yes [_] No [X]


<PAGE>



                                    CDEX INC.
                                   FORM 10-KSB
                   For the Fiscal Year Ended October 31, 2005
<TABLE>
<CAPTION>
INDEX
                                                                                                                         Page
Part I
<S>      <C>          <C>                                                                                                   <C>
         Item 1.      Description of Business................................................................................3
         Item 2.      Description of Property................................................................................9
         Item 3.      Legal Proceedings......................................................................................9
         Item 4.      Submission of Matters to a Vote of Security Holders....................................................9

Part II

         Item 5.      Market for Common Equity and Related Stockholder Matters...............................................9
         Item 6.      Management's Discussion and Analysis of Financial Condition or Plan of Operation.......................10
         Item 7.      Financial Statements...................................................................................18
         Item 8.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................18
         Item 8A.     Controls and Procedures................................................................................18
         Item 8B.     Other Information......................................................................................18

Part III

         Item 9.      Directors and Executive Officers of the Registrant.....................................................19
         Item 10.     Executive Compensation.................................................................................23
         Item 11.     Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters..........26
         Item 12.     Certain Relationships and Related Transactions.........................................................26

Part IV

         Item 13.     Exhibits, Lists and Reports on Form 8-K................................................................27
         Item 14.     Principal Accountant Fees and Services.................................................................28

Financial Statements.........................................................................................................F1

Signatures...................................................................................................................29
</TABLE>




                                       2
<PAGE>

                                     PART I

This document contains forward-looking statements as that term is defined in the
federal securities laws. Forward-looking statements can be identified by the use
of words such as "expects," "plans," "may," "anticipates," "believes," "should,"
"intends," "estimates," and other words of similar meaning. These statements are
subject to risks and uncertainties that cannot be predicted or quantified and,
consequently, actual results may differ materially from those expressed or
implied by such forward-looking statements. Such risks and uncertainties
include, without limitation, the ability of the Company to raise capital to
finance the development of its chemical detection products, the effectiveness,
profitability and the marketability of those products, the ability of the
Company to protect its proprietary information, the establishment of an
efficient corporate operating structure as the Company grows and, other risks
detailed from time-to-time in our filings with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update any
forward-looking statements.


ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

CDEX Inc. is a technology development company that currently develops and
applies innovative technologies to meet the requirements for life safety
products in the security, healthcare, and brand protection markets. CDEX is a
public company and its common stock is traded on the Over The Counter Bulletin
Board (OTCBB) under the symbol "CEXI.OB". CDEX was incorporated in the State of
Nevada on July 6, 2001 and maintains its corporate offices in Rockville,
Maryland, and its research and development laboratories in Tucson, Arizona.

Currently, CDEX is devoting its resources to the development of products for
three distinct markets:

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

2. Healthcare - Validation of substances and quality assurance (e.g., validation
of prescription and compounded medications to provide for patient safety,
detection of the diversion of narcotics and controlled substances returned from
operating room suites to the operating room pharmacy, and detection of
counterfeit drugs and medications); and

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

All current CDEX products are based on applying the same underlying technologies
for which the company has five (5) patents pending.

CDEX anticipates acquiring other technologies in the future through partnering
and investment. However, unless and until such time as we acquire other
technology assets, all of the company's revenues will come from its current
chemical detection products.

OUR TECHNOLOGY

Our research efforts are centered on, but not limited to, the use of excitation
energy sources e.g., x-rays and ultra-violet light, detection technologies, and
patent pending signal processing for substance verification, authentication, and
identification. Many substances exhibit photoelectric characteristics that can
be detected in the electromagnetic spectrum. When these substances are exposed
to excitation energy interactions between the excitation energy and the
substance produce photons at specific wavelengths that form a unique spectral
fingerprint that can be used as a signature to validate and authenticate the
substance.

CDEX creates reference signatures of substances of interest, such as narcotics,
explosive compounds, chemical and biological agents, medicines in liquid,
tablet, and powder form, spirits and liquors, and perfumes, as well as many
other substances and stores them in a reference signature database.

CDEX software validates a substance of interest by comparing its signature
against the known reference signature of the substance of interest. CDEX
software is able to confirm that a substance of interest is what it is supposed
to be if its signature is within the specified tolerances of the reference
signature for the substance of interest. The analysis software is designed to
alert the operator with a "Valid" indication, if the substance of interest is
validated as being within the specified deviation of the reference signature. If
the signature of the substance of interest is outside the specified deviation,
the analysis software is designed to alert the operator with a "Not Valid"
indication.

                                       3
<PAGE>

The CDEX advantage is that substances of interest are tested at the molecular or
atomic level 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 for quality assurance applications, or rapid detection
of chemical agents, explosive materials biological precursors, or counterfeits.
CDEX technology does not rely upon 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 developing real-time (within seconds)
chemical detection products using our proprietary, patents pending technologies.
CDEX products are able to identify substances at varying ranges. Laboratory
testing demonstrates the technology's capability in identifying and
discriminating between substances (e.g., explosives, tablets or liquid
medications) in a wide range of environments (e.g., underground, in luggage, or
trace amounts on surfaces, syringes, and IV bags).

CDEX is marketing its current products and is in the process of developing other
products for different markets and customers.

PRINCIPAL PRODUCTS
------------------

     Healthcare Market - Validation of substances and quality assurance.

         CDEX's current product line is ValiMed(TM), a medication validation
         unit. This product line consists of three separate solutions targeted
         to specific areas of the hospital pharmacy. They are ValiMed(TM)
         Impaired Clinician Solution, ValiMed(TM) Regulatory Compliance
         Solution, and ValiMed(TM) Patient Safety Solution.

               o    VALIMED(TM) PATIENT SAFETY SOLUTION: Validates High-Risk
                    medications that are uniquely compounded for a specific
                    patient by pharmacies for intravenous or oral
                    administration. This stand-alone product is in production
                    and is currently installed in a number of hospital pharmacy
                    settings.

               o    VALIMED(TM) REGULATORY COMPLIANCE SOLUTION: Validates
                    medications that are batch compounded under USP 797
                    requirements. ValiMed(TM) is used to validate the accuracy
                    of the end product to insure it is the right drug and the
                    right concentration. This stand-alone product is in
                    production and is currently installed in a number of
                    hospital pharmacy settings.

               o    VALIMED(TM) IMPAIRED CLINICIAN SOLUTION: Aids hospitals in
                    the detection of the diversion of narcotics and controlled
                    substances. It validates returned partial doses from
                    operating room suites in the pharmacy. This insures the
                    clear liquid in a syringe is the labeled narcotic and has
                    not been substituted with another clear liquid such as
                    saline. This stand-alone product is in production and is
                    currently installed in a number of hospital pharmacy
                    settings.

PRODUCTS UNDER DEVELOPMENT - In development, beyond "Proof of Concept" stage,
still requires additional marketing information to authorize proceeding to
full-scale development.

CDEX core technologies are highly scalable. We are developing products for other
market segments that incorporate the same core technologies employed in our
current products.

     1.  Security & Public Safety Market

         Anti-Counterfeit Medication Detection Solution used for validation and
         authentication of the nation's pharmaceutical and drug supply chain.

               o    MAN-PORTABLE MEDICATION VALIDATION SYSTEM: A laptop based
                    medication validation system that is contained in a small
                    carrying case that is used to discriminate between genuine
                    and counterfeit medications by analyzing the composite
                    chemical signatures of subject medications against the
                    authentic signature. Users scan medications to validate and
                    authenticate medications at the molecular and atomic level
                    before they enter the nation's distribution chain or reach
                    the consumer. This product exists as a demonstration
                    prototype and we are seeking partners to finalize
                    commercialization and take this product to market.

                                       4
<PAGE>

         Illicit Drug Detection Solution used for validation of the following:
         remediation and clean up of methamphetamine labs, law enforcement
         officer safety and decontamination, child endangerment and safety
         testing, and interdiction.

               o    METHAMPHETAMINE DETECTION SYSTEM: A handheld, scanning
                    device that is capable of detecting trace amounts of
                    methamphetamine. CDEX is in discussions with specific
                    federal, state and local law enforcement agencies to conduct
                    field-testing of the device. This product exists as a
                    demonstration prototype and we are seeking partners to
                    finalize commercialization and take this product to market.

         Explosive Detection Solution - potential application; used for baggage
         and package screening by TSA and improvised explosive device (IED)
         detection by the armed forces.

               o    EXPLOSIVE DETECTION SYSTEM: A handheld, explosive detection
                    system that is capable of detecting and classifying trace
                    amounts of explosive substances on the surface of clothing,
                    shoes, luggage, parcels, skin, and personal items. The
                    existing Personnel Security Screening System (PS(3)) is
                    planned to be re-engineered for broader security
                    applications. This product exists as a demonstration
                    prototype and we are in discussions with potential partners
                    to further the expansion, development, and commercialization
                    of this product.

     2.  Healthcare Market - International version of our existing ValiMed(TM)
         product line

               o    All of our current products in the ValiMed(TM) product line
                    are presently undergoing engineering review for conformance
                    to international market requirements.

     3.  Brand Protection Market - Detection of counterfeit or sub-par products
         for quality assurance inspection of incoming raw materials, outgoing
         final products, and products in the distribution channel.

               o    MAN-PORTABLE VALIDATION SYSTEM: A laptop based validation
                    system that is contained in a small carrying case and is
                    used to discriminate between genuine and counterfeit
                    products, such as pharmaceuticals, liquors and spirits,
                    perfumes, etc., by analyzing the composite chemical
                    signatures of suspect substances against authentic
                    signatures. This product exists as a demonstration prototype
                    for selected applications and we are seeking partners to
                    finalize commercialization and take this product to market.

RESEARCH AND DEVELOPMENT (R&D)

2005, Year in Review
--------------------
Efforts were spent primarily directed towards finalization of the ValiMed(TM)
product. Emphasis was on continued implementation and support of our Beta
Partners, and also final product engineering design. Additionally, during this
time R&D CDEX entered into contracts to outsource the manufacturing for both the
ValiMed(TM) unit and for our new proprietary design Cuvette.

R&D also delivered several next generation "proof of concept" prototypes for the
healthcare market. These prototypes employ the same underlying ValiMed(TM)
technology, but focus on solving other problems in healthcare, thereby providing
us with opportunity to expand CDEX's presence in the healthcare market.

In addition, considerable effort was devoted to prototype development of our
homeland security product suite. During this time frame R&D undertook
development and delivery of the proof of concept prototype for both the
Methamphetamine Trace Detection Unit, and the Anti-Counterfeit Medication
Validation Unit.

R&D costs were $2,421,875 (including $1,329,626 for stock compensation) during
the 2005 fiscal year, compared with $2,582,294 (including $1,224,097 for stock
compensation) during the 2004 fiscal year.

We have outsourced certain engineering and manufacturing tasks and will continue
this practice. Accordingly, we have entered into Master Services Agreements with
several engineering/manufacturing organizations. The agreements generally
provide for the contractors to provide services to CDEX from time to time which
are to be set forth more specifically in "statements of work" to be executed by
each party. Such services may include, without limitation: (i) non-recurring
engineering services such as product design, creation and modification of bills
of materials, engineering drawing packages, work instructions, manufacturing
specifications, fabrication documents and drawings, and survey documents; (ii)
prototyping services such as the development and testing of product prototypes,
and; (iii) other related design and manufacturing services as needed. Payments
for services performed are on a time and materials basis (paid monthly) or on a
fixed price basis (paid upon successful completion of each milestone) all as set
forth in the statement of work pertaining to the particular services.

                                       5
<PAGE>

We have yet to finalize large volume relationships with suppliers. However we
have established relationships with suppliers during the research and
development period. We anticipate these relationships will be expanded to
address higher volume of units purchased. We have received large volume quotes
from suppliers for some components for our products, however until additional
funding is received, we will not be able to sign any large volume agreements
with these suppliers. We are not restricted in selecting sources for components.

INDUSTRY AND COMPETITION

1.   SECURITY & PUBLIC SAFETY
     ------------------------

According to Bahar Barami, Senior Economist, Volpe Center
(http://www.volpe.dot.gov/ourwork/dimensions/050604/trends.doc) the size of
private sector security market is estimated to be $100 billion. The US
Department of Homeland Security (DHS) budget for 2006 is over $41 billion, and
has increased of 7% over 2005. The DHS budget includes $9 billion for research
development funding. Explosive detection is included in the 2006 DHS budget
under Transportation Security Agency. The budget is $43.7 million to direct
additional resources into emerging checkpoint explosive detection technologies.

Explosive Detection
-------------------
CDEX believes the explosives detection marketplace is potentially significant,
including every major building, transportation facility, or significant
gathering place. We believe the market is potentially lucrative because of
growing awareness of terrorism due to recent world events. We believe that this
marketplace possibly includes the following potential customers: militaries,
airport/building security organizations and transportation related
organizations, government, law enforcement organizations, and school systems.
These markets are global in perspective and large in size, e.g., the U.S. law
enforcement market consists of over 20,000 local, state and federal agencies.

Our research indicates that by 2010, the people-screening market will have
surpassed $9 billion in system deployment and services, up from $600 million in
2002. Sales for 2006 are expected to reach $3.5 billion. The compounded annual
growth rate during the 2003 -2010 period is estimated to be approximately 47%.
(See The Homeland Security Research Corporation's - 2003-2010 PEOPLE SCREENING
WEAPONS & EXPLOSIVES DETECTION MARKET REPORT (2002), (WWW.HSRC.BIZ)).

Currently, domestic sales of people screening devices are dominated by a small
number of products sold by a handful of vendors. CDEX believes our chemical
detection products will compete with existing detection products, and, depending
on the application, may have a competitive advantage by being more advanced than
existing tools in a number of areas. There are large competitors in this space
that have significantly more resources than CDEX.

Illicit Drug Detection
----------------------
Methamphetamine is the number one drug problem in America today and the problem
continues to increase (USA TODAY, January 18, 2006). According to DEA
congressional testimony by Joseph T. Rannazzisi, Deputy Chief, Office of
Enforcement Operations Drug Enforcement Administration, Methamphetamine is the
number one drug problem in America today and the problem continues to increase.
Today, few communities in the United States have not felt the crushing impact of
methamphetamine, which goes far beyond the actual trafficking and abuse of the
drug and the numerous other crimes and acts of violence it creates. The
devastating consequences of methamphetamine are felt across the country by
individuals, governmental agencies, businesses and communities of all sizes.
Americans are waging a daily battle against this drug.
(http://www.dea.gov/pubs/cngrtest/ct072605.html).

Based upon the Office of National Drug Control Policy's FY 2006 Budget Summary,
the US government has budgeted $12.4 billion in FY 2006 to fight illicit drug
use in America. This represents an increase of $268.4 million (+2.2 percent)
over the FY 2005. Two programs from the Department of Justice (DOJ) are being
added to the National Drug Control Budget. The Methamphetamine Enforcement and
Cleanup program, administered by the Community Oriented Policing Services, and
the Office of Justice Programs' Prescription Drug Monitoring program are both
important drug control efforts
(http://www.whitehousedrugpolicy.gov/publications/policy/06budget/).

There are two competing technologies in the methamphetamine detection
marketplace, test kits and ion mobilization units. Test kits are inexpensive,
but cannot detect trace amounts of methamphetamine on surfaces and are a
destructive test. The ion mobilization units are expensive to purchase, require
a sophisticated user, and require airborne substances and require a relative
large amount of maintenance. CDEX technology may have the advantages of
portability, ease of use, low maintenance, and reduced costs.

Counterfeit Medication Detection
--------------------------------
As of 2004, counterfeiting was a $35.2 billion business that is projected to
grow to $75 billion in 2010. This represents 6.4 percent of the global
pharmaceutical market today and growing to 8.8 percent in 2010 as reported in
Drug Store News, Oct 24, 2005.

                                       6
<PAGE>

In this market, there are competitors that provide anti-counterfeiting packaging
materials and holograms, RFID chips to track and trace movement of product
through the supply chain, taggants that can be added to products for
identification and detection of chemical fingerprints (FDA Counterfeit Drug
Report).

2.   HEALTHCARE
     ----------

Healthcare spending continues to increase, fueled by an aging population and
increasing cost of healthcare technology. We do not see a change in this trend
into the future.

There are 6,600 hospitals in the US and 3,000 are greater than 300 beds
(Billian's Healthdata). Adding in the targeted global market for CDEX healthcare
products, the number of hospitals would exceed 12,000. All three of the
ValiMed(TM) products would be applicable to these hospitals and in many cases
multiple units would be needed to fulfill the institutions needs.

Medication errors are a major problem in the global healthcare market and
resources will continue to be allocated to help prevent these errors from
occurring. To quantify the problem, it is estimated between 44,000 and 98,000
deaths occur annually due to preventable errors and 770,000 patients are injured
by adverse drug events. (IOM Report To Err Is Human.) A study published by
Auburn University reported an 8% error rate while observing pharmacist mixing IV
preparations. The bottom line is that even the best humans make mistakes and
these mistakes are significant. We are aware of one competitor in the area of
chemical detection of medication errors specific to pharmacy dispensing, but
their product is only designed for use in high volume prescription pharmacies.
Their product is based on the use of Near Infrared (NIR) absorption technology,
and is targeted to tablets. The system relies upon optical scanning and pattern
recognition as a back up for tablets it cannot identify. The competitor's
product as deployed cannot be used to see liquids or high-risk IV medications.

Impaired Clinician Solution
---------------------------
Impaired clinicians present a major problem in healthcare. It is published in
the medical literature (AANA J. 1999 Apr; 67(2): 133-40) that approximately 5%
to 10% of all healthcare workers with access to narcotics are users of these
substances. Substitution of water or saline for injectable narcotics is a common
practice to divert and steal these medications. The competitor in this market is
refractometry, a less sophisticated technology. It has a major flaw; fentanyl
(the most widely substituted narcotic) cannot be definitively identified using a
refractometer.

USP 797 Compliance
------------------
USP 797 regulations are being instituted to insure quality and sterility of
compounded IV medications in pharmacies. These regulations are primarily focused
on sterility of IV medications, but the accuracy of the end product is also
included in the regulation. Historically, pharmacists have preformed a visual
examination of the end product for accuracy. This practice is extremely
ineffective and prone to errors. The competitor in this market is laboratory
analysis. The major drawbacks are cost and time. It can often take two to three
weeks to get results from an outside lab and the cost is $200-$500 per test.
These drawbacks make it very impractical.

3.   BRAND PROTECTION
     ----------------

Based on worldwide counterfeit enforcement activity (investigations, raids,
seizures, arrests, charges, convictions, sentences, civil litigation) for 2005,
as reported through the DOPIP Security Counterfeit Intelligence Report, more
than 3,703 incidents valued at approximately $3.2 trillion were analyzed from
133 countries. The eighth most commonly counterfeited category is Food &
Alcohol, 64 incidents worth $11 Million and the fourteenth most commonly
counterfeited category is Perfume & Cosmetics, 22 incidents worth $12 Million.
US companies, for instance, estimate that between $200bn and $250bn in annual
revenue is lost to counterfeiters. The EU claims that 100,000 jobs are lost each
year to the same trade. In 2003 it was estimated that counterfeit goods cost the
state of New York $34bn, depriving it of $1.6bn in tax revenue (Scotsman.com
news).

SALES AND MARKETING

CDEX's business vision is to develop technologies to the point of market or
application viability and then, where management determines it to be beneficial,
team with organizations to complete commercial deployment and/or distribution
through our sales and marketing channels. In some instances, we may take a
technology directly to market. In others, we may seek to license the technology
to third parties who will then develop and market products employing it. Our
products and technologies may be licensed to original equipment manufacturers,
sold direct or via resellers as stand alone end units, or be integrated as
sensors that gather and relay information to an integrated solution that is the
repository of information gathered from many sources (e.g., in security
applications from perimeter, environmental and structural security devices,
medication delivery systems). Accordingly, our prospective "client base" varies
depending on the application and the stage of development. In marketing our
chemical detection products and technologies, we intend to target, via
partnerships as well as direct sales, both U.S. and foreign governments, in
addition to private industry or individuals requiring confirmation of the
presence or absence of substances.

                                       7
<PAGE>

We are currently reaching potential customers and partners through our website,
participating in industry events (such as trade shows and public meetings),
distributing product information through targeted mailings and direct sales
activities which include demonstrations of product application and traditional
advertising. Planned advertising activities include trade and industry magazines
and managed clinical trials where researchers are likely to publish articles
discussing the results of the trials. We also anticipate reaching prospective
customers via strategic relationships.

Effective November 7, 2005, the company entered into a two year exclusive
Reseller Agreement with Baxa Corporation ("Baxa") to sell, market, and
distribute the ValiMed(TM) product in the USA and Canada. The provisions of the
agreement require Baxa to sell a minimum number of units each year in order to
maintain exclusivity. The company expects to deliver ValiMed(TM) units to Baxa
in fiscal year 2006.

We anticipate focusing on domestic markets before expanding internationally via
strategic marketing and manufacturing partnerships. We anticipate partnerships
based either on geographic boundaries or by products depending on the partner's
market specialty and market presence. We have received unsolicited contacts by
prospective partners from the Middle East, Europe, Taiwan, Vietnam, Korea,
Malaysia and China based on information on www.cdex-inc.com. These contacts were
primarily interested in explosive and drug detection, and the technology's
potential use in the electronic manufacturing industry. These contacts may never
result in revenue or relationships that will benefit CDEX. CDEX has not applied
for licenses or permits to do business directly in any foreign country. CDEX has
entered into a contract to obtain TUV certification for its ValiMed(TM) product
with Elliott Labs in Fremont, CA. TUV tests and certifies that products meet
electrical safety standards and electromagnetic interference and compatibility
(EMI/EMC) standards. TUV tests and certifies to UL standards for the USA market
and CE standards for the European Union market.

INTELLECTUAL PROPERTY RIGHTS

We rely on non-disclosure agreements, patent, trade secret and copyright laws to
protect the intellectual property that we have and plan to develop, but such
laws may provide insufficient protection. Moreover, other companies may develop
products that are similar or superior to CDEX's or may copy or otherwise obtain
and use our proprietary information without authorization. In addition, certain
of our know-how and proprietary technology may not be patentable. Policing
unauthorized use of CDEX's proprietary and other intellectual property rights
could entail significant expense and could be difficult or impossible 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 attention, and/or require CDEX to enter into costly royalty or
licensing arrangements to prevent further infringement, any of which could cause
a decrease in our profits.

We currently have the following patent applications pending:

1.   "System and Method for Adapting a Software Control In an Operating
     Environment," Application No. 10/268,678;

2.   "Methods and Apparatus for Molecular Species Detection, Inspection and
     Classification Using Ultraviolet Fluorescence," Application No. 10/717,921;

3.   "System and Methods For the Detection and Identification of Chemical
     Substances," Application No. 10/784,889; and

4.   "Process for Replacing Nursing Co-Signature for Narcotic Waste with
     Centralized Validation of Waste in Pharmacy."

5.   U.S. Provisional Application 60/650,525 entitled "Cuvette Cap." This
     application relates to a design for a proprietary cuvette.

We have also filed corresponding international applications in selected
countries where such applications are required for the preservation of rights.

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.

GOVERNMENT REGULATION

The products developed may be subject to various governmental regulations and
controls, including that associated with security products in airports, handling
of explosive materials and related to x-ray energy. The storage and handling of

                                       8
<PAGE>

certain explosive material is subject to licensure. With regard to handling such
explosive material, we retain the services of a licensed contractor to transport
and store explosive material for testing. Following such testing, the contractor
returns the explosive material to a licensed storage facility. It is possible
that government agencies may develop additional regulations that impact our
initial and future products.

The U.S. Food and Drug Administration (FDA) has jurisdiction to regulate
computer products and software as medical devices if they are intended for use
in the diagnosis, cure, mitigation, treatment or prevention of disease. We have
preliminarily determined that our initial products are not medical devices.
However, further investigation or a change in FDA policy could subject us to
regulation. Noncompliance with applicable FDA requirements can result in such
things as fines, injunctions, and suspension of production.

Except as specifically mentioned above, we are not currently aware of any other
federal, state or local laws that would have a significant adverse impact on
development and distribution of our initial products. However, various federal,
state or local agencies may propose new legislation pertaining to the use of
potentially dangerous materials, to the discharge of materials into the
environment, to the manufacturing or marketing of chemical validation products
(or designation of one or more of our chemical validation products as medical
devices) and/or otherwise potentially relating to the our business which may
require us to allocate a portion of our operating budget to ensure full
compliance with such regulations.


ITEM 2.  DESCRIPTION OF PROPERTY

The Company leases office space in Maryland under a six-month lease. The lease
provides for monthly rent of approximately $1,175. The Company also leases
office and laboratory space in Arizona. The lease expires April 30, 2009, has
non-cancelable lease payments into 2006, and provides for monthly rent of
approximately $2,930 with 3% annual escalations. The lease was amended in fiscal
year 2005 to provide for additional space. The amendment expires December 31,
2007, has non-cancelable lease payments into 2007, and provides for monthly rent
of approximately $2,630 with 4% annual escalations. Total rent expense was
$16,929 and $43,884 for the years ended October 31, 2004 and 2005, respectively.


ITEM 3.  LEGAL PROCEEDINGS

CDEX is not currently involved in any legal proceedings nor do we have knowledge
of any threatened litigation.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal year 2005.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our Class A common stock is traded on the Over-The-Counter Bulletin Board
("OTCBB") under the symbol "CEXI.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 which 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 CDEX's 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, CDEX's
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.

                                       9
<PAGE>

If CDEX is unable to maintain NASD 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 which 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, the 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:

                                                              High       Low
                                                              ----       ---
             Fiscal Year Ended October 31, 2005:
              Second quarter                                 $1.63      $1.30
              Third quarter                                   1.49       1.00
              Fourth quarter                                  1.33       0.80

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.

SHAREHOLDERS

Our transfer agent has advised that the approximate number of record holders of
common stock at January 17, 2006 was 1,456.

DIVIDENDS

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

SALES OF UNREGISTERED SECURITIES DURING FISCAL YEAR 2005

Effective October 28, 2005, the Company and Baxa Corporation ("Baxa") entered
into a Subscription Agreement (the "Agreement"), pursuant to which the Company
issued 1,825,000 shares of Class A common stock at an aggregate price of
$1,500,000. In addition, pursuant to the Agreement, the Company issued to Baxa a
warrant to purchase up to 1,216,000 shares of its Class A common stock at a
price of $0.822 per share, exercisable within nine months of the effective date
of the Agreement.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION

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 Forward-Looking Statements for a
discussion of uncertainties, risks and assumptions associated with these
statements.

PLAN OF OPERATION

General
-------
CDEX Inc. is a technology development company that currently develops and
applies innovative technologies to meet the requirements for life safety
products in the security, healthcare, and brand protection markets. CDEX is a
public company and its common stock is traded on the Over The Counter Bulletin
Board (OTCBB) under the symbol "CEXI.OB". CDEX was incorporated in the State of
Nevada on July 6, 2001 and maintains its corporate offices in Rockville,
Maryland, and its research and development laboratories in Tucson, Arizona.

Currently, CDEX is devoting its resources to the development of products for
three distinct markets:

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

2. Healthcare - Validation of substances and quality assurance (e.g., validation
of prescription and compounded medications to provide for patient safety,
detection of the diversion of narcotics and controlled substances returned from
operating room suites to the operating room pharmacy, and detection of
counterfeit drugs and medications); and

                                       10
<PAGE>

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

All current CDEX products are based on applying the same underlying technologies
for which the company has five (5) patents pending.

CDEX anticipates acquiring other technologies in the future through partnering
and investment. However, unless and until such time as we acquire other
technology assets, all of the company's revenues will come from its current
chemical detection products.

Baxa Reseller Agreement
-----------------------
Effective November 7, 2005, the company entered into a two year exclusive
Reseller Agreement with Baxa Corporation to sell, market, and distribute the
ValiMed(TM) product in the USA and Canada. The provisions of the agreement
require Baxa to sell a minimum number of units each year in order to maintain
exclusivity. The company expects to deliver ValiMed(TM) units to Baxa beginning
in mid-fiscal year 2006.

ValiMed(TM)
-----------
The ValiMed(TM) production units will be marketed for sale by Baxa using their
colors and logos and a ValiMed(TM) logo on the unit. CDEX has changed the design
of the production ValiMed(TM) units from those used in beta testing in order to
make them easier and less expensive to produce. We have also added a larger
display to provide for a user-friendlier interface with the machine. In
addition, a new Cuvette holder has been added to the machine to accommodate our
new proprietary design.

Cuvettes
--------
Cuvettes are utilized by the ValiMed(TM) units to hold testing samples. CDEX has
designed a proprietary cuvette which the company believes has several advantages
over commercially available alternatives: (1) better quality control over the
wall thickness of the Cuvette; (2) smaller sample size required to conduct
tests, and; (3) generation and protection of recurring revenues through the sale
of a proprietary disposable Cuvette. The wall thickness of commercially
available Cuvettes varies widely and results in signature variations. The new
Cuvette requires only a 0.25cc sample as compared to a 1.0cc sample using
commercially available Cuvettes, a 75% reduction in sample size. This is
particularly important for our customers as CDEX begins to include more
expensive medications and drugs in its signature library. The first production
run for the new Cuvette is expected to be completed in the second quarter of
fiscal year 2006.

New Signatures
--------------
CDEX creates reference signatures of substances of interest (i.e. narcotics,
explosive compounds, chemical and biological agents) and stores them in a
reference signature database. The company's software validates that a substance
of interest is what it is suppose to be by comparing its signature against the
known reference signature of the substance of interest. In the second quarter of
fiscal year 2006, the company plans to develop new signatures, using the new
Cuvettes, for the medications and drugs that the ValiMed(TM) unit can "see".
This is important from a product liability standpoint. The variations and
unknowns caused by wall thickness in commercially available Cuvettes will be
under tight control using the new Cuvette. This will allow CDEX to be able to
accurately specify the sensitivity and specificity of each medication and drug
that is tested by ValiMed(TM).

Organizational Restructuring
----------------------------
CDEX recently reorganized to streamline and flatten its organizational
structure, provide focused management attention and accountability to our
business, clearly define lines of reporting, and roles and responsibilities, and
set the stage to begin the development of our quality control processes for the
company. We have eliminated Technical Operations and Business Operations, where
the head of each operating group reported through a senior executive to the
president and CEO. This structure has been replaced with a direct line
management structure where all executive management staff report directly to the
President and CEO. Technical Operations has been divided into two parts; Product
Planning, Research and Development headed by a Director, and Manufacturing
Operations headed by a Sr. Vice President. The former head of Business
Operations is now the Vice President of Sales and Marketing. A Director of
Business Development for Healthcare and a Director of Business Development for
Security will report to the Vice President of Sales and Marketing. Finance,
Accounting and Administration will be the responsibility of the CFO, who will
report directly to the President and CEO.

Staff Recruitment
-----------------
Management recognizes that key positions within the organization must be filled
in order for the management to develop the company to move ahead at a faster
pace. However, it is also recognized that the timing of adding new headcount to
the organization is critical and must be linked to revenue growth and new
funding for the company.


                                       11
<PAGE>

RESULTS OF OPERATIONS

Fiscal Year Ended October 31, 2005 Compared to Fiscal Year Ended October 31,
2004

Revenue: Revenue was $178,607 and $4,069 during the fiscal year ended October
31, 2005 and October 31, 2004, respectively. The revenue during fiscal year 2005
was from the delivery and support of ValiMed(TM) units to hospital pharmacy
customers.

Cost of revenue: Cost of revenue was $85,481 and $0 during the fiscal year ended
October 31, 2005 and October 31, 2004, respectively. The costs during the fiscal
year 2005 were for component parts and external manufacturing costs of
ValiMed(TM) (TM) units.

Research and development costs: Research and development costs were $2,421,875
(including $1,329,626 for stock compensation) during the fiscal year ended
October 31, 2005, compared with $2,582,294 (including $1,224,097 for stock
compensation) during the fiscal year ended October 31, 2004. The decrease of
$160,419 (or 6%) resulted from lower depreciation costs in 2005, offset by
higher stock compensation costs for research and development employees and
consultants.

General and administrative expenses: General and administrative expenses were
$2,896,336 (including $1,394,952 for stock compensation) during the fiscal year
ended October 31, 2005, compared with $2,359,969 (including $1,044,182 for stock
compensation) during the fiscal year ended October 31, 2004. This increase of
$536,397 (or 23%) resulted primarily from higher stock compensation, travel,
facilities and recruiting costs.

Other income (expense): Other income was $3,587 during the fiscal year ended
October 31, 2005, compared with expense of $1,039,820 during the fiscal year
ended October 31, 2004. The income in fiscal year 2005 was primarily from cash
in an interest earning account. The expense in the fiscal year 2004 was
primarily from the amortization of financing costs associated with warrants to
interest expense.

Net loss was $5,221,499 during the fiscal year ended October 31,2005, compared
with a net loss of $5,977,984 during the fiscal year ended October 31, 2004, due
to the foregoing factors.

LIQUIDITY AND CAPITAL RESOURCES

To date, CDEX has incurred substantial losses, and will require financing for
working capital to meet its operating objectives. We anticipate that we will
require financing on an ongoing basis unless and until we are able to support
our operating activities with additional revenues.

As of October 31, 2005, we had working capital of $730,647, including $1,472,242
of cash and cash equivalents. We anticipate the need to raise approximately
$1,500,000 over the next twelve months to satisfy our current budgetary
projections, which include substantial payments for the component parts
associated with assembly of our first products. Our continued operations, as
well as the implementation of our business plan, therefore will depend upon our
ability to raise additional funds through bank borrowings, equity or debt
financing. We continue to seek prospective investors who may provide some of
this funding.

During the fiscal year ended October 31, 2005, the Company received $3,615,250
in funding for 4,719,373 shares of common stock at an average price of
approximately $.77 per share. The funding comprised:

o $1,500,000 from the sale of 1,825,000 shares of common stock to Baxa, at an
average price of approximately $0.82 per share. In addition, the Company issued
to Baxa a warrant, exercisable through July 28, 2006, to purchase up to
1,216,000 shares of its common stock at a price of $0.822 per share.

o $1,133,500 from the sale of 1,407,366 shares of common stock, at an average
price of approximately $0.81 per share.

o $892,750 from the exercise of warrants into 1,190,340 shares of common stock,
at an average price of approximately $.75 per share.

o $89,000 from the sale of convertible promissory notes. All of the investors
elected to convert the notes into 296,667 shares of common stock, at an average
price of approximately $0.30 per share.

We have earned limited revenues from operations to date and are negotiating with
potential partners who, in some cases, may either license our technologies for
use in products produced by them or, in other cases, may purchase products
produced by us. However, we cannot be certain whether or when we will receive
such revenues. We earned revenues of $178,607 and received $207,879 in customer
payments during the fiscal year ended October 31, 2005.

                                       12
<PAGE>

We had a net increase in cash and cash equivalents of $1,000,757 during the
fiscal year ended October 31, 2005, compared with a net increase of $128,562
during the fiscal year ended October 31, 2004. We used net cash of $2,612,385
and $2,205,265 in operating activities during the fiscal years ended October 31,
2005 and 2004, respectively, and capitalized $2,108 and $24,524 in property and
equipment during the fiscal years ended October 31, 2005 and 2004, respectively.
We received proceeds in the amount of $3,615,250 and $2,358,351 from the sale of
convertible notes and shares of common stock to accredited investors during the
fiscal years ended October 31, 2005 and 2004, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America
(GAAP). The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate these estimates, including those
related to bad debts, inventory obsolescence, intangible assets, payroll tax
obligations, and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of certain assets and liabilities. Actual results may differ
from these estimates under different assumptions or conditions.

We have identified below certain accounting policies which we apply in the
preparation of our financial statements. We believe that the policies discussed
below are those most critical to our business operations. These policies form
the basis of our discussion throughout this section and affect our reported and
expected financial results.

CASH AND CASH EQUIVALENTS: We maintain cash balances that may exceed federally
insured limits. We do not believe that this results in any significant credit
risk. We consider all highly liquid investments with original maturities of 90
days or less to be cash equivalents.

USE OF ACCOUNTING ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions affect (i) the
reported amounts of assets and liabilities, (ii) disclosure of contingent assets
and liabilities at the date of the financial statements and (iii) the reported
amounts of revenues and expenses during the periods covered by our financial
statements. Actual results could differ from those estimates.

PROPERTY AND EQUIPMENT: Property and equipment are stated at historical cost and
are depreciated using the straight-line method over the estimated useful lives
of the related assets, ranging from two to seven years. Depreciation expense was
$294,436 and $16,760 for the years ended October 31, 2004 and 2005,
respectively.

INCOME TAXES: We file our income tax returns on the cash basis of accounting,
whereby revenue is recognized when received and expenses are deducted when paid.
To the extent that items of income or expense are recognized in different
periods for income tax and financial reporting purposes, deferred income taxes
are provided to give effect to these temporary differences. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured by applying presently enacted statutory tax rates, which are
applicable to the future years in which deferred tax assets or liabilities are
expected to be settled or realized, to the differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in operations in the period that the tax rate is enacted.

As we have never operated at a profit, no tax benefit has been reflected in the
statement of operations and a valuation allowance has been established reducing
the net carrying value of the deferred tax asset to zero.

RISKS, UNCERTAINTIES AND CONCENTRATIONS: Financial instruments that potentially
subject CDEX to significant concentration of credit risk consist primarily of
cash equivalents and accounts receivable. In addition, at times CDEX's cash
balances exceed federally insured amounts. Accounts receivable represents a
portion of the revenue outstanding on these contracts. We provide for estimated
credit losses at the time of revenue recognition.

STOCK-BASED COMPENSATION: We have provided restricted stock grants to employees
and consultants as the principal element of their compensation. We determine
compensation expense as the fair value, at the measurement date, of the service

                                       13
<PAGE>

received or the common stock issued, whichever is more reliably determined. In
the case of employees, the measurement date is the date of grant. In the case of
outside consultants, the measurement date is the date at which their performance
is complete. This total cost is first reflected as deferred compensation in
stockholders' equity (deficit) and then amortized to compensation expense on a
straight-line basis over the period over which the services are performed. When
the fair value of the common stock is used and the measurement date is not the
date of grant, the total cost is re-measured at the end of each reporting period
based on the fair market value on that date, and the amortization is adjusted.

We have also utilized employment and consulting agreements which combine cash
and stock elements of compensation, where a fixed dollar value of stock is
awarded to settle non-cash compensation. We have awarded some of the common
shares in advance of when the service is performed although these shares are
subject to forfeiture in the event of non-performance. These amounts are shown
as deferred compensation in the accompanying balance sheet. We have also paid
performance bonuses in awards of common stock.

RISK FACTORS

You should carefully consider each of the following risk factors and all of the
other information in this report. The following risks relate principally to
CDEX's business and contain forward-looking statements. Actual results could
differ materially from those set forth in the forward-looking statements. See
"Cautionary Statement Regarding Forward-Looking Statements" below.

A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT MAY AFFECT CDEX'S
ABILITY TO SURVIVE.

We have a history of operating losses and an accumulated deficit. Since our
principal activities to date have been limited to organizational activities,
research and development, product development and limited marketing and sales,
CDEX has produced only limited revenues. In addition, we have only limited
assets. As a result, we cannot be certain that CDEX will continue to generate
revenues or become profitable in the future. If we are unable to obtain
customers and generate sufficient revenues to operate profitably, our business
will not succeed.

CDEX HAS RECEIVED A GOING CONCERN OPINION FROM ITS INDEPENDENT AUDITORS THAT
EXPRESSES UNCERTAINTY REGARDING ITS ABILITY TO CONTINUE AS A GOING CONCERN.

We have received a report from our independent auditors for the fiscal year
ended October 31, 2005 containing an explanatory paragraph that expresses
uncertainty regarding our ability to continue as a going concern due to
historical negative cash flow. We cannot be certain that our business plans will
be successful or what actions may become necessary to preserve our business. Any
inability to raise capital may require us to reduce operations or could cause
our business to fail.

Our limited operating history makes our future operating results unpredictable
rendering it difficult to assess the health of our business or its likelihood of
success. The inability to assess these factors could result in a total loss of
an investor's investment in CDEX.

In the case of an established company in an ongoing market, investors may look
to past performance and financial condition to get an indication of the health
of the company or its likelihood of success. Our short operating history and the
evolving nature of the explosives detection and chemical identification markets
in which we focus make it difficult to forecast our revenues and operating
results accurately. We expect this unpredictability to continue into the future
due to the following factors:

o the timing of sales of our products and services, particularly in light of our
minimal sales history;

o difficulty in keeping current with changing technologies;

o unexpected delays in introducing new products, new product features and
services;

o increased expenses, whether related to sales and marketing, product
development or administration;

o deferral of recognition of our revenue in accordance with applicable
accounting principles due to the time required to complete projects;

o the mix of product license and services revenue; and

o costs related to possible acquisitions of technologies or businesses.

CDEX could experience operating losses or even a total loss of our business
which, as a result of the foregoing factors, would be difficult to anticipate
and could thus cause a total loss of capital invested in CDEX.

                                       14
<PAGE>

THE ABSENCE OF A PERMANENT FULL-TIME CHIEF FINANCIAL OFFICER LEAVES CDEX WITHOUT
THE BENEFIT OF THIS TYPE OF EXPERTISE AND CONSISTENT MONITORING OF CONTROLS AND
PROCEDURES WHICH A FULL-TIME CHIEF FINANCIAL OFFICER WOULD AFFORD.

In April 2004 we retained a qualified part-time chief financial officer on a
consultancy basis. However, we have not retained a permanent, full-time chief
financial officer. The responsibilities of the principal accounting and
financial officer are currently being handled by our CEO.

The Sarbanes-Oxley Act requires public companies to maintain disclosure controls
and procedures that are designed to ensure that information required to be
disclosed in reports filed with the SEC is recorded, processed, summarized and
reported within the time required. This includes controls and procedures to
ensure that such information is accumulated and communicated to management,
including the chief executive and financial officers, so as to allow timely
decisions regarding required disclosure of such information. The Sarbanes-Oxley
Act also requires documentation of internal control procedures, remediation as
needed, and periodic testing of the controls, and these requirements are
expected to apply to smaller companies such as CDEX beginning in 2007. A
permanent, full-time chief financial officer would coordinate and oversee these
procedures and our disclosure, bringing to bear specific financial and
accounting expertise. Our CEO currently performs this function with guidance
from our part-time chief financial officer and others.

LACK OF ADDITIONAL FINANCING COULD PREVENT US FROM OPERATING PROFITABLY WHICH,
EVENTUALLY, COULD RESULT IN A TOTAL LOSS OF OUR BUSINESS.

Since our inception, we have funded our operations through borrowings and
financings. Current funds available to CDEX may not be adequate for us to be
competitive in the areas in which we intend to operate, and we have no
arrangements or commitments for ongoing funding. If funding is insufficient at
any time in the future, we may not be able to grow revenue, take advantage of
business opportunities or respond to competitive pressures. The unavailability
of funding could prevent us from producing additional revenues or ever becoming
profitable. Our continued operations, as well as the successful implementation
of our business plan, may therefore depend upon our ability to raise additional
funds of approximately $1,500,000 through bank borrowings or equity or debt
financing over the next twelve months. We continue to seek prospective investors
who may provide some of this funding. However, such funding may not be available
when needed or may not be available on favorable terms. Certain family members
of our management team have advanced funds to CDEX on an as-needed basis
although there is no definitive or legally binding arrangement to do so. All
such advances have been repaid. If we do not produce revenues and become
profitable, eventually, we will be unable to sustain our business.

CDEX SHAREHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION IF WE ISSUE ADDITIONAL
EQUITY TO FUND OPERATIONS OR ACQUIRE BUSINESSES OR TECHNOLOGIES.

If working capital or future acquisitions are financed through the issuance of
equity securities, CDEX shareholders will experience significant dilution. In
addition, securities issued in connection with future financing activities or
potential acquisitions may have rights and preferences senior to the rights and
preferences of the currently outstanding CDEX shares of common stock. The
conversion of future debt obligations into equity securities could also have a
dilutive effect on our shareholders. Regardless of whether our cash assets prove
to be inadequate to meet our operational needs, we may elect to compensate
providers of services by issuing stock in lieu of cash.

OUR POTENTIAL INABILITY TO PROTECT THE PROPRIETARY RIGHTS IN CDEX'S TECHNOLOGIES
AND INTELLECTUAL PROPERTY MAY HAMPER OUR ABILITY TO MANUFACTURE PRODUCTS WHICH
WOULD PREVENT US FROM EARNING REVENUES OR BECOMING PROFITABLE.

Our success and ability to compete will depend in part on the protection of our
potential patents and other proprietary information. We currently have four
patent applications pending for our chemical detection technologies. We rely on
non-disclosure agreements and patent and copyright laws to protect the
intellectual property that we have developed and plan to develop. However, such
agreements and laws may provide insufficient protection. Moreover, other
companies may develop products that are similar or superior to CDEX's or may
copy or otherwise obtain and use our proprietary information without
authorization. If a third party were to violate one or more of our patents, we
may not have the resources to bring suit or otherwise protect the intellectual
property underlying the patent. In the event of such a violation or if a third
party appropriated any of our unpatented technology, such party may develop and
market products which we intend to develop and/or market. We would lose any
revenues which we would otherwise have received from the sale or licensing of
those products. This could prevent our ever making a profit on any products
based upon the misappropriated technology.

                                       15
<PAGE>

Policing unauthorized use of CDEX's proprietary and other intellectual property
rights could entail significant expense and could be difficult or impossible. In
addition, third parties may bring claims of copyright or trademark infringement
against CDEX or claim that certain of our processes or features violate a
patent, that we have misappropriated their technology or formats or otherwise
infringed upon their proprietary rights. Any claims of infringement, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, and/or require CDEX to enter into costly royalty or
licensing arrangements to prevent further infringement, any of which could
increase our operating expenses and thus prevent us from becoming profitable.

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. If this occurs, our competitors may
use our processes or techniques to develop competing products and bring them to
market ahead of us. This could prevent us from becoming profitable.

We may rely on certain intellectual property licensed from third parties, and
may be required to license additional products or services in the future, in
order to move forward with our business plan. These third party licenses may be
unavailable on acceptable terms, when needed or at all. An inability to enter
into and maintain any of these licenses could prevent us from developing or
marketing products based upon the underlying technology which could prevent us
from earning revenues on these products or from becoming profitable.

NO ASSURANCE OF SUCCESSFUL MANUFACTURING MAY AFFECT OUR ABILITY TO SURVIVE.

CDEX itself has no experience in manufacturing commercial quantities of
products, and our management has had limited experience in this area. We
presently have no plans for developing in-house manufacturing capability beyond
aggregating off the shelf components for our initial units into a final
assembly. Accordingly, we depend upon outside manufacturers to manufacture and
assemble our products. In our early stages with each new product, we plan to do
the final assembly and testing of the initial units in-house. We cannot be
certain that the terms of such arrangement will be favorable enough to permit
our products to compete effectively in the marketplace.

DEPENDENCE ON OUTSOURCED MANUFACTURING MAY AFFECT OUR ABILITY TO BRING PRODUCTS
TO MARKET.

At present, we do not plan to manufacture any of our products in-house. We are
considering different possibilities for bringing different products to market
among them, licensing to third parties or outsourcing manufacturing. The risks
of association with outsourced manufacturers are related to their operations,
finances and suppliers. CDEX would have little control over an outsourced
manufacturer and may suffer losses if any outside manufacturer fails to perform
its obligations to manufacture and ship the manufactured product. These
manufacturers' financial affairs may also affect our ability to obtain product
from them in a timely fashion should they fail to continue to obtain sufficient
financing during a period of incremental growth. Problems with outsourced
manufacturers could damage our relationships with our clientele and cost us
future revenues. If we are unable to contract with adequate manufacturers, and
in the absence of licensing or other means, we may be unable to market our
products. This would prevent us from earning revenues.

LACK OF MARKET ACCEPTANCE MAY LIMIT OUR ABILITY TO SELL PRODUCTS AND GENERATE
REVENUES WHICH WOULD PREVENT US FROM EARNING REVENUES OR BECOMING PROFITABLE.

We cannot be certain that any products which we successfully develop will ever
achieve wide market acceptance. Our products, if successfully developed, may
compete with a number of traditional products manufactured and marketed by major
technology companies, as well as new products currently under development by
such companies and others. In the explosives detection marketplace, for example,
many airports and other facilities and agencies have already invested in and
implemented systems that are based upon technology that is different from ours.
While we believe our technology is superior, we will have to demonstrate its
superiority to these potential customers in order to sell our products and
generate revenues. We may encounter similar obstacles in other application
areas. The degree of market acceptance of our products will depend on a number
of factors, including the establishment and demonstration of the efficacy of the
product candidates, their potential advantage over alternative methods and
reimbursement policies of government and third party payors. We cannot be
certain that the marketplace in general will accept and utilize any of our
products. If potential customers do not accept and purchase our products, we
will be unable to generate revenues and become profitable.

WE INTEND TO MARKET OUR PRODUCTS IN INDUSTRIES WHERE TECHNOLOGY CHANGES RAPIDLY,
AND WE WILL INCUR COSTS TO KEEP OUR PRODUCTS CURRENT AND INNOVATIVE. OUR FAILURE
TO DO SO COULD RENDER OUR PRODUCTS OBSOLETE, MAKING OUR BUSINESS UNPROFITABLE.

                                       16
<PAGE>

We hope to market our products in industries characterized by rapid change due
to the introduction of new and emerging technologies. Critical issues concerning
the governmental or commercial use of chemical detection mechanisms, including
security, reliability, accuracy, cost, ease of use, accessibility, or potential
tax or other government regulation, may affect the relevance and functionality
of our products. Future technology or market changes may cause some of our
products to become obsolete more quickly than expected. We will need to make
research and development expenditures to create new features for our products to
enhance their effectiveness and become and remain competitive. If we are
unsuccessful in timely assimilating development changes in the various
environments, we may be unable to achieve or maintain profitability.

POTENTIAL DEFECTS AND PRODUCT LIABILITY COULD RESULT IN DELAYS IN MARKET
ACCEPTANCE, UNEXPECTED LIABILITY AND COSTS AND DIMINISHED OPERATING RESULTS.

Technology-based products frequently contain errors or defects, especially when
first introduced or when new versions are released. Defects and errors could be
found in current versions of our products, future upgrades to current products
or newly developed and released products. These defects could result in product
liability suits, delays in market acceptance or unexpected redevelopment costs,
which could cause any profits we might otherwise have to decline. We anticipate
most of our agreements with customers will contain provisions designed to limit
our exposure to potential product liability claims. It is possible, however,
that we will be unable to negotiate such provisions with certain customers or
that these provisions, if negotiated, may not be valid as a result of federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions. A
successful product liability claim could damage our business, operating results
and financial condition. Prior to the actual licensing of our technologies for
use in distributed products or the entry of our products made by us into the
market, we plan to procure product liability insurance. Although we have
researched policies for such insurance, we currently have none in place, and we
cannot be certain that the amount or extent of coverage will be adequate once we
obtain it.

OUR POTENTIAL FUTURE BUSINESS AND/OR TECHNOLOGY ACQUISITIONS MAY BE
UNPREDICTABLE AND MAY CAUSE OUR BUSINESS TO SUFFER.

CDEX intends to expand its operations through the acquisition of additional
technologies (either by purchasing other businesses or acquiring their
technological assets) which it perceives to be unexploited and develop products
based upon these technologies. We have not yet identified these specific
technologies, and some of these technologies may be outside our current field of
operations. However, we may be unable to identify any such businesses or
technologies. Expansion may involve a number of special risks, including
possible adverse effects on our operating results or balance sheet (particularly
in the event of impairment of acquired intangible assets), diversion of
management attention, inability to retain key personnel, risks associated with
unanticipated events, any of which could prevent us from becoming profitable. In
addition, if competition for acquisition candidates or technologies were to
increase, the cost of acquiring businesses or technologies could increase as
well. If we are unable to implement and manage our expansion strategy
successfully, our business may suffer or fail.

SUBSTANTIAL COMPETITION MAY LIMIT OUR ABILITY TO SELL PRODUCTS AND THEREBY OUR
CHANCES OF BECOMING PROFITABLE.

We may experience substantial competition in our efforts to locate and attract
customers for our products. We are aware of two significant competitors in the
explosives detection industry which we believe have greater experience,
resources and managerial capabilities and may be in a better position than we
are to obtain access to and attract customers. A number of larger companies
similarly may enter some or all of our target markets and directly compete with
us. In the counter-terrorism arena, it is difficult to assess our competition
due to the high level of secrecy and lack of available information with respect
to defense and homeland security contracts and contractors. We must assume that
the demand for the technology in this area has given rise to a corresponding
supply of scientists and others who are developing technology similar to, or
otherwise competitive with, ours. In the area of brand protection, many
companies may seek to develop technology in-house to protect their own brands
rather than contract with us for our technology. In the areas of medical and
pharmaceutical validation and brand protection, various existing technologies
compete with ours and already are in use in the marketplace. These include radio
frequency identification tags, tagant agents (chemical agents added to the
target substance to serve solely as identifying tags) and bar coding. If our
competitors are more successful in marketing their products, we may be unable to
achieve or maintain profitability.

LOSS OF ANY OF OUR CURRENT MANAGEMENT OR INABILITY TO RECRUIT AND RETAIN QUALITY
PERSONNEL COULD ADVERSELY IMPACT OUR BUSINESS AND PROSPECTS. OUR DIRECTORS AND
OFFICERS EXERT SUBSTANTIAL CONTROL OVER OUR BUSINESS AND OPERATIONS.

We are dependent on our officers and other key personnel, i.e., James O. Griffin
and Timothy Shriver, respectively, our Chief Executive Officer/President and our
Senior Vice President of Manufacturing Operations. The loss of any of our key
personnel could materially harm our business because of the cost and time
necessary to retain and train a replacement. Such a loss would also divert

                                       17
<PAGE>

management attention away from operational issues. This would increase costs and
prevent or reduce our profits. To minimize the effects of such loss, we have
entered into employment contracts and non-competition agreements with our key
officers and employees, including Messrs. Griffin and Shriver.

OUR MANAGEMENT LACKS EXPERIENCE IN THIS MARKET.

Although widely experienced in other industries, our current senior management
team has little experience leading the development, marketing and sales of
technology products in the chemical detection and validation marketplace. This
lack of experience could lead to inefficiency and slow the process of marketing
our products and prevent us from making sales or becoming profitable.


ITEM 7.  FINANCIAL STATEMENTS

The financial statements begin on Page F-1 following Item 14 hereof.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.


ITEM 8A.  CONTROLS AND PROCEDURES

Based upon an evaluation, supervised by Malcolm Philips, who was our President,
Chief Executive Officer and Principal Accounting and Financial Officer as of the
end of the fiscal year, of the effectiveness of the design and operation of our
disclosure controls and procedures concluded that our disclosure controls and
procedures were effective as of October 31, 2005. In addition, during the year
ended October 31, 2005, there were no significant changes in our internal
accounting controls or in other factors that materially affected our internal
controls over financial reporting.


ITEM 8B. OTHER INFORMATION

None.


                                       18
<PAGE>



                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information regarding our executive officers and
directors:

<TABLE>
<CAPTION>

         NAME                       AGE     POSITION
         ---------                  -----   --------
<S>                                 <C>     <C>
         Malcolm H. Philips Jr      60      CEO/President/Chairman of the Board of Directors (1)
         James Griffin              56      Chief Operating Officer (1)
         Timothy Shriver            55      Sr. Vice President of Technical Operations, Director
         George Dials               60      Director
         Dr. BD Liaw                68      Director
         John A Knubel              66      Director
</TABLE>

(1) Effective January 1, 2006, Mr. Philips resigned from the position of
CEO/President and Mr. Griffin was appointed to the position. Mr. Philips
continues to serve as the Chairman of the Board of Directors.

The following is a summary of the business experience of each of our executive
officers and directors:

Malcolm Philips served as our Chief Executive Officer, President and Chairman
since CDEX's inception in July 2001 until January 2006, when he resigned from
the position of Chief Executive Officer and President. In the three months prior
to his joining CDEX, Mr. Philips was employed by Dynamic Management Resolutions
LLC, a Delaware limited liability company providing consulting services where,
as a consultant, he served as Chief Operating Officer and President of CDEX,
Inc., a Delaware corporation. DMR currently provides no technical or management
services to CDEX; CDEX (Delaware) was formed in December 2000 to purchase
technology from Loch Harris, Inc. (which technology is now owned by us) and was
dissolved in March of 2002 before it began the business for which it was
organized and before any shares were issued. Consequently, Mr. Philips never had
any ownership interest in CDEX (Delaware). From 1978 to February 2001, Mr.
Philips practiced law with the same group of attorneys although with various
firms. In September 1990, through a merger of several law firms, he became a
partner in Winston & Strawn, one of the largest law firms in the United States,
where, until February 2001, he was, among other things, a strategic advisor to
senior executives of major corporations. In addition to his J.D. from Georgetown
University Law School (1978), Mr. Philips has a B.S. Degree with a focus in
engineering from US Military Academy located at West Point (1967) and a Master
of Engineering Degree from Iowa State University (1971).

James Griffin served as our Chief Operating Officer from October through
December 2005. As of January 2006, Mr. Griffin has served as our Chief Executive
Officer and President. During the past five years, Mr. Griffin has served in
senior executive positions of operations and sales organizations in various
companies. Specifically, in 2005 through mid-September 2005, he served as Vice
President, Federal Systems Sales for Cernium, Inc. From 2003 to 2004, he served
as Vice President and General Manager of IPIX Security, a digital video camera
company located in Washington, DC. From 2002 to 2003, he served as Principal of
Zelios, Inc., where he provided management, finance, marketing and sales
consulting services to companies doing business in the security sector of the
electronic manufacturing industry. From 2000 to 2002, he served as Chief
Operating Officer of Sentech, Inc., where he led the company's internet business
strategy, created business, revenue and financial plans and developed software
specifications. From 1998 to 2000, he served as Managing Director of Simplex
Asia Limited, where he managed the turn around of the Asian operation of a
United States manufacturer of security and fire alarm systems. Mr. Griffin has a
BS in Electrical Engineering from California State University, which he received
in 1984, and an MBA from Pepperdine University, which he received in 1991.

Timothy Shriver has served as our Senior Vice President of Technical Operations
since July 2001. From 1999 until 2001 Mr. Shriver provided outside consulting
services to Ontario Hydro-Generation and CAMOCO, a large uranium mining and
processing company. Mr. Shriver's consulting focused on overall business
practices with particular emphasis on the implementation of quality assurance
programs and evaluation of management capabilities and practices. From 1997 to
1999, Mr. Shriver served as Director of Performance Assurance for Ontario
Hydro-Generation (OPG), where he developed and managed the implementation of the
overall Quality Program at OPG's three CANDU sites and OPG auxiliary sites
supporting the Nuclear Program (at that time, the largest in North America). His
activities also included responsibility for the development and implementation
of an integrated Corrective Action Program, a performance based Audit and
Assessment program and the development of a process oriented Quality Assurance
Manual including the establishment and maintenance of the required interface
with the federal regulator to obtain approval. Between OPG and CDEX, Mr. Shriver
consulted for other utilities' quality assurance programs.

                                       19
<PAGE>

Mr. Dials has been a director of CDEX since July 2001. Mr. Dials is currently
the Chief Operating Officer of Waste Control Specialists, a chemical waste
repository. From July 2002 until May 2003, Mr. Dials was President and CEO of
LES, LLC a company seeking a license to build a nuclear fuel enrichment
facility. From February 2001 to June 2002, Mr. Dials served as Senior Vice
President of Consulting Services for Science and Engineering Associates
responsible for its Consulting Services line of business, where he provided
executive level direction in corporate mergers and acquisitions in the
consulting area. Mr. Dials managed the engineering, and scientific studies of
Yucca Mountain as a potential geologic repository for spent nuclear fuel and
high-level radioactive waste. Responsibilities include scheduling and cost
performance, technical and administrative performance, strategic operations plan
development, and resource allocation for a $250 million project. Mr. Dials
received a B.S. in Engineering in 1967 from West Point and Masters Degrees in
Political Science and Nuclear Engineering from the Massachusetts Institute of
Technology. He served in the U.S. Army for 10 years, and was awarded the Silver
Star and Bronze Star for Valor.

Dr. Liaw has served as a director of CDEX since October 2001. Since January
2003, he has also served as Managing Director - Energy Services for Dynamic
Resolutions LLC, performing consulting services to international utilities in
Asia. Dynamic Resolutions is not affiliated with CDEX. Mr. Liaw and Mr. Philips
are sole members in Dynamic Resolutions LLC. From July 1995 to October 2002, he
served as an Advisor and from September 1996 to March 2001, as an Executive
Director, to Taiwan Power Co., an electrical utility. Dr. Liaw served for over
20 years at the U.S. Nuclear Regulatory Commission and its predecessor agency,
the Atomic Energy Commission. His work related to the high-level nuclear waste
repository and low-level waste projects. In 1986 and 1987, he was invited by
China and Taiwan, respectively, to visit Mainland China and Taiwan to assist in
establishing their nuclear safety regulatory programs. In 1985 thru 1990, Dr.
Liaw managed the NRC's regulatory oversight of the Tennessee Valley Authority's
(TVA) nuclear program, and was instrumental in bringing TVA's nuclear program
back to full regulatory compliance. Dr. Liaw represented the NRC in many
meetings, conferences and symposiums in the United States and around the world
on a wide range of issues. In 1994, Dr. Liaw accepted an invitation from the
government of Taiwan to visit and help resolve some legislators' concerns
regarding energy issues facing the country. Subsequently in 1995, Dr. Liaw
accepted a request to return to Taiwan as an advisor to the Ministry of Economic
Affairs. Dr. Liaw also served in a number of positions over the past six years,
including as an advisor to the Industrial Technology Research Institute.

John A. Knubel has a thirty-year record of experience in both Government and
Business. He served as the Chief Financial Officer of a Cabinet level Department
and has experience in the private sector in banking, insurance, mutual funds,
and other financial services. Since April 1997, John has provided management and
financial consulting services through his consulting company, Analytical
Insights and Solutions. These assignments have covered a variety of clients and
types of services in both part time and temporary full time engagements to
clients such as Virginia Tech University, The Oracle Corporation, The Kansas
Healthcare System, The Air Transportation Stabilization Board as Chief
Administrative Officer, National Center for Education and the Economy, as Chief
Financial Officer, Nye, Parnell and Emerson Capital Management, Inc. as Chief
Operating Officer; and Gilkison Patterson Investment Advisors. Prior to 1997, he
served as the U.S. Department of Housing and Urban Development Chief Financial
Officer (August 1995-April 1997). Prior to that he served as a senior advisor to
the Director of Automated Systems of the Federal Thrift Investment Board, and to
the Chief Financial Officer of the Nuclear Regulatory Commission. A Rhodes
Scholar, John holds a Master of Arts in Politics, Philosophy and Economics
(First Class Honors Degree, College Prize for Academic Excellence) from Oxford
University, Oxford, England (1966), and a Bachelor of Science in Mathematics,
With Distinction, Class of 1897 Award for Leadership, US Naval Academy (1962).

SIGNIFICANT EMPLOYEE

In addition to our executive officers and directors, Dr. Wade Poteet, our
Principal Scientist, is a significant employee of CDEX. Dr. Poteet resigned from
his employment position with the company in January 2006 and now serves on a
full-time consultancy basis continuing as the company's Principal Scientist. For
the past 30 years, Dr. Poteet has held Senior Management positions in small
entrepreneurial engineering firms. He has served as our Principal Scientist
since July 2001. From July 2001 until January 2003, Dr. Poteet was a member, and
served as Principal Scientist, of Dynamic Management Resolutions LLC, providing
scientific, management and engineering services. Dynamic Management Resolutions
was a consulting company that provided technical and management services on a
contract basis to CDEX and CDEX Delaware. From May 1999 to July 2001, Dr. Poteet
served as President/Principal Scientist for CP Systems, Inc., a private company
that, at that time, built large observatory-class telescopes and. marketed and
distributed recreational global positioning units. At CP Systems, Dr. Poteet
directed contract research in remote sensing in the x-ray and ultraviolet
regions, including landmine, anti-terrorist and drug detection programs, and
provided research and development for nanometrology technologies. From 1971 to
May 1999, Dr. Poteet served as Vice President/Principal Scientist for System
Specialists, Inc., where he directed all research and development, including
NASA airborne projects and advanced instruments for commercial and government
programs. Dr. Poteet received his Ph. D. in 1970 in Experimental Solid State
Physics from Virginia Polytechnic Institute (VPI) (Thesis topic: Nuclear
Quadrupole Resonance in Superconductors). His M.S. in Physics is also from VPI,
in 1968 (Thesis topic: Nuclear Magnetic Resonance in Superconductors).

                                       20
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The officers, directors and 10% stockholders of CDEX timely filed all reports
subject to the reporting requirements of Section 16(a) during the fiscal year
ended October 31, 2005, with the exception of Timothy Shriver who filed a Form 4
on December 1, 2005 to report sales of common stock dating to August 1, 2005.

CODE OF ETHICS

                            CDEX Inc. CODE OF ETHICS

The Board of Directors has adopted this Code of Ethics to guide the conduct of
its directors, officers and employees in the conduct of the Company's business
and financial dealings. All directors, officers and employees of the Company are
expected to be familiar with this Code of Ethics and to adhere to and apply the
principles and procedures set forth herein. The Company has designated Dr. B.D.
Liaw as the Code of Ethics Contact Person for allegations dealing with officers
and directors and Tim Shriver as the Code of Ethics Contact Person for
allegations dealing with other CDEX employees. Should you have any questions or
concerns or wish to discuss a possible violation of this Code of Ethics, you
should contact Dr. Liaw or Tim Shriver 301 881 0800 and 520-514-6393,
respectively.

The general purposes of this Code of Ethics are as follows:

o    To create a corporate culture and business environment in which the
     legitimate interests of stockholders, employees, customers and suppliers
     and other stakeholders are all fairly and openly represented and in which
     all feel, as far as possible, they are treated fairly.
o    To promote honest, open, candid and ethical conduct, including fair dealing
     and the ethical handling of actual or apparent conflicts of interest;
o    To promote full, fair, accurate, timely and understandable financial and
     other disclosure;
o    To promote compliance with applicable laws and governmental rules and
     regulations;
o    To ensure the protection of the Company's legitimate business interests,
     including corporate opportunities, assets and confidential information; and
o    To deter wrongdoing and, when it occurs, detect and swiftly deal with it
     and its consequences for the company's stakeholders fairly.

Set forth below are the specific rules governing the conduct of directors,
officers and employees which form the substance of this Code of Ethics. Each
director, officer and employee should read them carefully and commit to
upholding them in the pursuit of the Company's business and financial affairs.

I.  Honest and Candid Conduct

Each director, officer and employee must act with integrity, including being
honest and candid while still maintaining the confidentiality of information in
compliance with the Company's policies for the handling of confidential
information as outlined in more detail in the company's standard non disclosure
and non compete agreements. In addition, each director, officer and employee
must adhere to the highest standard of business ethics and observe the letter,
form and spirit of state and federal laws, as well as governmentally mandated
accounting standards and other rules and regulations.

II. Conflicts of Interest/Corporate Opportunities

A "conflict of interest" arises when an individual's personal interest or
position in the corporate management structure interferes with or is
inconsistent with the interests of the Company or with the carrying out their
duties in the best interests of the Company. A conflict of interest can arise
when a director, officer or employee takes any action outside the Company or has
any interest outside the Company that may make it difficult to perform his or
her work for the Company objectively and effectively. Even the appearance of
such a situation may create a conflict of interest. Any director, officer or
employee contemplating a material transaction or relationship which could
reasonably be expected to give rise to a conflict of interest, or the appearance
of a conflict of interest, should discuss it with the Code of Ethics Contact
Person prior to taking any action. Service to the Company should never be
subordinated to personal gain and advantage. Conflicts of interest must be
avoided and when detected they must be reported and action taken to relieve them
immediately upon detection.

The following are examples of potential cases of conflict of interest. This
list, however, is by no means exhaustive:

o    Significant ownership or other financial interest in any supplier or
     customer of the Company;
o    Any consulting, employment or other financial relationship with any
     supplier, customer or competitor of the Company;
o    Any outside business activity which detracts from an individual's ability
     to devote an appropriate amount of time and/or attention to the Company;

                                       21
<PAGE>

o    Using company assets or influence for personal use or benefit;
o    Receipt of non-nominal gifts of excessive entertainment from any company
     with which the Company has current or prospective business dealings or from
     supervised employees;
o    Selling anything to the Company or buying anything from the Company, other
     than on similar terms and conditions as would prevail in an arms-length
     transaction; or
o    Actions that would present a conflict for a director, officer or employee
     if taken by a family member with knowledge of the director, officer or
     employee.

Directors, officers and employees of the Company are prohibited from taking
(directly or indirectly) a business opportunity that is discovered through the
use of corporate property, information or position, unless the Company has
approved in writing or been offered the opportunity and declined it. Any
director, officer or employee contemplating such a transaction or business
opportunity should first discuss it with the appropriate Code of Ethics Contact.
Simply put, it is imperative that all put the company's interest first. While a
more comprehensive discussion of the Company's sexual harassment or racial
prejudice policy will be discussed in the Company's Employee Manual, in short,
the Company will not be tolerated such action or the failure to report to the
appropriate Code of Ethics Contact such action, both of which will dealt with
equally.

III. Disclosure

Every director, officer or employee who is directly involved in the Company's
financial affairs or decision-making or is part of the Company's SEC/public
disclosure process must be familiar with and comply with the Company's
disclosure controls and procedures and internal control over financial
reporting, to the extent relevant to his or her area of responsibility. This
also extends to ensuring that the Company's public disclosure documents filed
with the SEC comply in all material respects, with the applicable securities
laws and SEC rules and regulations. Such persons should consult with other
Company officials with the goal of making full, fair, timely, accurate and
understandable disclosure. Such persons must properly review and critically
analyze proposed disclosure for accuracy and completeness and must not knowingly
misrepresent, or cause others to misrepresent, facts about the Company to
others, including the Company's independent auditors, counsel or governmental or
self-regulatory organizations (such as the NASD).

IV. Compliance

It is the personal responsibility of each director, officer and employee to
uphold the Company's policy of complying with all applicable laws, rules and
regulations and to adhere to the standards and restrictions imposed thereby. It
is against Company policy and, in many circumstances, illegal for a director,
officer or employee to profit from undisclosed, nonpublic Company information.
This includes trading in the Company's securities (either directly or
indirectly) while in possession of material nonpublic information relating to
the Company. Any director, officer or employee who is uncertain about the
legality of a purchase or sale or business relationship or witnesses a violation
of this code, should immediately consult with the Code of Ethics Contact Person
who will, if appropriate, discuss the matter with the board of directors and/or
Company counsel.

V.  Reporting and Accountability

The Code of Ethics Contact Person will report all potential violations of this
Code of Ethics to the Company's CEO. With respect to allegations of Code of
Ethics violations related to employees who are not officers or directors, the
CEO will be responsible for directing an appropriate investigation and, in
conjunction with the Code of Ethics Contact Person for Employees, administering
appropriate corrective actions. The board of directors will be responsible for
directing an appropriate investigation and administering appropriate corrective
action with respect to allegations of Code of Ethics violations related to
officers or directors of the Company. The Company's board of directors is
responsible for final interpretation of the Code of Ethics. The Company will not
tolerate any delay in or failure to report or any retaliation against any other
director, officer or employee who, in good faith, reports any existing or
potential violation of this Code of Ethics. If a violation has occurred, the
Company will take such disciplinary or preventive action as it deems
appropriate. In certain cases, this may involve dismissal or notification of
appropriate governmental authorities for appropriate prosecution or other
action.

VI. Waiver

From time to time, the Company may waive one or more provisions of this Code of
Ethics. But this can only be done in writing. Any request for a waiver of any
provision of this code must be in writing and addressed to the board of
directors. Prior to submitting a request for a waiver, you should consult with
the appropriate Code of Ethics Contact Person. In certain cases, waivers of this
Code of Ethics must be reported on Form 8-K to the Securities and Exchange
Commission.

                                       22
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

The following table sets forth information regarding the remuneration of our
executive officers:

<TABLE>
<CAPTION>
                                                      ANNUAL COMPENSATION                       LONG TERM COMPENSATION
                                               ---------------------------------     ------------------------------------------
                                                                                              AWARDS                PAYOUTS
                                                                                     -------------------------    -------------
                                                                                     RESTRICTED    SECURITIES
                                       FISCAL    CASH                OTHER ANNUAL      STOCK       UNDERLYING       ALL OTHER
NAME AND PRINCIPAL POSITION             YEAR   SALARY(1)    BONUS   COMPENSATION(1)    AWARDS       OPTIONS       COMPENSATION
-----------------------------------------------------------------------------------  -------------------------    -------------
<S>                                     <C>    <C>          <C>       <C>            <C>           <C>            <C>
Malcolm Philips                         2005   $ 96,000       -       $ 204,000             -             -                -
Former CEO, President                   2004   $ 96,000       -       $ 204,000             -             -                -
Chairman of the Board of Directors      2003   $ 96,000       -       $ 206,046             -             -                -

James Griffin                           2005   $ 11,667       -       $   8,333             -       300,000 (2)            -
CEO, President                          2004   $      -       -       $       -             -             -                -
Former Chief Operating Officer          2003   $      -       -       $       -             -             -                -

Timothy D. Shriver                      2005   $ 96,000       -       $ 156,000             -             -                -
Sr. VP Technical Operations             2004   $ 96,000       -       $ 156,000             -             -                -
                                        2003   $ 96,000       -       $ 155,789             -             -                -
</TABLE>

(1) Pursuant to the terms of their Executive Services Agreements and based upon
CDEX's financial condition, the executive officers have each foregone all or a
portion of his stated salary, and has been paid instead in the form of cash and
shares of common stock. All share amounts are subject to a vesting schedule with
a risk of forfeiture in the event the employee does not remain with CDEX for the
required amount of time. See discussion under Employment Agreements below for
greater detail on the terms of employment including compensation.

(2) Represents options to purchase 300,000 shares of Class A Common Stock, 1/3
of which will vest on September 30, 2006, with 1/24th of the balance vesting on
the first day of each month (commencing November 1, 2006) for the two years
thereafter. Unless otherwise stated in the Company's Stock Option Plan, the
Stock Options must be exercised within two years of their vesting date. In the
event of a change of control in the Company (which shall be the sale of more
than 50% of the Registrant), all unvested Stock Options shall immediately vest,
effective as of the date of such change in control.

REMUNERATION OF KEY EMPLOYEES WHO ARE HIGHLY COMPENSATED

In addition to our executive officers and directors, we have one key employee in
fiscal year 2005:

<TABLE>
<CAPTION>
                                           ANNUAL COMPENSATION                      LONG TERM COMPENSATION
                                     ---------------------------------    -------------------------------------------
                                                                                   AWARDS                 PAYOUTS
                                                                          --------------------------   --------------
                                                                          RESTRICTED    SECURITIES
NAME AND PRINCIPAL           FISCAL    CASH              OTHER ANNUAL       STOCK       UNDERLYING       ALL OTHER
POSITION                      YEAR   SALARY (1)  BONUS  COMPENSATION (1)    AWARDS       OPTIONS       COMPENSATION
-----------------------------------------------------------------------   --------------------------   --------------
<S>                          <C>     <C>         <C>      <C>             <C>           <C>            <C>
Dr. Wade Poteet               2005    $ 96,000     -      $ 114,000             -              -                -
Principal Scientist           2004    $ 96,000     -      $ 114,000             -              -                -
                              2003    $ 96,000     -      $ 123,705             -              -                -
</TABLE>

(1) Pursuant to the terms of his Employment Agreement and based upon CDEX's
financial condition Dr. Poteet has foregone all or a portion of his stated
salary, and instead is compensated in the form of cash and in shares of common
stock. All share amounts are subject to a vesting schedule with a risk of
forfeiture in the event the employee does not remain with CDEX for the required
amount of time.

Dr. Poteet resigned from his employment position with the company effective
January 1, 2006 and now serves on a full-time consultancy basis, continuing as
the company's Principal Scientist.

EMPLOYMENT AGREEMENTS

The Company entered into employment agreements with Messrs. Philips and Shriver
effective January 1, 2002. The agreements each continue for an indefinite period
unless terminated by CDEX for "cause," or by the employee for "good reason" (as

                                       23
<PAGE>

such terms are defined in the agreements), or upon two weeks prior written
notice by either party to the other. The agreements provide for salaries based
on annual amounts of $300,000 for Mr. Philips and $250,000 for Mr. Shriver,
which are subject to review on an annual basis. The salary shall be payable in
equal monthly installments, unless otherwise required by applicable state law
and, based on CDEX's economic posture, may be paid in cash and/or stock, at
CDEX's option. Each agreement provides for a minimum monthly cash payment to the
employee of $7,500 for Mr. Shriver and $3,000 for Mr. Philips. CDEX has availed
itself of this option for the past three fiscal years as reflected under
"Compensation of Executive Officers." Each of these agreements provides for the
forfeiture of restricted stock granted to the employee in the event of the
employee's termination before the stock is fully vested. Under the agreements,
each employee is entitled to a severance package in the event of termination by
CDEX other than for "cause" or by the employee for "good reason." In each case,
"good reason" includes a change in management of CDEX.

The agreements with Messrs. Philips and Shriver were amended on January 1, 2003
to increase the intended minimum monthly cash payment to the employee to $8,000,
and permit CDEX to pay the entire salary in common stock if paying cash is not
in the best interest of the Company.

Mr. Philips resigned from the positions of Chief Executive Officer and President
effective January 1, 2006, and the company entered into a Settlement and
Consulting Agreement, as of said date, with an entity controlled by Mr. Philips,
for Mr. Philips's continued services as the Company's Chairman of the Board and
additional services as a consultant in order to assure a smooth and settled
transition for the Company's new Chief Executive Officer. The agreement has a
term of one year, unless extended by mutual agreement of the parties, and may be
terminated by either party on two weeks' notice. Pursuant to the agreement,
through the Consultant, for Mr. Philips's services, the Company will continue to
pay compensation of $2,500 cash per month and will also provide to the
Consultant options to purchase 150,000 free-trading shares of the Registrant's
Class A Common Stock vesting 1/3 per year for three years, as long as Mr.
Philips remains a director of the company at time of vesting. The Company will
also pay to the Consultant 350,000 free-trading shares of Class A Common Stock.

Effective January 11, 2006, the Company entered into an amendment to the
employment agreement of Mr. Shriver. The amendment to Mr. Shriver's employment
agreement provides for an annual cash salary of $180,000 as well as options
which will vest 1/3 on January 1, 2007, and 1/24th of the remainder on the first
day of each month thereafter for the following two years, as long as he is
providing to the Company substantial services pursuant to a contract with the
Company at the time of vesting. The number of options will be determined in
fiscal year 2006.

The Company entered into an employment agreement with Mr. Griffin effective
October 1, 2005. The agreement provides for an annual salary of $240,000 which
may be paid in combination of cash and stock at the Company's discretion, and a
discretionary annual performance bonus of 25% of the annual salary. Further, the
agreement provides for options to purchase 300,000 shares of Class A Common
Stock, 1/3 of which will vest on September 30, 2006, with 1/24th of the balance
vesting on the first day of each month (commencing November 1, 2006) for the two
years thereafter. Unless otherwise stated in the Company's Stock Option Plan,
the Stock Options must be exercised within two years of their vesting date. In
the event of a change of control in the Company (which shall be the sale of more
than 50% of the Registrant), all unvested Stock Options shall immediately vest,
effective as of the date of such change in control. The agreement continues for
an indefinite period unless terminated by CDEX for "cause," or by Mr. Griffin
for "good reason" (as such terms are defined in the agreements), or upon two
weeks prior written notice by either party to the other. The agreement provides
that Mr. Griffin's employment will be "at-will" and may be terminated upon two
weeks written notice by either party.

Effective January 11, 2006, the Company entered into an amendment to the
employment agreement of Mr. Griffin. The amendment provides for payment to Mr.
Griffin of an annual cash salary of $204,000 as well as options which will vest
1/3 on January 1, 2007, and 1/24th of the remainder on the first day of each
month thereafter for the following two years, as long as he is providing to the
Company substantial services pursuant to a contract with the Company at the time
of vesting. The number of options will be determined in fiscal year 2006.

STOCK INCENTIVE PLANS

2002 Stock Incentive Plan
-------------------------

On May 27, 2002, our board of directors adopted the 2002 Stock Incentive Plan,
under which stock options and restricted stock may be granted to such of our
officers, directors, employees or other persons providing services to CDEX as
our board of directors, or a committee designated by them for this purpose,
selects. The plan was approved by our stockholders on July 1, 2002.

Stock options granted under the plan may be nonqualified stock options or
incentive stock options, as provided in the plan. Incentive stock options are to
be issued in accordance with Section 422 of the Internal Revenue Code of 1986,
as amended. As such, they may only be issued to employees of CDEX or any
subsidiary of CDEX, and must have an exercise price of no less than 110% of fair

                                       24
<PAGE>

market value of the common stock on the date of the grant. The aggregate fair
market value of the underlying shares cannot exceed $100,000 for any individual
option holder during any calendar year. Also, incentive stock options must
expire no later than five years from the date of grant. Non-incentive options
are not subject to the restrictions contained in Section 422, except that
pursuant to the plan, such options cannot be exercisable at less than 85% of
fair market value and must expire no later than ten years from the date of
grant. The options are non-transferable and may not be assigned except that
non-incentive options may, in certain cases be assigned to family members of the
grantee. Upon termination of the employment (other than for cause) of a grantee
of options under this plan, the grantee shall have 60 days following such
termination, or one year if such termination results from the grantee's death or
disability (as defined in the plan), to exercise the vested portion of any
option.

Holders of options under the plan have no voting or other rights of shareholders
except and to the extent that they exercise their options and are issued the
underlying shares. Options under the plan may be exercised by the issuance of a
promissory note from the grantee, or on a cashless basis by the grantee
surrendering a portion of the shares issuable thereunder, as payment of the
exercise price in lieu of cash.

Restricted stock granted under this plan may be issued subject to any
restrictions set by our board of directors in its discretion except that the
vesting restrictions for restricted stock granted to individuals who are not
officers, directors or consultants of CDEX shall lapse no less rapidly than the
rate of 20% per year for each of the first five years from the grant date.
However, the board of directors in its discretion may shorten or eliminate the
restrictions. Generally, unless otherwise provided by the board of directors
with respect to a particular grant of restricted stock, holders of restricted
stock have the right to vote and receive dividends on their shares, including
shares not yet vested. Also, unless otherwise so provided, any unvested shares
are deemed forfeited by the grantee upon termination of such grantee's service
with CDEX.

2003 Stock Incentive Plan
-------------------------

On July 1, 2003, our shareholders adopted the 2003 Stock Incentive Plan, which
has substantially the same terms as the 2002 Stock Incentive Plan. We have
reserved 10,000,000 shares in the aggregate for issuance under both the 2002 and
2003 plans, including 3,000,000 available for the Board of Directors to allocate
to the Incentive Plan at their discretion as approved by the Shareholders at our
June 2004 Annual Meeting.

To date, we have issued 8,663,325 shares of common stock and 300,000 options
under the plans to certain of our officers, directors, consultants and
employees, which are subject to forfeiture in accordance with the vesting
schedules set forth in the granting agreements. Shares issued pursuant to the
plans, whether underlying options or as restricted stock, generally may not be
sold or transferred without the grantee first offering CDEX a right of first
refusal to purchase the shares sought to be sold.

                                       25
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth the stock ownership of: (i) each person known by
us, as of the date of this report, to be the beneficial owner of five percent
(5%) or more of our common stock, (ii) each executive officer and director,
individually, and (iii) our executive officers and directors as a group. Each
person has sole voting and investment power with respect to the shares shown,
unless otherwise indicated.

<TABLE>
<CAPTION>
Name and Address of Beneficial                                          Amount of Beneficial   Percent of
Owner (1)                    Position                Title of Class         Ownership             Class
---------------------------------------------------------------------------------------------------------
<S>                          <S>                     <C>                  <C>                  <C>
Malcolm H. Philips, Jr.      Director                Class A Common       2,535,500 (2)  (3)        7.01%
                                                     Class B Common         100,000 (4)            57.14%

James Griffin                Executive Officer       Class A Common          27,750 (2)             0.08%
                                                     Class B Common               -                    -

Timothy Shriver              Executive Officer       Class A Common       1,371,371 (2)             3.79%
                             and Director            Class B Common          40,000 (4)            22.86%

George Dials                 Director                Class A Common         180,000 (2)  (5)        0.50%
                                                     Class B Common               -                    -

Dr. BD Liaw                  Director                Class A Common         175,000 (2)  (5)        0.48%
                                                     Class B Common               -                    -

John A. Knubel               Director                Class A Common          85,000 (2)  (5)        0.23%
                                                     Class B Common               -                    -

---------------------------------------------------------------------------------------------------------
Shares of all named executives,
significant employees and directors as               Class A Common       4,374,621                12.09%
a group (6 persons)                                  Class B Common         140,000                80.00%
</TABLE>

(1) The address for each of the listed persons is c/o CDEX Inc., 1700 Rockville
Pike, Suite 400, Rockville, Maryland 20852.

(2) The stock granted to each of the above-named directors and executive
officers may be subject to a vesting schedule and risk of forfeiture. CDEX has
the option to require that any unvested shares at termination be forfeited..
Upon termination of employment/provision of service, CDEX has the option to
purchase any vested shares of the employee/service provider at fair market
value.

(3) Includes stock held by entities in which Mr. Philips has a controlling
interest.

(4) Until December 11, 2006, holders of shares of Class B Common Stock are
entitled to elect a majority of the members of CDEX's board of directors, while
the holders of the Class A Common Stock have the right to elect the remainder of
the directors. Thereafter, holders of Class A and Class B shares will be
entitled to one vote per share on any matter submitted to holders of common
stock. By virtue of their share ownership, these individuals, acting as a group,
currently control the election of our board of directors and other affairs of
CDEX.

(5) Each of Mr. George Dials and Dr. BD Liaw, as a director, was provided shares
of common stock under the terms of such director's Services Agreement with CDEX
as well as a stock bonus in 2002. Mr. Knubel, as a director, was provided 20,000
shares of common stock under terms of director's Services Agreement with CDEX
dated July 1, 2004.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company previously leased space and purchased consulting and other supplies
and services from Dynamic Management Resolutions, LLC (DMR). The owners of DMR
are executive officers and key employees and consultants of the Company. Total
expenses of the Company related to services provided by DMR were $5,760 for the
year ended October 31, 2004.

                                       26
<PAGE>

The spouse of the former Chief Executive Officer purchased one $100,000
convertible note in 2004 and one $62,000 convertible note in 2005 paying
interest at 9%. Total interest expense paid to this related party was $666 and
$483 for the years ended October 31, 2004 and 2005, respectively. The $100,000
note was redeemed at par value for cash in April 2004 and the $62,000 note was
redeemed at par value for cash in March 2005.


                                     PART IV

ITEM 13.  EXHIBITS

3.1      Amended and Restates Articles of Incorporation of the Company filed
January 2, 2004, together with Certificate of Designation of Rights, Preferences
and Privileges(1)

3.2      By-Laws of the Company adopted July 6, 2001(1)

4.1      Specimen certificate for shares of Company common stock (3)

4.2      2002 Stock Incentive Plan(1)

4.3      2003 Stock Incentive Plan(1)

4.4      Form of Securities Purchase Agreement(3)

10.1     Business Identity Program Agreement by and between the Company and
Source Office Suites, dated as of October 17, 2001(3)

10.2     Lease Agreement by and between the Company and Butterfield Center
Limited Partnership (assigned from Dynamic Management Resources), as amended on
March 4, 2004(2)

10.3     Assigned Consultant Services Agreement for Dr. Wade Poteet Restated as
Employment Agreement dated January 1, 2003 and amendments(2)

10.4     Assigned Consultant Services Agreement for Malcolm Philips Restated as
Employment Agreement dated January 1, 2002 and amendments(2)

10.5     Assigned Consultant Services Agreement for Timothy Shriver Restated as
Employment Agreement dated January 1, 2002 and amendments(2)

10.6     G. Dials Services Agreement dated August 3, 2001(3)

10.7     Dr. BD Liaw Services Agreement dated October 1, 2001(3)

10.8     Form of Non-Disclosure Agreement between the Company and each
significant employee(3)

10.9     Form of Employment Agreement(3)

10.10    Employment Agreement for James Griffin dated as of October 1, 2005

10.11    Amendment to Lease Agreement by and between the Company and Butterfield
Center Limited Partnership dated April 25, 2005.

10.12    Consulting and Severance Agreement by and between the Company and
Malcolm H. Philips, Jr.

31       Rule 13a-14(a)/15d-14(a) Certification of James Griffin.

32       Section 1350 Certification of James Griffin.

(1)      Incorporated by reference to the Company's Registration Statement on
         Form SB-2, as filed with the Securities and Exchange Commission on
         February 2, 2004.

                                       27
<PAGE>

(2)      Incorporated by reference to Amendment No. 1 to the Company's
         Registration Statement on Form SB-2, as filed with the Securities and
         Exchange Commission on May 5, 2004.

(3)      Incorporated by reference to Amendment No. 2 to the Company's
         Registration Statement on Form SB-2, as filed with the Securities and
         Exchange Commission on June 21, 2004.


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following is a summary of the fees billed to us by Aronson and Company, our
independent auditors, for audit and professional services rendered for the
fiscal years ended October 31, 2005 and 2004:


                      Description                     FY2005       FY2004
                      -----------                     ------       ------
                      Audit fees                    $ 59,300     $ 87,200
                      Other services                  38,200       50,600
                                              ----------------------------
                      Total                         $ 97,500     $137,800
                                              ----------------------------





                                       28
<PAGE>


                                    CDEX Inc.
                      Index to Audited Financial Statements
                      Years Ended October 31, 2005 and 2004


--------------------------------------------------------------------------------


                                                                            Page
Report of Independent Registered Public Accounting Firm.......................F2

Audited Financial Statements:

   Balance Sheet..............................................................F3

   Statements of Operations...................................................F4

   Statement of Changes in Stockholders' Equity ..............................F5

   Statements of Cash Flows...................................................F6

   Notes to Financial Statements..............................................F7








                                      F-1
<PAGE>

Report of Independent Registered Public Accounting Firm


Board of Directors
CDEX Inc.
Rockville, Maryland


We have audited the accompanying Balance Sheet of CDEX Inc. as of October 31,
2005, and the related Statements of Operations, Stockholders' Equity and Cash
Flows for the years ended October 31, 2004 and 2005. 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. 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,
2005, and the results of its operations and its cash flows for the years ended
October 31, 2004 and 2005 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 8 to the
financial statements, the Company incurred net losses in each year of
operations, has an accumulated deficit in excess of $19 million as of October
31, 2005, has insufficient working capital to sustain its operations over the
next year and has no committed borrowing arrangements. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding those matters also are described in Note 8. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


/s/ Aronson & Company

Rockville, Maryland
December 15, 2005, except with respect to the matters discussed in Notes 9 and
10, as to which the date is January 11, 2006







                                      F-2
<PAGE>

                                    CDEX Inc.

                      Balance Sheet as of October 31, 2005

<TABLE>
<CAPTION>
<S>                                                                          <C>
Assets
          Current assets
                 Cash and cash equivalents                                   $  1,472,242
                 Accounts receivable                                               19,629
                 Finished goods inventory                                          49,062
                 Raw materials inventory                                          202,400
                 Prepaid expenses                                                   2,845
                                                                             ------------
          Total current assets                                                  1,746,178

          Property and equipment
                 Laboratory and computer equipment                                603,276
                 Furniture and fixtures                                             1,666
                 Building improvements                                              1,265
                                                                             ------------
          Total property and equipment                                            606,206
                 Less: Accumulated depreciation                                  (571,374)
                                                                             ------------
          Net property and equipment                                               34,833

          Other assets                                                              2,499
                                                                             ------------
Total Assets                                                                 $  1,783,510
                                                                             ============

Liabilities and Stockholders' Equity

          Current Liabilities
                 Accounts payable and accrued expenses                       $    177,551
                 Deferred stock compensation                                      780,513
                 Customer deposits                                                 37,934
                 Deferred revenue                                                  10,967
                 Deferred rent                                                      8,567
                                                                             ------------
          Total Current Liabilties                                              1,015,531

Commitments and Contingencies

Stockholders' Equity
          Preferred Stock - $.005 par value per share, 3,000,000
                 shares authorized and none outstanding                                 -
          Class A common stock - $.005 par value per share, 36,500,000
                 shares authorized and 35,679,971 outstanding                     178,404
          Class B common stock - $.005 par value per share, 500,000
                 shares authorized and 175,000 outstanding                            875
          Additional paid in capital                                           20,435,268
          Deferred stock compensation                                             (72,536)
          Accumulated deficit                                                 (19,774,033)
                                                                             ------------
Total Stockholders' Equity                                                        767,978
                                                                             ------------
Total Liabilities and Stockholders' Equity                                   $  1,783,510
                                                                             ============
</TABLE>



The accompanying Notes to Financial Statements are an integral part of these
financial statements.


                                      F-3
<PAGE>

                                    CDEX Inc.

                            Statements of Operations

<TABLE>
<CAPTION>

                                                 Year Ended October 31
                                                 2004            2005
                                             ------------    ------------
<S>                                          <C>             <C>
Revenue                                      $      4,069    $    178,607

Cost of Revenue                                         -          85,481
                                             ------------    ------------

Gross Profit                                        4,069          93,125

Operating Expenses
       Development costs                        2,582,294       2,421,875
       General and administrative expenses      2,359,939       2,896,336
                                             ------------    ------------
Total Operating Expenses                        4,942,234       5,318,211

Loss From Operations                           (4,938,165)     (5,225,086)

Other Income (Expense)
       Interest income                              1,714           4,070
       Related party interest expense                (666)           (483)
       Interest expense                        (1,040,867)              -
                                             ------------    ------------
Total Other (Expense) Income                   (1,039,820)          3,587
                                             ------------    ------------
Net Loss                                     $ (5,977,984)   $ (5,221,499)
                                             ============    ============

Basic and diluted net loss
       per common share:                     $      (0.24)   $      (0.16)

Basic and diluted weighted average
       common shares oustanding                24,541,702      31,988,808
</TABLE>



The accompanying Notes to Financial Statements are an integral part of these
financial statements.


                                      F-4
<PAGE>

                                    CDEX Inc.

                  Statement of Changes in Stockholders' Equity


<TABLE>
<CAPTION>
                                                          Shares of         Shares of                          Class B
                                                           Class A           Class B          Class A          Common
                                                         Common Stock      Common Stock     Common Stock        Stock
------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>            <C>              <C>
Balance, October 31, 2003                                 23,175,505          220,000        $  115,878       $    1,100
------------------------------------------------------------------------------------------------------------------------

Sale of common stock for cash                                103,335                -               517                -
Warrants issued in connection with convertible debt                -                -                 -
Conversion of debentures into common stock                 4,020,258                -            20,105                -
Shares issued for compensation                             1,793,520                -             8,968                -
Payment of common stock subscribed                                 -                -                 -                -
Remeasurement of compensation expense                              -                -                 -                -
Amortization of deferred compensation expense                      -                -                 -                -
Net loss                                                           -                -                 -                -

------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 2004                                 29,092,618          220,000        $  145,468       $    1,100
------------------------------------------------------------------------------------------------------------------------

Sale of common stock for cash                              3,232,366                -            16,161                -
Exercise of warrants for common stock                      1,190,340                -             5,952                -
Conversion of debentures into common stock                   296,667                -             1,483                -
Shares issued for compensation                             1,822,980                -             9,115                -
Exchange of Class B for Class A common stock                  45,000          (45,000)              225             (225)
Remeasurement of compensation expense                              -                -                 -                -
Amortization of deferred compensation expense                      -                -                 -                -
Net loss                                                           -                -                 -                -

------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 2005                                 35,679,971          175,000        $  178,404       $      875
========================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                                         Stock
                                                     Additional Paid-    Deferred       Accumulated   Subscription
                                                        in Capital     Compensation       Deficit      Receivable       Total
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>             <C>             <C>          <C>
Balance, October 31, 2003                              $ 10,818,200    $ (1,620,737)   $ (8,574,549)   $  (2,500)   $    737,392
---------------------------------------------------------------------------------------------------------------------------------

Sale of common stock for cash                               149,484               -               -            -         150,001
Warrants issued in connection with convertible debt       1,009,685               -               -            -       1,009,685
Conversion of debentures into common stock                2,220,186               -               -            -       2,240,291
Shares issued for compensation                              919,325        (382,581)              -            -         545,711
Payment of common stock subscribed                                -               -               -        2,500           2,500
Remeasurement of compensation expense                      (119,494)        119,494               -            -               -
Amortization of deferred compensation expense                     -       1,722,568               -            -       1,722,568
Net loss                                                          -               -      (5,977,984)           -      (5,977,984)

---------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 2004                              $ 14,997,386    $   (161,257)   $(14,552,533)   $       -    $    430,164
---------------------------------------------------------------------------------------------------------------------------------

Sale of common stock for cash                             2,617,338               -               -            -       2,633,500
Exercise of warrants for common stock                       886,798               -               -            -         892,750
Conversion of debentures into common stock                   87,517               -               -            -          89,000
Shares issued for compensation                            1,726,462               -               -            -       1,735,577
Exchange of Class B for Class A common stock                      -               -               -            -               -
Remeasurement of compensation expense                       119,767        (119,767)              -            -               -
Amortization of deferred compensation expense                     -         208,488               -            -         208,488
Net loss                                                          -               -      (5,221,499)           -      (5,221,499)

---------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 2005                              $ 20,435,268    $    (72,536)   $(19,774,033)   $       -    $    767,978
================================================================================================================================
</TABLE>



The accompanying Notes to Financial Statements are an integral part of these
financial statements.


                                      F-5
<PAGE>

                                    CDEX Inc.

                            Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                Year Ended
                                                                                October 31
                                                                         2004               2005
                                                                      -----------        -----------
<S>                                                                   <C>                <C>
Cash Flows from Operating Activities
        Net loss                                                      $(5,977,984)       $(5,221,499)
        Adjustments to reconcile net loss to cash used by
               operating activities
                      Depreciation                                        297,437             16,760
                      Stock compensation                                2,268,280          2,724,578
                      Noncash interest                                  1,041,124                  -
               Changes in operating assets and liabilities
                      Inventory                                          (146,149)          (105,314)
                      Accounts receivable                                  89,937            (19,629)
                      Prepaid expenses                                     (2,377)             1,148
                      Other assets                                          1,256             (1,100)
                      Current liabilities                                 223,210             (7,331)
                                                                      -----------        -----------
Net cash used by operating activities                                  (2,205,265)        (2,612,385)

Cash Flows from Investing Activities
        Purchase of property and equipment                                (24,524)            (2,108)
                                                                      -----------        -----------
Net cash used by investing activities                                     (24,524)            (2,108)

Cash Flows from Financing Activities
        Proceeds from sale of common stock                                152,501          3,526,250
        Proceeds from convertible notes payable                         2,205,850             89,000
        Proceeds from related party convertible notes payable             100,000             62,000
        Repayment of related party convertible notes payable             (100,000)           (62,000)
                                                                      -----------        -----------
Net cash provided by financing activities                               2,358,351          3,615,250
                                                                      -----------        -----------

Net increase in cash                                                      128,562          1,000,757

Cash and cash equivalents, beginning of the period                        342,923            471,485

                                                                      -----------        -----------
Cash and cash equivalents, end of the period                          $   471,485        $ 1,472,242
                                                                      ===========        ===========


Supplemental Cash Flow Information
        Actual cash payments for interest                             $       471        $       483
        Conversion of convertible notes payable to common stock       $ 2,240,291        $    89,000
        Common stock issued in non-cash transactions                  $   928,293        $ 1,735,577
        Conversion of Class B to Class A common stock                 $         -        $    49,500
</TABLE>



The accompanying Notes to Financial Statements are an integral part of these
financial statements.


                                      F-6
<PAGE>

1. Organization     Basis of presentation: CDEX Inc. (the Company), incorporated
   and significant  under the laws of the State of Nevada on July 6, 2001
   accounting       (inception), began operations in July 2001 by acquiring the
   policies         assets listed below along with chemical detection
                    technology, nanometrology, technical processes and
                    intellectual property rights from Loch Harris, Inc. in
                    exchange for 13,865,000 shares of Class A common stock. The
                    transaction is considered a reorganization of affiliated
                    entities and hence the assets acquired are valued at the
                    historical cost of the transferor. As the intangible assets
                    had no historical cost basis on the books of the transferor,
                    they are carried at a zero cost value on the Company's
                    books. Tangible assets acquired were:

                    Cash                                $  73,000
                    Other receivables                       7,000
                    Property and equipment, net           366,099

                    On March 1, 2002, 200,000 shares issued as described above
                    were returned to the Company in exchange for its payment of
                    $57,000 of liabilities of the transferor related to legal
                    and professional services performed.

                    Stock-Based Compensation: The Company follows SFAS No. 123,
                    Accounting for Stock-Based Compensation. In accounting for
                    stock options, as permitted by SFAS No. 123, the Company
                    will account for stock-based compensation to employees in
                    accordance with Accounting Principles Board (APB) Opinion
                    No. 25 Accounting for Stock Issued to Employees, and
                    accordingly recognize compensation expense for fixed stock
                    option grants only when the exercise price is less than the
                    fair value of the shares on the date of the grant.

                    The following table illustrates the effect on net loss if
                    the Company had applied the fair value recognition
                    provisions of SFAS No. 123 to stock-based compensation:

<TABLE>
<CAPTION>

                                                                            2004             2005
                                                                            ----             ----
<S>                                                                   <C>              <C>
                    Reported net loss                                 $(5,977,984)     $(5,221,499)
                    Add:  Noncash  stock  compensation  included in
                    reported net loss                                   2,268,280        2,724,578
                    Deduct:   Total  noncash   stock   compensation
                    expense   determined  under  fair  value  based
                    method for all awards                              (2,268,280)      (2,730,578)
                                                                     ------------------------------
                    Pro forma net loss                                $(5,977,984)     $(5,227,499)
                                                                     ------------------------------
</TABLE>

                    The effect of applying SFAS No. 123 on a pro forma net
                    income (loss) as stated above is not necessarily
                    representative of the effects on reported net income (loss)
                    for future years due to, among other things, the vesting
                    period of the stock options and the fair value of additional
                    options to be granted in the future years.

                    The weighted-average fair value of options granted during
                    2005 was $216,000. The fair value of each option is
                    estimated on the date of grant using the Black-Scholes
                    option-pricing model with the following assumptions used for
                    grants issued during the year ended October 31, 2005:
                    volatility of 75%; dividend yield of 0%; average risk-free
                    interest rate of 3.8%, and; expected term of 5 years.


                                      F-7
<PAGE>

                    Revenue recognition: In fiscal year 2004, development
                    contract revenue represents fees earned in connection with
                    two development contracts that were awarded to the Company
                    to complete initial testing and research on a time and
                    material basis. Revenue from these contracts was recognized
                    as the testing and research was performed at contractually
                    agreed upon billing rates. In fiscal year 2005, revenue
                    recognized represents amounts earned for products and
                    services. Revenue is recognized at contractually agreed upon
                    rates in the fiscal period in which products are delivered
                    to customers and services are performed. Revenue is not
                    recognized for amounts not due pending customer acceptance
                    of the product.

                    In fiscal year 2005, revenue was recognized from sales to 4
                    customers.

                    Reclassifications: Certain fiscal year 2004 amounts have
                    been reclassified to conform to the current year
                    presentation.

                    Cash and cash equivalents: The Company maintains cash
                    balances that may exceed Federally insured limits. The
                    Company does not believe that this results in any
                    significant credit risk. The Company considers all highly
                    liquid investments with original maturities of 90 days or
                    less to be cash equivalents.

                    Use of accounting estimates: The preparation of financial
                    statements in conformity with generally accepted accounting
                    principles requires management to make estimates and
                    assumptions that affect the reported amounts of assets and
                    liabilities and disclosure of contingent assets and
                    liabilities at the date of the financial statements and the
                    reported amounts of revenues and expenses during the
                    reporting period. Actual results could differ from those
                    estimates.

                    Property and equipment: Property and equipment are stated at
                    historical cost and are depreciated using the straight-line
                    method over the estimated useful lives of the related
                    assets, ranging from two to seven years. Depreciation
                    expense was $297,437 and $16,760 for the years ended October
                    31, 2004 and 2005, respectively.

                    Inventory: Inventory consists of component parts and
                    finished goods carried at the lower of invoice cost (average
                    cost basis) or market.

                    Income taxes: The Company files its income tax returns on
                    the cash basis of accounting, whereby revenue is recognized
                    when received and expenses are deducted when paid. To the
                    extent that items of income or expense are recognized in
                    different periods for income tax and financial reporting
                    purposes, deferred income taxes are provided to give effect
                    to these temporary differences. Deferred tax assets and
                    liabilities are recognized for the future tax consequences
                    attributable to differences between the financial statement
                    carrying amounts of assets and liabilities and their
                    respective tax bases. Deferred tax assets and liabilities
                    are measured by applying presently enacted statutory tax
                    rates, which are applicable to the future years in which
                    deferred tax assets or liabilities are expected to be
                    settled or realized, to the differences between the
                    financial statement carrying amounts and the tax bases of
                    existing assets and liabilities. The effect of a change in
                    tax rates on deferred tax assets and liabilities is
                    recognized in operations in the period that the tax rate is
                    enacted.

                    As the Company has not yet achieved profitable operations,
                    no tax benefit has been reflected in the statement of
                    operations and a valuation allowance has been established
                    reducing the net carrying value of the deferred tax asset to
                    zero.

                    Advertising and marketing costs: The cost of advertising and
                    marketing is expensed as incurred. Advertising and marketing
                    expense was $78,218 and $52,142 for the years ended October
                    31, 2004 and 2005, respectively.


                                      F-8
<PAGE>

                    Research and development: Total research and development
                    costs include labor and stock compensation for employees and
                    contractors, rent, professional services, materials, lab
                    equipment and disposals. These costs are expensed on the
                    accompanying Statements of Operations as development costs.

                    Fair Value of Financial instruments: The carrying amounts of
                    items reflected in current assets and current liabilities
                    approximate their fair value due to the short-term nature of
                    their underlying terms.

                    Risks, Uncertainties and Concentrations: Financial
                    instruments that potentially subject the Company to
                    significant concentration of credit risk consist primarily
                    of cash equivalents and accounts receivable. In addition, at
                    times the Company's cash balances exceed federally insured
                    amounts

                    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.

2. Related party    The Company previously leased space (see Note 7) and
   transactions     purchased consulting and other supplies and services from
                    Dynamic Management Resolutions, LLC (DMR). The owners of DMR
                    are the executive officers and key employees and consultants
                    of the Company. Total expenses of the Company related to
                    services provided by DMR were $5,760 for the year ended
                    October 31, 2004.

                    The spouse of the former Chief Executive Officer purchased
                    one $100,000 convertible note in 2004 and one $62,000
                    convertible note in 2005 paying interest at 9%. Total
                    interest expense paid to this related party was $666 and
                    $483 for the years ended October 31, 2004 and 2005,
                    respectively. The $100,000 note was redeemed at par value
                    for cash in April 2004 and the $62,000 note was redeemed at
                    par value for cash in March 2005.





                                      F-9
<PAGE>

3. New accounting   In December 2004, the FASB issued SFAS No. 123 (revised
   standards        2004), Accounting for Share-Based Payments ("SFAS123(R)").
                    SFAS 123(R) requires that the compensation cost relating to
                    share-based payment transactions be recognized in financial
                    statements, with the cost measured based on the estimated
                    fair value of the equity or liability instruments issued. We
                    are required to apply SFAS 123(R) as of the first annual
                    reporting period that begins after December 15, 2005;
                    therefore, we will adopt the new requirements beginning with
                    our fiscal year 2007 as of November 1, 2006. As a result, we
                    expect to record non-cash, stock based compensation expense,
                    which will have a material effect on our future results of
                    operations. Prior to October 1, 2005, the Company had not
                    used options as compensation and hence this pronouncement
                    would not have had a material impact on previously reported
                    results. We are studying the specific impact of adoption,
                    which includes our decision of whether to adopt the
                    requirements on a prospective or retrospective basis and the
                    specific methods for valuation.

                    In May 2005, the FASB issued Statement No. 154, Accounting
                    Changes and Error Corrections - a replacement of APB Opinion
                    No. 20 and FASB Statement No. 3. This Statement replaces APB
                    Opinion No. 20, Accounting Changes, and Statement No. 3,
                    Reporting Accounting Changes in Interim Financial
                    Statements, and changes the requirements for the accounting
                    and reporting of a change in accounting principle. This
                    Statement requires changes in accounting principle to be
                    retrospectively applied to the prior periods presented in
                    the financial statements, unless it is impracticable to
                    determine either the period-specific effects or the
                    cumulative effect of the change. This Statement applies to
                    all voluntary changes in accounting principles and also
                    applies to changes required by an accounting pronouncement
                    in the unusual instance that the pronouncement does not
                    include specific transition provisions. This Statement also
                    carries forward, without substantive change, the provisions
                    for the correction of an error from APB Opinion No. 20.
                    Statement No. 154 is effective for accounting changes and
                    corrections of errors made after December 31, 2005.






                                      F-10
<PAGE>

4. Income taxes     The benefit from income taxes reflected in the accompanying
                    financial statements, all of which is deferred, varies from
                    the amounts which would have been computed using statutory
                    rates as follows (000's):
<TABLE>
<CAPTION>

                                                              Year Ended October 31,
                                                             -------------------------
                                                              2004             2005
                    ------------------------------------------------------------------
<S>                                                        <C>                <C>
                    Federal income taxes at the maximum    $ 2,032            $ 1,775
                       statutory rate
                    State income taxes, net of Federal
                       tax effect                              275                210
                    Difference in valuation of stock
                       based compensation                   (1,548)                 -
                    Increase in valuation allowance           (759)            (1,985)
                    ------------------------------------------------------------------

                    Benefit from income taxes              $     -            $     -
                    -------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                    Deferred income taxes were as follows as of October 31:
                                                                               2004            2005
                    ------------------------------------------------------------------------------------
<S>                                                                           <C>            <C>
                    Stock based compensation                                  $   896        $  1,353
                    Fixed asset basis difference                                   97              79
                    Receivables excluded from income for income tax
                       reporting purposes                                           -              (8)

                    Accounts payable and accrued expenses deducted for
                       financial statement reporting purposes, but not for
                       income tax reporting purposes                               91              91

                    Net operating loss carryforward                             1,776           3,330
                    ------------------------------------------------------------------------------------

                    Deferred tax asset                                        $ 2,860         $ 4,845

                    Valuation allowance                                       $(2,860)        $(4,845)
                    ------------------------------------------------------------------------------------

                    Total                                                     $     -         $     -
                    ------------------------------------------------------------------------------------
</TABLE>

                    For income tax purposes, the Company has net operating loss
                    carryforwards of approximately $8.6 million at October 31,
                    2005 that, subject to applicable limitations, may be applied
                    against future taxable income. If not utilized, the net
                    operating loss carryforwards will expire between 2022 and
                    2025.

5. Restricted stock Compensation in the form of restricted stock grants is
   grants for       recorded at fair value. The Company has provided restricted
   services         stock grants to employees and consultants as the principal
                    element of their compensation. The Company determines
                    compensation expense as the fair value, at the measurement
                    date, of the service received or the common stock issued,
                    whichever is more reliably determinable. Fair value is
                    determined using the following policies:

                    o    For consulting agreements issued in 2004 and 2005, the
                         fair value was determined using the weighted average
                         value of the proceeds per share received from sales of
                         common stock to unaffiliated purchasers during that
                         year.



                                      F-11
<PAGE>


                    o    The Company has also utilized employment and consulting
                         agreements which combine cash and stock elements of
                         compensation, where a fixed dollar value of stock is
                         awarded to settle noncash compensation. For such stock
                         awards through May 2005, the fair value of the services
                         is determined based on the number of shares issued
                         valued at the weighted average value of the proceeds
                         per share received from sales of common stock to
                         unaffiliated purchasers during the compensation period.
                         For stock awards from June 2005 through October 2005,
                         the fair value of the services is determined based on
                         the number of shares issued valued at the closing price
                         of the company's Class A common shares on the
                         Over-The-Counter Bulletin Board ("OTCBB").

                    In the case of employees, the measurement date is the date
                    of grant. In the case of outside consultants, the
                    measurement date is the date at which their performance is
                    complete. This total cost is first reflected as deferred
                    compensation in stockholders' equity and then amortized to
                    compensation expense on a straight-line basis over the
                    period over which the services are performed. When the fair
                    value of the common stock is used and the measurement date
                    is not the date of grant, the total cost is remeasured at
                    the end of each reporting period based on the fair market
                    value on that date, and the amortization is adjusted. The
                    Company issued additional consulting agreements in 2004 and
                    2005 which were also accounted for using the fair value of
                    the common stock to value the compensation cost. The
                    compensation cost is remeasured at the fair value as of the
                    end of each reporting period and the deferred compensation
                    account is adjusted.

                    The Company granted 1,793,520 and 1,822,980 Class A shares
                    of common stock to employees and consultants during the
                    years ended October 31, 2004 and 2005, respectively.

                    The Company has two separate stock plans--the 2002 and 2003
                    Stock Incentive Plans. Both plans provide for the issuance
                    of stock options and stock grants. The 2002 Plan permits the
                    issue of up to 3,250,000 shares through June 30, 2008. The
                    2003 Plan permits the issue of up to 10,000,000 shares
                    (after subtracting any shares issued under the 2002 Plan)
                    through June 30, 2013. A total of 1,793,520 shares with a
                    fair value of $928,293 were issued during the year ended
                    October 31, 2004, and 1,822,980 shares with a fair value of
                    $1,735,577 and 300,000 options were issued during the year
                    ended October 31, 2005. The 2003 Plan also provides for
                    specific numbers of shares to be awarded upon the
                    achievement of defined scientific and sales-related
                    milestones.

                    Restricted stock and stock option activity under the Plans
                    is as follows:
                     Balance October 31, 2003                  5,102,257
                        Granted                                1,793,520
                        Forfeited                                (68,589)
                                                            ---------------
                     Balance October 31, 2004                  6,827,188
                                                            ---------------
                        Granted                                2,122,980
                        Forfeited                                      0
                                                            ---------------
                     Balance October 31, 2005                  8,950,168
                                                            ---------------

                    Expense for the deferred compensation balance of $72,536 at
                    October 31, 2005 is expected to be recognized as follows:
                    $62,266 in fiscal year 2006 and $10,270 in fiscal year 2007.

                    Total compensation expense related to stock awards for
                    employees and consultants was $2,268,280 and $2,724,578 for
                    the years ended October 31, 2004 and 2005, respectively.
                    Upon termination, the Company has the option to purchase any
                    vested shares from the employees at fair market value.
                    Shares granted to employees and consultants generally vest
                    over periods of 8 months to 3 years.

                                      F-12
<PAGE>

                    Effective October 1, 2005, the Company entered in an
                    employment agreement with an executive officer that provides
                    for the issuance of an option to purchase 300,000 shares of
                    Class A Common Stock at an exercise price of $1.14 per share
                    (the fair value of the shares on the date of the grant), 1/3
                    of which will vest on September 30, 2006, with 1/24th of the
                    balance vesting on the first day of each month (commencing
                    November 1, 2006) for the two years thereafter.

                    There were no options outstanding prior to this grant, and
                    all 300,000 remain outstanding at October 31, 2005. None are
                    exercisable at that date, and the options expire by
                    September 30, 2010. The fair value of the options on the
                    date of the grant was $0.72 per share, as determined under
                    the Black-Scholes method.

6. Stockholders'    The holders of shares of Class B Common Stock shall, as a
   equity           class, be entitled to vote to elect a majority of the
                    members of the Company's Board of Directors through December
                    11, 2006. Holders of shares of Class A Common Stock shall,
                    as a class, be entitled to vote to elect the remainder of
                    the members of the Company's Board of Directors through
                    December 11, 2006. Following that, holders of Class A Common
                    Stock and Class B Common Stock shall be entitled to one vote
                    per share on matters relating to the election of the
                    Company's Board of Directors. Holders of Class A Common
                    Stock and Class B Common Stock shall be entitled to one vote
                    per share on all other matters to be voted upon by the
                    stockholders of the Company.



                                      F-13
<PAGE>


                    In fiscal year 2004, the Company primarily raised capital by
                    issuing convertible promissory notes, which were converted
                    by the investors into shares of Class A common stock. A
                    majority of the convertible promissory notes were sold with
                    detachable warrants, which were exercised in fiscal years
                    2004 and 2005.

                    During the fiscal year ended October 31, 2005, the Company
                    received $3,615,250 in funding for 4,719,373 shares of Class
                    A common stock at an average price of approximately $.77 per
                    share. The funding comprised:

                    o $1,500,000 from the sale of 1,825,000 shares of common
                    stock to Baxa, at an average price of approximately $0.82
                    per share. In addition, the Company issued to Baxa a
                    warrant, exercisable through July 28, 2006, to purchase up
                    to 1,216,000 shares of its common stock at a price of $0.822
                    per share.

                    o $1,133,500 from the sale of 1,407,366 shares of common
                    stock, at an average price of approximately $0.81 per share.

                    o $892,750 from the exercise of warrants into 1,190,340
                    shares of common stock, at an average price of approximately
                    $.75 per share.

                    o $89,000 from the sale of convertible promissory notes. All
                    of the investors elected to convert the notes into 296,667
                    shares of common stock, at an average price of approximately
                    $0.30 per share.

                    The Company follows the requirements of EITF 00-27 in
                    recording the discount on the convertible notes associated
                    with both the value of the detachable warrants and the
                    intrinsic value of the embedded conversion option based on
                    the "effective conversion price" as defined in EITF 00-27.
                    The warrants were valued using the Black-Scholes model with
                    the following assumptions: no dividend yield, warrant life
                    of one year, volatility of 75%, interest rate of 1.04%. As
                    of October 31, 2004, the detachable warrants had a relative
                    fair market value of $504,843, leaving $1,204,907 of debt at
                    its relative fair market value which is convertible into
                    2,279,672 shares, resulting in an effective conversion price
                    of $.529 per share. The intrinsic value of $.221 per share
                    (the difference between the effective conversion price of
                    $.529 and the fair value of the common stock of $.75 per
                    share) for 2,279,672 shares results in a further discount
                    for the beneficial conversion feature of $504,843. The total
                    debt discount is amortized to interest expense over the life
                    of the notes and is fully recognized as interest expense
                    upon conversion. The Company recognized $1,009,686 as
                    interest expense for debt discount in fiscal year 2004.


7. Leases           The Company is obligated under a six month lease, as lessee,
                    for office space in Maryland. The lease provides for monthly
                    rent of approximately $1,175. Total rent expense was $2,100
                    and $12,100 for the years ended October 31, 2004 and 2005,
                    respectively.

                    The Company leases office and laboratory space in Arizona.
                    The Company previously subleased this space from Dynamic
                    Management Resolutions, LLC (see Note 2) until March 5,
                    2004, when the lease was assigned from Dynamic Management
                    Resolutions to the Company. The lease expires April 30,
                    2009, has non-cancelable lease payments into 2006, and
                    provides for monthly rent of approximately $2,930 with 3%
                    annual escalations. The lease was amended in fiscal year
                    2005 to provide for additional space. The amendment expires
                    December 31, 2007, has non-cancelable lease payments into
                    2007, and provides for monthly rent of approximately $2,630
                    with 4% annual escalations. Total rent expense was $16,929
                    and $43,884 for the years ended October 31, 2004 and 2005,
                    respectively.


                                      F-14
<PAGE>


                    The future minimum lease payments required under operating
                    leases that have an initial non-cancelable lease term
                    greater than one year as of October 31, 2005 are as follows:

                    Year Ending
                    October 31,                                  Amount
                    --------------------------------------------------------
                       2006                                     $ 48,850
                       2007                                        8,530
                    --------------------------------------------------------
                       Total                                    $ 57,380
                    ========================================================

8. Financial        The Company has incurred losses since its inception of
   condition        approximately $19,800,000 and has had limited product sales
                    from its inception through fiscal year 2005. 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. In addition, the Company
                    intends to continue its policy of paying significant
                    portions of compensation with its common stock. 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 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
                    existing cash balance will fund approximately 6 months of
                    operations if no additional cash is raised. The Company
                    anticipates it will require approximately $1,500,000 to
                    satisfy our current budgetary projections, which include
                    substantial payments for the component parts associated with
                    assembly of our products. The Company's continued
                    operations, as well as the implementation of our business
                    plan, therefore 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 the 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 noncurrent assets may be substantially less
                    than the balances reflected in the financial statements and
                    the Company may be unable to pay its creditors.

9.  Commitments     The Company has entered into employment agreements with its
                    two senior employees. The contracts provide for annual cash
                    compensation of $384,000 and options to purchase shares of
                    common stock. The agreements provide for accelerated vesting
                    of options in the event of termination other than cause.
                    There are no severance provisions due under the agreements.

10. Subsequent      Subsequent to October 31, 2005, the Company issued 13,157
    events          shares to an employee for deferred stock compensation.

                                      F-15
<PAGE>


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 January 30, 2006.

                                    CDEX INC.




                              By: /s/ James Griffin
                                  ----------------------
                                  Name: James Griffin
                                  Title: Chief Executive
                                  Officer/President

                                POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose signature
appears below constitutes and appoints James Griffin, as such person's true and
lawful attorney-in-fact and agent, with full powers of substitution and
re-substitution, for such person in name, place and stead, to sign in any and
all amendments to this report on Form 10-KSB, in any and all capacities, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agents, and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that such attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons in the capacities and on the dates stated.




NAME                                   TITLE                         DATE
----                                   -----                         ----

/s/ James Griffin            CHIEF EXECUTIVE OFFICER/          January 30, 2006
------------------------     PRESIDENT (PRINCIPAL
JAMES GRIFFIN                FINANCIAL AND ACCOUNTING OFFICER)

/s/ Timothy Shriver          SR. VICE PRESIDENT OF             January 30, 2006
------------------------     MANUFACTURING OPERATIONS/DIRECTOR
TIMOTHY SHRIVER

/s/ Malcolm H. Philips       CHAIRMAN OF THE BOARD             January 30, 2006
------------------------     OF DIRECTORS
MALCOLM H. PHILIPS JR.

/s/ George Dials             DIRECTOR                          January 30, 2006
------------------------
GEORGE DIALS

/s/ Dr. BD Liaw              DIRECTOR                          January 30, 2006
------------------------
DR. BD LIAW

/s/ John A. Knubel           DIRECTOR                          January 30, 2006
------------------------
JOHN A. KNUBEL



                                       29