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, 2006

              |_| 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.)

                      4555 South Palo Verde Road, Suite 125
                             Tucson, Arizona, 85714
                                  520-514-6393
     (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: $283,385.

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 29,
2007 was 39,299,660 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, 2006
<TABLE>
<CAPTION>

INDEX
                                                                                                                                Page
<S>                                                                                                                             <C>
Part I

      Item 1.     Description of Business.........................................................................................3
      Item 2.     Description of Property.........................................................................................8
      Item 3.     Legal Proceedings...............................................................................................8
      Item 4.     Submission of Matters to a Vote of Security Holders.............................................................8

Part II

      Item 5.     Market for Common Equity and Related Stockholder Matters........................................................8
      Item 6.     Management's Discussion and Analysis of Financial Condition or Plan of Operation................................9
      Item 7.     Financial Statements............................................................................................17
      Item 8.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................17
      Item 8A.    Controls and Procedures.........................................................................................17
      Item 8B.    Other Information...............................................................................................18

Part III

      Item 9.     Directors and Executive Officers of the Registrant..............................................................18
      Item 10.    Executive Compensation..........................................................................................22
      Item 11.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..................24
      Item 12.    Certain Relationships and Related Transactions..................................................................25

Part IV

      Item 13.    Exhibits, Lists and Reports on Form 8-K.........................................................................25
      Item 14.    Principal Accountant Fees and Services..........................................................................26

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

Signatures........................................................................................................................27
</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 is currently applying its
patented and patents pending chemical detection technologies to develop products
in the healthcare, security, and brand protection markets. CDEX is a public
company and its common stock is traded on the OTC 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 and research and development
laboratories in Tucson, Arizona.

Currently, CDEX is focused in three distinct markets:

     1.   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);

     2.   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

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

OUR TECHNOLOGY

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

CDEX creates reference signatures of substances of interest, such as selected
narcotics, explosive compounds, ingredients of chemical agents, medicines,
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 in the Company database.

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. 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.


                                       3
<PAGE>

PRODUCTS

We are currently focusing our resources on developing real-time (within seconds)
chemical detection products using proprietary, patented and patents pending
technologies. While our primary area of focus for 2006 was products in the
medical markets, we did continue research and development on several other
potential products areas. For example, in our laboratories, CDEX was able to
identify and discriminate between a wide range a substances at varying ranges
(e.g., methamphetamine, explosives, and medications) in a wide range of
environments (e.g., 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 - The Company has under development, from "proof of
concept" to prototype, several product concepts aimed at providing expanded
market opportunities for the Company's technology:

          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. We are in Beta Test
               Cycles with this product and we are seeking partners to finalize
               commercialization and take this product to market.

          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.

          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 seeking potential
               partners to further the expansion, development, and
               commercialization of this product.


2006, Year in Review
--------------------

The Company's activities during 2006 were driven by the funds available to
pursue the operational plans of the Company. The year started with a program of
aggressive development, marketing and research efforts on a broad front. The
program was dependent upon achieving our investment goals to support aggressive
efforts on multiple fronts. When the investment funding goals were not achieved,


                                       4
<PAGE>

the Company began scaling back its efforts and focused on refining products and
developing signatures in the medical market and developing a prototype
methamphetamine detection unit. While the Company did not progress as broadly as
hoped in 2006, there were a number of positive aspects, including increased
refinement of the ValiMed(TM) product line based on end user feedback and the
start of the beta testing cycle for the methamphetamine detection unit. Further,
the Company earned revenue of $283,385 and received $918,562 in customer
payments in fiscal 2006, by far the largest in the Company's history. In
addition, the company received $225,000 in investment funding in January, 2007,
and has entered into agreements for additional funding with payments scheduled
to begin in the second quarter of fiscal 2007. On January 9, 2007 the Company
held a special meeting of shareholders at which time the shareholders voted to
increase the authorized Class A common shares of stock from 50.2 million to 100
million. The additional shares of stock will facilitate future fund raising
activities of the Company.

In December 2006, the Company announced that it was consolidating its activities
in Tucson, Arizona and closing its Maryland office. As part of this
consolidation the CEO, Mr. Jim Griffin left the Company and Mr. Tim Shriver
assumed the role of acting CEO pending the hiring of a replacement for Mr.
Griffin.

Lastly, as reported in previous SEC filings, the Company settled a patent
infringement law suit with ASD and the Company is pleased to report that it is
not aware of any pending litigation.

RESEARCH AND DEVELOPMENT (R&D)

Efforts were spent primarily directed towards refining of the ValiMed(TM)
product based on information from the clients using the product. Additionally,
during this time R&D CDEX entered into contracts to outsource the manufacturing
for our new proprietary design Cuvette.

R&D also developed 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 the
Methamphetamine Trace Detection Unit.

R&D costs were $1,298,594 (including $46,265 for stock compensation) during the
2006 fiscal year, compared with $2,421,875 (including $1,329,626 for stock
compensation) during the 2005 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.


INDUSTRY AND COMPETITION

1.   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 multiple drivers of demand for the Company's Valimed
products. 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. In addition, 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.
Lastly, 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. Based on the number of
errors reported, this practice is not effective..


                                       5
<PAGE>

There are 6,600 hospitals in the US and 3,000 have 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. The Company believes that
its ValiMed(TM) products are applicable to these hospitals and in many cases
multiple units would be needed to fulfill the institutions needs.


2.   SECURITY & PUBLIC SAFETY
     ------------------------

Illicit and Counterfeit Drug Detection
--------------------------------------
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. Two competing technologies in the methamphetamine
detection marketplace are test kits and ion mobilization units. Test kits are
inexpensive, but cannot readily detect trace amounts of methamphetamine on
surfaces and are a destructive test. The ion mobilization units are expensive to
purchase, and require a sophisticated user, airborne substances and relatively
high maintenance. CDEX technology may have the advantages of portability, ease
of use, low maintenance, and reduced costs. In 2006 the Company announced that
it had delivered a prototype device for detecting Methamphetamine to a Beta Test
Partner for testing.

The Company has also identified market opportunities for the application of its
technology in the detection of counterfeit medications.

Explosive Detection
-------------------
CDEX believes the explosives detection marketplace is potentially significant
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. Currently, domestic
sales of people screening devices are dominated by a small number of products
sold by a handful of vendors. CDEX believes that if it launches chemical
detection products that those 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.


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). The Company believes these market applications represent business
opportunities for the application of its technology.

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.

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


                                       6
<PAGE>

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. 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
obtained 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.

The Company makes business decisions regarding which inventions to patent, and
in what countries. Currently, the company has 2 patents issued or allowed, and
others in various stages of prosecution. In addition, the Company has filed
international counterparts to its US patents and applications where it deems
appropriate.

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
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.


                                       7
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

The Company leases office space in Maryland under a lease that is now month to
month. As mentioned above, the Company is moving its corporate offices to
Tucson, Arizona effective February 1, 2007. Accordingly, the leased Maryland
office space will no longer be needed after January 31, 2007. The Company leases
office and laboratory space in Arizona. The lease expires April 30, 2009 and
provides for monthly rent of approximately $3,020 with 3% annual escalations and
is cancelable on 120 days notice. 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 $2,641 with 4% annual escalations. Total rent expense was $43,884
and $86,593 for the years ended October 31, 2005 and 2006, 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 2006.

                                     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.

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, 2006:
               First quarter                             $1.32      $0.82
               Second quarter                            $1.22      $0.52
               Third quarter                             $0.80      $0.38
               Fourth quarter                            $0.58      $0.30


                                       8
<PAGE>

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, 2007 was 1,458. However, a large number of our
shareholders hold their shares in "street name" with brokerage accounts and,
therefore, do not appear on the shareholder list maintained by our transfer
agent.

DIVIDENDS

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

SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS

During the fourth quarter of fiscal year 2006, the Company sold 200,000 shares
of common stock at an average price of $0.27 per share for proceeds of $54,000,
which are for working capital and general corporate purposes.


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 is currently applying its
patented and patents pending chemical detection technologies to develop products
in the healthcare, security, and brand protection markets. CDEX is a public
company and its common stock is traded on the OTC 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. The company is moving
all operations and corporate functions to its Tucson, Arizona offices in 2007.

Currently, CDEX is focused in three distinct markets:

     1. 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);

     2. 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

     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).


ValiMed(TM) Product Line
------------------------
In 2006, CDEX management and staff successfully completed the implementation of
the initial production plan for ValiMed(TM) and began shipment of units to our
exclusive U.S. and Canadian distributor.

As part of the company's ongoing research and development efforts, CDEX
continues to build its medication and drug signature library using the new
proprietary cuvettes. To date, a total of fifty-three (53) signatures have been
added to the signature library.

All ValiMed(TM) production units are shipped with the TUV mark indicating that
ValiMed(TM) meets the electrical safety, electromagnetic interference (EMI), and
electromagnetic compatibility (EMC) test requirements for products sold in the
USA, Canada, and the European Union. In addition, ValiMed(TM) has also been
tested to the TUV CB Scheme which opens opportunities to market and sell
ValiMed(TM) in countries other than the US, Canada, and the European Union.


                                       9
<PAGE>

In 2006, CDEX entered into discussions with companies outside the USA who have
shown an interest in representing CDEX as its ValiMed(TM) distributor. While
these companies may represent significant distribution opportunities for
ValiMed(TM), CDEX management cannot guarantee that it will be able to close a
distribution agreement with any of the companies in these markets.

ValiMed(TM) has transitioned from a beta-test product to a full-scale production
product. Year-on-year revenues are up significantly. Management does not expect
the revenues from ValiMed(TM) to grow in a linear or predictable manner due to
the fact that ValiMed(TM) is a new product that has just been introduced into
the market. It is more likely that revenues will be "lumpy" over the next
several quarters; with some quarters up and some down. This will continue into
the foreseeable future until we have more fully developed our distribution and
sales channels and are better able to predict quarterly sales more precisely.

In order to increase sales, CDEX must receive additional investment funding to
implement its business plan, fund its international marketing and sales
initiatives, and provide working capital in order to purchase production
materials and parts inventories. If the company is unable to obtain the required
funding that it needs through debt or equity financing, the value potential of
the ValiMed(TM) product portfolio over the next eight months cannot be realized.

Illicit Drug Detector
---------------------
On August 29, 2006, CDEX entered into a contract with Missouri State Highway
Patrol (MSHP) for the Meth Gun Pilot Test Program. CDEX is continuing this "beta
test" process to refine the Meth Detection Unit for eventual planned
introduction into the marketplace. In addition, in 2007, we have expanded the
beta testing to other jurisdictions. These beta test cycles will continue until
the product is ready for production. .

Explosive Trace and Counterfeit Medication Drug Detectors
---------------------------------------------------------
CDEX management has placed the further development of these two products on hold
pending receipt of additional equity or debt financing. CDEX does not have the
financial resources, at this time, to engage the additional human resources or
incur the additional expenses that would be required to bring these products to
market.

Intellectual Property
---------------------
As stated above, the Company relies on non-disclosure agreements, patent, trade
secret and copyright laws to protect the Company's intellectual property. The
Company makes a business decision regarding which inventions to patent, and in
what countries. Currently, the company has 2 patents issued or allowed, and
others in various stages of prosecution. In addition the Company has filed
international counterparts to its US patents and applications where it deems
appropriate.

RESULTS OF OPERATIONS

Fiscal Year Ended October 31, 2006 Compared to Fiscal Year Ended October 31,
2005

Revenue: Revenue was $283,385 and $178,607 during the fiscal year ended October
31, 2006 and October 31, 2005, respectively. The increase of $104,778 (or 59%)
was from the delivery of ValiMed(TM) units to Baxa Corporation. In addition the
Company received payment for 21 units of its Valimed product which it classified
as deferred revenue at October 31, 2006, pending final shipment instructions
from its customer. The Company also received payment from the Missouri State
Highway Patrol for the meth gun pilot test program which it classified as
deferred revenue at October 31, 2006. The amount of deferred revenue carried
into 2007 is $638,000, which the Company expects to recognize as revenue in
2007.

Cost of revenue: Cost of revenue was $141,080 and $85,481 during the fiscal year
ended October 31, 2006 and October 31, 2005, respectively. The increase of
$55,598 (or 65%) was the result of higher component and manufacturing costs
associated with the ValiMed(TM) units due to the higher number of shipped units.
Gross margins were consistent in the 50 to 52% range in fiscal 2006 and 2005.

Research and development costs: Research and development costs were $1,298,594
during fiscal year ended October 31, 2006, compared with $2,421,875 during the
fiscal year ended October 31, 2005. The decrease of $1,123,281 (or 46%) resulted
from a decrease primarily in stock compensation and secondarily in payroll
expenditures, offset by an increase in expenditures for materials and
consultants. Stock compensation decreased because the company did not issue
stock as compensation at the same level in fiscal year 2006 compared to fiscal
year 2005.

General and administrative expenses: General and administrative expenses were
$2,222,208 during the fiscal year ended October 31, 2006, compared with
$2,896,336 during the fiscal year ended October 31, 2005. This decrease of
$674,129 (or 23%) resulted from a decrease in stock compensation, offset by an
increase in expenditures primarily in legal fees associated with patent issues
and secondarily in payroll. Stock compensation decreased because the company is
not issuing stock as compensation at the same level in fiscal year 2006 compared
to fiscal year 2005. Legal expense for patent issues exceeded $500,000 in fiscal
year 2006 but is expected to decrease in future periods.


                                       10
<PAGE>

Other income (expense): Other expense was $21,605 during fiscal year ended
October 31, 2006, compared with income of $3,587 during the fiscal year ended
October 31, 2005. The expense in fiscal year 2006 was primarily interest expense
on notes payable. The income in fiscal year 2005 was primarily from cash in an
interest earning account.

Net loss was $3,400,102 during the fiscal year ended October 31, 2006, compared
with a net loss of $5,221,499 during the fiscal year ended October 31, 2005, 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, 2006, we had negative working capital of $1,566,517, including
$56,328 of cash and cash equivalents. We anticipate the need to raise
approximately $2,500,000 over the next twelve months to satisfy our current
budgetary projections. Our continued operations, as well as the implementation
of our business plan, therefore will depend upon our ability to raise additional
funds through bank borrowings, equity or debt financing. If the company is not
successful in raising the working capital, it may default in its payments to its
creditors and could result in the filing of bankruptcy protection. Currently,
the company has sufficient cash to fund operations into the second quarter of
fiscal 2007, and has entered into agreements for additional funding with
payments that would begin in the second quarter of fiscal 2007. The company is
actively seeking new investments from its current accredited investors as well
as new accredited investors.

During the fiscal year ended October 31, 2006, the Company received $479,000 in
funding, comprised of:

          o    $133,500 for 6,675 shares of preferred stock at an average price
               of $20.00 per share, and $22,500 for redeemable preferred stock.
          o    $143,000 for 457,563 shares of common stock at an average price
               of approximately $0.31 per share.
          o    $180,000 for notes payable.


We had a net decrease in cash and cash equivalents of $1,415,913 during the
fiscal year ended October 31, 2006, compared with a net increase of $1,000,757
during the fiscal year ended October 31, 2005. We used net cash of $1,808,752
and $2,612,385 in operating activities during the fiscal years ended October 31,
2006 and 2005, respectively, and capitalized $86,162 and 2,108 in patent costs
and property and equipment during the fiscal years ended October 31, 2006 and
2005, respectively. We received proceeds in the amount of $479,000 and
$3,615,250 from the sale of preferred stock, common stock and notes payable to
accredited investors during the fiscal years ended October 31, 2006 and 2005,
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.


                                       11
<PAGE>

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.

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.

REVENUE RECOGNITION: Revenue is recognized in compliance with Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition, and EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. Sales revenues are recognized when
persuasive evidence of an agreement with the customer exists, products are
shipped or there is a fixed schedule for delivery, title passes pursuant to the
terms of the agreement with the customer, the amount due from the customer is
fixed or determinable, collectibility is reasonably assured, and there are no
significant future performance obligations. Service revenues are recognized at
time of performance. Service maintenance revenues are recognized ratably over
the term of the agreement.

Deferred revenue represents amounts invoiced or received but not recognized as
revenue if the above revenue recognition terms are not met. Specifically, the
company does not recognize revenue for ValiMed(TM) units purchased by Baxa
Corporation that are warehoused at the company's Tucson facility per Baxa's
request (commonly referred to as bill and hold transactions). Such transactions
represent $588,000 of deferred revenue at October 31, 2006. Further, the company
deferred $50,000 from the Missouri State Highway Patrol (MSHP) for the Meth Gun
Pilot Test Program as the program was not completed by October 31, 2006.

INVENTORY: Inventory is valued at the lower of cost (at standard, which
approximates actual cost on a first-in, first-out basis) or market. Inventory
includes the cost of component raw materials and manufacturing.

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
$16,760 and $23,794 for the years ended October 31, 2005 and 2006, respectively.

PATENT: The Company capitalizes the costs of obtaining patents when patents are
granted. Patents are amortized (none in fiscal years 2005 and 2006) over their
useful lives, generally 17 years.

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: Prior to fiscal year 2006, we provided restricted
stock grants to employees and consultants as a principal element of their
compensation. We determine compensation expense as the fair value, at the
measurement date, of the service 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.


                                       12
<PAGE>

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. 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, 2006 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.

THE ABSENCE OF A 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


                                       13
<PAGE>

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 2008. 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 $2,500,000 through bank borrowings or equity or debt
financing over the next eighteen 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 six
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.

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.


                                       14
<PAGE>

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 and could prevent us
from earning revenues on these products or from becoming profitable.

For a discussion of the status of a certain patent infringement lawsuit filed
against CDEX in the District Court of Colorado, see "Legal Proceedings."

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 that 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.

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


                                       15
<PAGE>

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, taggant 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, and 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
management attention away from operational issues. This would increase costs and
prevent or reduce our profits.


                                       16
<PAGE>

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

Management is responsible for establishing and maintaining adequate internal
control over financial reporting of our company. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America. As defined by the Public Company
Accounting Oversight Board's Auditing Standard No. 2, a material weakness is
defined as a significant deficiency or combination of significant deficiencies,
that results in more than a remote likelihood that a material misstatement of
the annual or interim financial statements will not be prevented or detected.

As of the year ended October 31, 2006, an evaluation was carried out under the
supervision of James Griffin, our former President, Chief Executive Officer and
Principal Accounting and Financial Officer, and with the participation of our
management at that time, of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act). The Company
concluded that, as of October 31, 2006, these disclosure controls and procedures
were ineffective. Specifically, the Company identified a material weakness in
revenue recognition for bill and hold transactions.

In fiscal 2006, the Company sold and delivered Valimed (TM) units to Baxa
which requested the units to be held at the Company's facility in Arizona,
pending shipping instructions from Baxa's end-user customer. The Valimed (TM)
units were paid for and revenue was reported in the company's second and third
quarter 10QSB filings. Upon further review, and in consultation with its
independent auditor and the SEC, the Company concluded on January 29, 2007 to
revise its accounting procedure for such transactions and recognize revenue only
at such time as the Company receives a fixed schedule for delivery from its
customer. As a result of the material weakness discussed above, the Company
filed amended 10QSB reports for the fiscal quarters ended April 30 and July 31,
2006, which reflect restated quarterly revenue and cost of revenue balances.

Remediation Plan

In addition to controls and procedures consistent with prior practices, we
developed and implemented a remediation plan. In order to remediate the
aforementioned material weakness, we expanded our accounting policy for revenue
recognition of bill and hold transactions (see Revenue Recognition in
Management's Discussion and Analysis of Financial Condition or Plan of Operation
in this report). Further, we have established fixed delivery dates for
Valimed (TM) units at our Arizona facility.

We believe we have improved our disclosure controls and procedures and
remediated the identified material weakness. Management of the Company will
continue to evaluate the effectiveness of our disclosure controls and
procedures. Because of the inherent limitations in all control systems, controls
can provide only reasonable, not absolute, assurance that all control issues and
instances of fraud, if any, will be or have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future conditions; over time, control may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitation in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.

Changes in Internal Controls Over Financial Reporting

The Company implemented the remediation plan discussed above, in connection with
the evaluation required by paragraph (d) of Securities Exchange Act Rules
13a-15(f) or 15d-15(f) that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.

                                       17
<PAGE>

ITEM 8B. OTHER INFORMATION

None.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

      NAME                    AGE     POSITION
      ---------               -----   --------
      James Griffin            57     CEO/President, Director (1)
      Timothy Shriver          56     Sr. Vice President of Technical
                                      Operations, Director (1)
      Dr. BD Liaw              69     Chairman of the Board of Directors
      George Dials             61     Director
      Donald W. Strickland     57     Director

(1) Effective December 28, 2006, Mr. Griffin resigned from the position of
CEO/President and from the Board of Directors. Mr. Shriver was appointed to the
position of CEO/President.

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

Effective January 1, 2006, Mr. James O. Griffin, became our President & Chief
Executive Officer, and on February 3, 2006 was appointed to serve as a director.
Mr. Griffin has served in senior executive positions in the high technology
security and defense electronic systems industries for more than 25 years.
Throughout his career, Mr. Griffin has focused on commercializing emerging
technologies--growing sales and establishing productive distribution channels.
Mr. Griffin joined CDEX in 2005, originally as Chief Operating Officer, from a
background in both public and private enterprises in the U.S., with extensive
experience establishing and heading the international business units of several
multinationals, including SenTech, Simplex, and Cardkey Systems. Immediately
preceding CDEX, at Cernium, Inc., Mr. Griffin served as Vice President of
Federal Systems Sales where he founded the company's Washington, DC office, and
opened relationships with government agencies for the developer of security
video analytics systems. Previously, as Vice President and General Manager for
the IPIX Corporation, he launched the company's security division, IPIX
Security, and established a customer base that included the 2004 G-8 Summit for
the IPIX line of mission critical security imaging systems. As Managing Director
of Simplex Asia Ltd., Mr. Griffin led a nearly two-year transformation of the
fire alarm manufacturer's Asian operations and reversed a major operating loss.
Under Mr. Griffin's leadership, the security services division of Mosler Inc.
added contracts with the New York Port Authority to upgrade the security systems
in the three airports serving New York City. For Cardkey Systems, Mr. Griffin
created the company's international division, linking together worldwide
distributors to form cohesive sales channels. Mr. Griffin holds an MBA from
Pepperdine University and a B.S. in Electrical Engineering from California State
University.

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.

Dr. BD Liaw has served as a director of CDEX since October 2001 and became
Chairman of the Board in February 2006. 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. 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

                                       18
<PAGE>

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.

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.

Mr. Donald W. Strickland was appointed to serve as a director in February 3,
2006. He comes to CDEX from a 30-year career in successfully developing
businesses internationally for both large public companies and technology
startups. He has held executive positions at Eastman Kodak Company and Apple
Computer, including heading product development, manufacturing, and sales. In
1996 he became CEO of PictureWorks Technology, a technology start up, which he
sold for $200M in 2000 to IPIX Corporation, a public company traded on the
NASDAQ exchange. Thereafter, he served as President and CEO of IPIX through
2004, during which time he led the company through a major restructuring,
focusing on the security markets and taking the company to profitability. Mr.
Strickland holds a bachelor's degree in physics from Virginia Tech, a master's
degree in physics from the University of Notre Dame, a master's degree in optics
from the University of Rochester, a master's degree in management from the
Stanford University and a law degree from George Washington University.

SIGNIFICANT EMPLOYEE/CONSULTANT

In addition to our executive officers and directors, Dr. Wade Poteet, our
Principal Scientist, is a significant consultant 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).


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, 2006.

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.


                                       19
<PAGE>

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;
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.


                                       20
<PAGE>

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.


                                       21
<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
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>
Timothy D. Shriver                  2006   $ 163,690      -    $  30,290           -           -              -
CEO, President                      2005   $  96,000      -    $ 156,000           -           -              -
Former Sr. VP Technical Operations  2004   $  96,000      -    $ 156,000           -           -              -

James Griffin                       2006   $ 191,573      -    $  19,417           -      (300,000) (2)       -
Former CEO, President               2005   $  11,667      -    $   8,333           -       300,000  (2)       -

Malcolm Philips                     2006   $  16,000      -    $ 349,000           -           -              -
Former CEO, President               2005   $  96,000      -    $ 204,000           -           -              -
                                    2004   $  96,000      -    $ 204,000           -           -              -
</TABLE>

(1) Pursuant to the terms of their Executive Services Agreements and based upon
CDEX's financial condition, the executive officers have each foregone 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
granted in 2005, which were canceled in 2006.

REMUNERATION OF KEY EMPLOYEES WHO ARE HIGHLY COMPENSATED

In addition to our executive officers and directors, we have one key employee in
fiscal year 2006:

<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                     2006   $  16,000     -     $  19,000           -           -              -
Principal Scientist                 2005   $  96,000     -     $ 114,000           -           -              -
                                    2004   $  96,000     -     $ 114,000           -           -              -
</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. The compensation above
was paid during his period of employment and does not include consultant
payments

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
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


                                       22
<PAGE>

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, the
Company paid Mr. Philips 350,000 free-trading shares of Class A Common Stock.
Mr. Philips' agreement was terminated in April 2006.

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 Company canceled all options granted to Mr.
Shriver in 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 Company canceled all options granted to Mr. Griffin in 2005 and
2006. Effective December 28, 2006, Mr. Griffin resigned from the position of
CEO/President and from the Board of Directors.

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
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.


                                       23
<PAGE>

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 9,758,043 shares of common stock 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.

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                                                                     Amount of Beneficial
Beneficial Owner(1)          Position                                Title of Class          Ownership          Percent of Class
---------------------------------------------------------------------------------------------------------------------------------

<S>                          <C>                                     <C>                      <C>        <C> <C>       <C>
Malcolm H. Philips, Jr.      Former Executive Officer and Director   Class A Common           2,635,500  (2) (3)       7.08%

James Griffin                Former Executive Officer and Director   Class A Common              27,750  (2)           0.07%

Timothy Shriver              Executive Officer and Director          Class A Common           1,259,322  (2)           3.38%

George Dials                 Director                                Class A Common             180,000  (2) (4)       0.48%

Dr. BD Liaw                  Director                                Class A Common             175,000  (2) (4)       0.47%

Donald W. Strickland         Director                                Class A Common                 -                  0.00%

---------------------------------------------------------------------------------------------------------------------------------
Shares of all named executives,
significant employees and directors as                               Class A Common           4,277,572               11.48%
a group (6 persons)
</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.


                                       24
<PAGE>

(4) 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.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The spouse of a former Chief Executive Officer (Mr. Phillips) purchased a
$62,000 convertible note in 2005 paying interest at 9%. Total interest expense
paid to this related party was $483 for the year ended October 31, 2005. 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.


                                       25
<PAGE>

31        Rule 13a-14(a)/15d-14(a) Certification of Timothy Shriver.

32        Section 1350 Certification of Timothy Shriver.

(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.

(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, 2006 and 2005:


                  Description                 FY2006       FY2005
                  -----------                 ------       ------
                  Audit fees                $ 58,000     $ 59,300
                  Other services              15,600       38,200
                                              ------       ------
                  Total                     $ 73,600     $ 97,500
                                            --------     --------



                                       26
<PAGE>

                                    CDEX Inc.
                      Index to Audited Financial Statements
                      Years Ended October 31, 2006 and 2005
--------------------------------------------------------------------------------


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

Audited Financial Statements:

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

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

   Statement of Changes in Stockholder's 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,
2006, and the related Statements of Operations, Stockholders' Equity and Cash
Flows for the years ended October 31, 2006 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,
2006, and the results of its operations and its cash flows for the years ended
October 31, 2006 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 9 to the
financial statements, the Company incurred net losses in each year of
operations, has an accumulated deficit in excess of $23 million as of October
31, 2006, 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 9. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


/s/ Aronson & Company
Rockville, Maryland
January 29, 2007




                                      F-2
<PAGE>

                                    CDEX Inc.

                      Balance Sheet as of October 31, 2006

<TABLE>
<CAPTION>
<S>                                                                       <C>
Assets
       Current assets
              Cash and cash equivalents                                   $     56,328
              Accounts receivable                                               10,519
              Finished goods inventory                                         263,036
              Raw materials inventory                                           27,997
                                                                          ------------
       Total current assets                                                    357,880

       Property and equipment
              Laboratory and computer equipment                                639,437
              Furniture and fixtures                                             1,666
              Building improvements                                              1,265
                                                                          ------------
       Total property and equipment                                            642,368
              Less: Accumulated depreciation                                  (595,168)
                                                                          ------------
       Net property and equipment                                               47,200

       Patent                                                                   50,000
       Other assets                                                              2,499

                                                                          ------------
Total Assets                                                              $    457,580
                                                                          ============

Liabilities and Stockholders' Equity

       Current Liabilities
              Accounts payable and accrued expenses                       $    973,235
              Notes payable                                                    204,333
              Deferred stock compensation                                       65,500
              Advance payments                                                  36,968
              Deferred revenue                                                 638,000
              Deferred rent                                                      6,362
                                                                          ------------
       Total Current Liabilties                                              1,924,398

       Redeemable preferred stock liability                                     22,500
                                                                          ------------

       Total Liabilities                                                     1,946,898

Commitments and Contingencies

Stockholders' Deficit
       Preferred Stock - Undesignated - $.005 par value per share,
              350,000 shares authorized and none outstanding                       -
       Preferred Stock - Series A - $.005 par value per share,
              150,000 shares authorized and 6,675 outstanding                       33
       Class A common stock - $.005 par value per share, 50,200,000
              shares authorized and 37,245,409 outstanding                     186,232
       Additional paid in capital                                           21,498,550
       Accumulated deficit                                                 (23,174,133)
                                                                          ------------
Total Stockholders' Deficit                                                 (1,489,318)

                                                                          ------------
Total Liabilities and Stockholders' Deficit                               $    457,580
                                                                          ============
</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
                                                  2005                 2006
                                             ----------------    -----------------

<S>                                                <C>                  <C>
Revenue                                            $ 178,607            $ 283,385


Cost of Revenue                                       85,481              141,080
                                             ----------------    -----------------

Gross Profit                                          93,125              142,305


Operating Expenses
       Development costs                           2,421,875            1,298,594
       General and administrative expenses         2,896,336            2,222,208
                                             ----------------    -----------------
Total Operating Expenses                           5,318,211            3,520,802

Loss From Operations                              (5,225,086)          (3,378,497)

Other Income (Expense)
       Interest income                                 4,070                7,201
       Related party interest expense                   (483)                 -
       Interest expense                                  -                (28,807)
                                             ----------------    -----------------
Total Other (Expense) Income                           3,587              (21,605)

                                             ----------------    -----------------
Net Loss                                        $ (5,221,499)        $ (3,400,102)
                                             ================    =================

Basic and diluted net loss
       per common share:                             $ (0.16)             $ (0.09)

Basic and diluted weighted average
       common shares oustanding                   31,988,808           36,569,497
</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     Shares of                    Class A      Class B
                                                 Preferred     Class A       Class B       Preferred     Common       Common
                                                   Stock    Common Stock  Common Stock       Stock        Stock        Stock
------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>       <C>              <C>              <C>  <C>          <C>
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
==============================================================================================================================

Sale of preferred stock for cash                    6,675            -             -             33          -            -
Sale of common stock for cash                         -          457,563           -            -          2,288          -
Shares issued for compensation                        -          932,875           -            -          4,664          -
Exchange of Class B for Class A common stock          -          175,000      (175,000)         -            875         (875)
Remeasurement of compensation expense                 -              -             -            -            -            -
Amortization of deferred compensation expense         -              -             -            -            -            -
Net loss                                              -              -             -            -            -            -

------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 2006                           6,675     37,245,409             -  $      33    $ 186,232    $       -
==============================================================================================================================

                                                             Additional                                    Stock
                                                              Paid-in       Deferred    Accumulated    Subscription
                                                              Capital     Compensation    Deficit       Receivable     Total
------------------------------------------------------------------------------------------------------------------------------
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
==============================================================================================================================

Sale of preferred stock for cash                      -          133,467           -            -            -        133,500
Sale of common stock for cash                         -          140,712           -            -            -        143,000
Shares issued for compensation                        -          792,733           -            -            -        797,398
Exchange of Class B for Class A common stock          -              -             -            -            -            -
Remeasurement of compensation expense                 -           (3,631)        3,631          -            -            -
Amortization of deferred compensation expense         -              -          68,906          -            -         68,906
Net loss                                              -              -             -     (3,400,102)         -     (3,400,102)

------------------------------------------------------------------------------------------------------------------------------
Balance, October 31, 2006                             -    $  21,498,550  $        -   $(23,174,133) $       -    $(1,489,318)
==============================================================================================================================
</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
                                                                            2005                 2006
                                                                       ---------------      ----------------
<S>                                                                     <C>                   <C>
Cash Flows from Operating Activities
       Net loss                                                          $(5,221,499)          $(3,400,101)
       Adjustments to reconcile net loss to cash used by
              operating activities
                     Depreciation                                             16,760                23,794
                     Stock compensation                                    2,724,578               300,267
                     Noncash interest                                            -                  28,807
              Changes in operating assets and liabilities
                     Inventory                                              (105,313)              (39,571)
                     Accounts receivable                                     (19,629)                9,110
                     Prepaid expenses                                          1,148                 2,845
                     Other assets                                             (1,100)                  -
                     Current liabilities                                      (7,330)            1,266,097
                                                                         -----------           -----------
Net cash used by operating activities                                     (2,612,385)           (1,808,752)

Cash Flows from Investing Activities
       Capitalized patent costs                                                  -                 (50,000)
       Purchase of property and equipment                                     (2,108)              (36,162)
                                                                         -----------           -----------
Net cash used by investing activities                                         (2,108)              (86,162)

Cash Flows from Financing Activities
       Proceeds from sale of preferred stock                                     -                 156,000
       Proceeds from sale of common stock                                  3,526,250               143,000
       Proceeds from note payable                                                -                 180,000
       Proceeds from convertible notes payable                                89,000                   -
       Proceeds from related party convertible notes payable                  62,000                   -
       Repayment of related party convertible notes payable                  (62,000)                  -
                                                                         -----------           -----------
Net cash provided by financing activities                                  3,615,250               479,000
                                                                         -----------           -----------

Net increase (decrease) in cash                                            1,000,757            (1,415,913)

Cash and cash equivalents, beginning of the period                           471,485             1,472,242

                                                                         -----------           -----------
Cash and cash equivalents, end of the period                             $ 1,472,241           $    56,328
                                                                         ===========           ===========


Supplemental Cash Flow Information
       Actual cash payments for interest                                 $       483           $        -
       Conversion of convertible notes payable to common stock           $    89,000           $        -
       Common stock issued in non-cash transactions                      $ 1,735,577           $        -
       Conversion of Class B to Class A common stock                     $    49,500           $    18,250
</TABLE>

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


                                      F-6
<PAGE>

                          Notes to Financial Statements


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.

                    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.

                    Revenue recognition: Revenue is recognized in compliance
                    with Staff Accounting Bulletin (SAB) No. 104, Revenue
                    Recognition, and EITF Issue No. 00-21, Revenue Arrangements
                    with Multiple Deliverables. Sales revenues are recognized
                    when persuasive evidence of an agreement with the customer
                    exists, products are shipped or there is a fixed schedule
                    for delivery, title passes pursuant to the terms of the
                    agreement with the customer, the amount due from the
                    customer is fixed or determinable, collectibility is
                    reasonably assured, and there are no significant future
                    performance obligations. Service revenues are recognized at
                    time of performance. Service maintenance revenues are
                    recognized ratably over the term of the agreement.

                    Deferred revenue represents amounts invoiced or received but
                    not recognized as revenue if the above revenue recognition
                    terms are not met. Specifically, the company does not
                    recognize revenue for ValiMed(TM) units purchased by Baxa
                    Corporation that are warehoused at the company's Tucson
                    facility per Baxa's request (commonly referred to as bill
                    and hold transactions). Such transactions represent $588,000
                    of deferred revenue at October 31, 2006. Further, the
                    company deferred $50,000 from the Missouri State Highway
                    Patrol (MSHP) for the Meth Gun Pilot Test Program as the
                    program was not completed by October 31, 2006.

                    In fiscal years 2005 and 2006, revenue was recognized from
                    sales to 4 and 9 customers, respectively. Sales to
                    Children's Medical Center of Dallas, University of Michigan
                    and University of Utah represented 23%, 30% and 44% of
                    fiscal year 2005 revenue, respectively. Sales to Baxa
                    Corporation and Henry Ford Health Systems represented 60%
                    and 15% of fiscal year 2006 revenue, respectively.


                                      F-7
<PAGE>

                    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.

                    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 $16,760 and $23,794 for the years ended October
                    31, 2005 and 2006, respectively.

                    Inventory: Inventory is valued at the lower of cost (at
                    standard, which approximates actual cost on a first-in,
                    first-out basis) or market. Inventory includes the cost of
                    component raw materials and manufacturing.

                    Advertising and marketing costs: The cost of advertising and
                    marketing is expensed as incurred. Advertising and marketing
                    expense was $52,142 and $109,897 for the years ended October
                    31, 2005 and 2006, respectively.

                    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.

                    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 Company granted stock options in fiscal year 2005 and
                    the first and second quarters of fiscal year 2006. In the
                    third quarter of 2006 the company canceled all options by
                    contractual agreement with the option holders. Accordingly,
                    there are no options outstanding at October 31, 2006.

                    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>

                                                                                    2005                2006
                                                                                    ----                ----
<S>                                                                             <C>                <C>
                    Reported net loss                                           $(5,221,499)       $ (3,400,102)
                    Add:  Noncash  stock  compensation  included in
                    reported net loss                                             2,724,578             300,267
                    Deduct:   Total  noncash   stock   compensation
                    expense   determined  under  fair  value  based
                    method for all awards                                        (2,730,578)           (294,267)
                                                                                --------------------------------
                           Pro forma net loss                                   $(5,227,499)       $ (3,394,102)
                                                                                --------------------------------
</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 and 2006 was $216,000 and $1,027,000, respectively. The
                    fair value of each option is estimated on the date of grant
                    using the Black-Scholes option-pricing model with the
                    following assumptions: volatility of 75%; dividend yield of
                    0%; average risk-free interest rate of 3.8% to 4.2%; and
                    expected term of 5 years.


                                      F-8
<PAGE>

                    Patent: The Company capitalizes the costs of obtaining
                    patens when patents are granted. Patents are amortized (none
                    in either year presented) over their useful lives, generally
                    17 years.

                    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.

                    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 spouse of the former Chief Executive Officer purchased a
   transactions     $62,000 convertible note in 2005 paying interest at 9%.
                    Total interest expense paid to this related party was $483
                    for the year ended October 31, 2005. The note was redeemed
                    at par value for cash in March 2005.

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 may have a material effect on our future results of
                    operations. The Company granted but then cancelled options
                    in 2006, 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.


                                      F-9
<PAGE>

                    In September 2006, the FASB issued SFAS No. 158, Employers'
                    Accounting for Defined Benefit Pension and Other
                    Postretirement Plans - an amendment of FASB Statements No.
                    87, 88, 106 and 132(R). This statement would require a
                    company to (a) recognize in its statement of financial
                    position an asset for a plan's overfunded status or a
                    liability for a plan's underfunded status, (b) measure a
                    plan's assets and its obligations that determine its funded
                    status as of the end of the employer's fiscal year, and (c)
                    recognize changes in the funded status of a defined
                    postretirement plan in the year in which the changes occur
                    (reported in comprehensive income). The requirement to
                    recognize the funded status of a benefit plan and the
                    disclosure requirements are effective as of the end of the
                    fiscal year ending after December 15, 2006. The requirement
                    to measure the plan assets and benefit obligations as of the
                    date of the employer's fiscal year-end statement of
                    financial position is effective for fiscal years ending
                    after December 15, 2008. The adoption of this new accounting
                    pronouncement will not have an impact on our financial
                    position or results of operation. The Company does not have
                    any such plans.

                    In June 2006, the FASB issued Interpretation 48 ("FIN 48"),
                    Accounting for Uncertainty in Income Taxes, an
                    interpretation of FASB Statement No. 109, Accounting for
                    Income Taxes. FIN 48 clarifies the accounting for
                    uncertainty in income taxes recognized in an enterprise's
                    financial statements in accordance with FASB Statement No.
                    109. FIN 48 describes a recognition threshold and
                    measurement attribute for financial statement recognition
                    and measurement of a tax position taken or expected to be
                    taken in a tax return and also provides guidance on
                    de-recognition, classification, interest and penalties,
                    accounting in interim periods, disclosure and transition.
                    The guidance is effective for fiscal years beginning after
                    December 15, 2006, which we intend to adopt for our fiscal
                    year beginning November 1, 2007. We have not yet determined
                    the impact from adoption of this new accounting
                    pronouncement on our financial position or results of
                    operation.

                    In May 2005, the FASB issued SFAS 154, "Accounting Changes
                    and Error Corrections" (SFAS 154) which replaces APB Opinion
                    No. 20, "Accounting Changes" and SFAS 3, "Reporting
                    Accounting Changes in Interim Financial Statements - An
                    Amendment of APB Opinion No. 28." SFAS 154 provides guidance
                    on the accounting for and reporting of accounting changes
                    and error corrections. It establishes retrospective
                    application, or the latest practicable date, as the required
                    method for reporting a change in accounting principle and
                    the reporting of a correction of an error. SFAS 154 is
                    effective for accounting changes and corrections of errors
                    made in fiscal years beginning after December 15, 2005. The
                    adoption of SFAS 154 is not expected to have a material
                    impact on our financial position, results of operations or
                    cash flows.



                                      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):
                                                          Year Ended October 31,
                                                          ----------------------
                                                              2005       2006
                    ------------------------------------------------------------
                    Federal income taxes at the
                      maximum  statutory rate                $ 1,775    $ 1,156
                    State income taxes, net of Federal tax
                      effect                                     210        126
                    Other                                          -         11
                    Increase in valuation allowance           (1,985)    (1,293)
                    ------------------------------------------------------------
                    Benefit from income taxes                $     -    $     -
                    ------------------------------------------------------------
                    Deferred income taxes were as follows as
                    of October 31:
                                                               2005       2006
                    ------------------------------------------------------------
                    Stock based compensation                 $ 1,353    $ 1,256
                    Fixed asset basis difference                  79         37
                    Receivables excluded from income for
                    income tax reporting purposes                 (8)        (4)
                    Accounts payable and accrued expenses
                    deducted for
                      financial statement reporting purposes,
                      but not for income tax reporting
                      purposes                                    91        375
                    Net operating loss carryforward            3,330      4,474
                    ------------------------------------------------------------
                    Deferred tax asset                       $ 4,845    $ 6,138
                    Valuation allowance                      $(4,845)   $(6,138)
                    ------------------------------------------------------------
                    Total                                    $     -    $     -
                    ------------------------------------------------------------

                    For income tax purposes, the Company has net operating loss
                    carryforwards of approximately $11.6 million at October 31,
                    2006 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
                    2026.

5. Stock grants     Prior to fiscal year 2006, the Company provided restricted
   and options      stock grants to employees and consultants as a principal
                    element of their compensation. Compensation in the form of
                    restricted stock grants is recorded at fair value. 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 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 2006,
                         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 1,822,980 and 932,875 Class A shares of
                    common stock to employees and consultants during the years
                    ended October 31, 2005 and 2006, 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 1,822,980 shares with a
                    fair value of $1,735,577 and 300,000 options were issued
                    during the year ended October 31, 2005, and 932,875 shares
                    with a fair value of $797,398 were issued during the year
                    ended October 31, 2006. The 2003 Plan also provides for
                    specific numbers of shares to be awarded upon the
                    achievement of defined scientific and sales-related
                    milestones.

                    Stock grant and stock option activity under the Plans is as
                    follows:
                    Balance October 31, 2004                6,827,188
                       Granted                              2,122,980
                       Forfeited                                    -
                                                           ----------
                    Balance October 31, 2005                8,950,168
                       Granted                              2,622,875
                       Forfeited                           (1,990,000)
                                                           ----------
                    Balance October 31, 2006                9,583,043
                                                            ---------

                    Total compensation expense related to stock awards for
                    employees and consultants was $2,724,578 and $300,267 for
                    the years ended October 31, 2005 and 2006, 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.

                    Stock options were granted with an exercise price equal to
                    the market price of the stock at the date of grant.
                    Substantially all of the options granted were exercisable
                    pursuant to a three-year vesting schedule.

                                      F-12
<PAGE>

                    The following is a summary of all option activity:

<TABLE>
<CAPTION>
                                                                                      Weighted-
                                                                  Number of            Average
                                                                    Shares           Exercise Price
                                                              -----------------    ------------------
                    <S>                                         <C>                 <C>
                    Outstanding at November 1, 2004                      -          $            -
                    Granted                                        300,000                    1.10
                                                                   -------                 -------
                    Outstanding at October 31, 2005                300,000                    1.10
                    Granted                                      1,690,000                    0.95
                    Cancelled                                   (1,990,000)                   0.97
                                                                ----------                 -------
                    Outstanding at October 31, 2006                      -          $            -
                    Exercisable at October 31, 2006                      -          $            -
</TABLE>

6. Stockholders'    Common Stock: During fiscal year 2006, the Class B (special
   equity           voting rights) common stock was eliminated and all remaining
                    shares were converted to Class A shares on a one-for-one
                    basis.

                    Preferred Stock: During fiscal year 2006, the Company sold
                    6,675 shares of Series A preferred stock at an average price
                    of $20 per share for proceeds of $133,500. The preferred
                    stock is convertible into common stock at the option of the
                    shareholder at a conversion rate of approximately 29.851, or
                    into approximately 199,255 common shares. The conversion
                    rate is the quotient obtained by dividing $20 by $0.67 which
                    is the weighted average fair market price of the common
                    stock during the 20-day trading period prior to the
                    preferred stock purchase closing of the preferred stock lead
                    investor. The preferred stock has the following rights: no
                    dividend requirements, a liquidation preference over all
                    common shares, participating voting rights on an
                    as-converted basis, and 199,255 common shares have been
                    reserved for potential conversion.

                    In addition, the Company received net proceeds of $22,500
                    pursuant to an agreement requiring the Company to issue a
                    new category of redeemable preferred stock. This amount is
                    reflected as a liability as the Company does not have the
                    authorized shares to meet this requirement as of October 31,
                    2006.

7. Notes Payable    During fiscal year 2006, the Company received $180,000 in
                    proceeds under notes payable with existing investors. The
                    principal and $24,333 of interest is payable. If payment is
                    not made three months from receipt of funds, then an
                    additional $15,667 in interest is payable.

8. Leases           The Company leases office space in Maryland under a
                    month-to-month lease, and is moving its corporate offices to
                    Tucson, Arizona effective February 1, 2007. Accordingly, the
                    leased Maryland office space will no longer be needed after
                    January 31, 2007. The Company leases office and laboratory
                    space in Arizona. The lease expires April 30, 2009 and
                    provides for monthly rent of approximately $3,020 with 3%
                    annual escalations and is cancelable on 120 days notice. 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 $2,641 with 4% annual
                    escalations. Total rent expense was $43,884 and $86,593 for
                    the years ended October 31, 2005 and 2006, respectively.

                    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, 2006 are as follows:

                    Year ending October 31,                           Amount
                   -------------------------------------------------------------
                      2007                                          $ 47,577
                      2008                                             3,942
                   -------------------------------------------------------------
                      Total                                         $ 51,519
                   -------------------------------------------------------------

                                      F-13
<PAGE>

9.  Financial       The Company has incurred losses since its inception of
    condition       approximately $23,174,000 and has had limited product sales
                    from its inception through fiscal year 2006. The Company
                    plans to raise cash to fund its operations and pay its
                    outstanding obligations from credit facilities or the sale
                    of its securities in the future. Nonetheless, there can be
                    no guarantee that the Company will be able to raise cash or
                    maintain its current workforce through any of these plans.

                    The 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 one month of operations if
                    no additional cash is raised. The Company anticipates it
                    will require approximately $2,500,000 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.

                    During the fiscal year ended October 31, 2006, the Company
                    received $479,000 in funding, comprised of:

                    -    $133,500 for 6,675 shares of preferred stock at an
                         average price of $20.00 per share, and $22,500 for
                         redeemable preferred stock.

                    -    $143,000 for 457,563 shares of common stock at an
                         average price of approximately $0.31 per share.

                    -    $180,000 for notes payable.

10. Subsequent      Subsequent to October 31, 2006, the Company issued to
    events          accredited investors 2,340 shares of redeemable preferred
                    stock for $216,520 in proceeds and 2,054,251 shares of
                    common stock for $273,500 in proceeds.

                    On January 9, 2007 the Company held a special meeting of
                    shareholders at which time the shareholders voted to
                    increase the authorized Class A common shares of stock from
                    50.2 million to 100 million. The additional shares of stock
                    will facilitate future fund raising activities of the
                    Company.


                                      F-14
<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 February 2, 2007.

                                    CDEX INC.




                       By:   /s/ Timothy Shriver
                            ------------------------------
                             Name: Timothy Shriver
                             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 Timothy Shriver, 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/ Timothy Shriver          CHIEF EXECUTIVE OFFICER/          February 2, 2007
------------------------     PRESIDENT (PRINCIPAL
TIMOTHY SHRIVER              FINANCIAL AND ACCOUNTING OFFICER)

/s/ Dr. BD Liaw              CHAIRMAN OF THE BOARD             February 2, 2007
------------------------     OF DIRECTORS
DR. BD LIAW

/s/ George Dials             DIRECTOR                          February 2, 2007
------------------------
GEORGE DIALS

/s/ Donald W. Strickland     DIRECTOR                          February 2, 2007
------------------------
DONALD W. STRICKLAND



                                       27