CDEX Inc.
INNOVATIONS FOR A SAFER WORLD
Stephen A. McCommon
Chief Financial Officer
CDEX, Inc.
4555 South Palo Verde Road
Suite 123
Tucson, Az 85714
Securities and Exchange Commission
Division of Corporate Finance
Washington, DC 20549
Via Fax (703) 813-6989
Attention: Brian R. Cascio
CDEX, Inc.
Form 10-KSB for the fiscal year ended October 31, 2008
Filed February 13, 2009
File No. 000-49845
Dear Mr. Cascio:
This letter is being submitted in response to the Staff's comment letter dated
March 6, 2009 to the company's form 10-KSB. We have number the responses
contained herein to correspond to the comments contained in the Comment Letter.
Form 10-KSB for the Fiscal Year Ended October 31, 2008
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Item 8A. Controls and Procedures, page 15
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1. COMMENT While it appears that you may have conducted an evaluation of
internal control over financial reporting, your disclosure about
that evaluation is not complete and you have not provided an
appropriate conclusion as required by Item 308T(a)(3) of
Regulation S-B. We note that the first sentence of the second
paragraph states that you conducted an evaluation of internal
control over financial reporting, and the third sentence of that
paragraph expresses a conclusion on the effectiveness of
disclosure controls and procedures. Please note that disclosure
controls and procedures and internal control over financial
reporting are not interchangeable concepts. Your filing should
present management's conclusion on the effectiveness of
disclosure and control and procedures as required by Item 307 of
Regulation S-B and should also separately present management's
conclusion on the effectiveness of internal control over
financial reporting as required by Item 308T(a)(3) of Regulation
S-B. Accordingly, please revise your filing for the following.
o Please provide management's evaluation and conclusion on the
effectiveness of disclosure controls and procedures as of
the end of the period covered by the annual report as
required by Item 307 of Regulation S-B and Exchange Act Rule
13a-15(b). We also refer you to the definition of disclosure
controls and procedures as set forth in Exchange Act Rule
13a-15(e).
o Please revise to separately provide management's evaluation
and conclusion on the effectiveness of internal control over
financial reporting as of the end of the period covered by
the annual report as required by Item 308T(a)(3) of
Regulation S-B and Exchange Act Rule 13a-15(c). We also
refer you to the definition of internal control over
financial reporting as set forth in Exchange Act Rule
13a-15(f).
o With respect to the evaluation of internal control over
financial reporting, please disclose the framework used to
evaluate the effectiveness of internal control over
financial reporting. We refer you to Item 308T(a)(2) of
Regulation S-B.
o In the first paragraph you provide a partial definition of
internal control over financial reporting. In your revised
disclosure, please provide the complete definition of
internal control over financial reporting as set forth in
Exchange Act Rule 13a-159f). Alternatively, you may define
internal control over financial reporting with a reference
to Exchange Act Rule 13a-15(f) without further attempt to
define the concept.
o In the first sentence of the second paragraph, please note
that the requirement to evaluate internal control over
financial reporting is set forth in Exchange Act Rule
13a-15(c). In that regard, Exchange Act Rule 13a-15(b),
which is currently referenced in your disclosure, requires
that you perform the separate evaluation of disclosure
controls and procedures. Please ensure that Exchange Act
Rule references are correct in your revise disclosures
o With respect to the disclosure that you are not yet required
to present an auditor report on the effectiveness of
internal control over financial reporting, please revise to
insert the word "not" between the words "was" and "subject"
in the second sentence. Refer to Item 308T(a)(4) of
Regulation S-B.
ANSWER: The Company will remove the first three paragraphs of ITEM 8A
CONTROLS AND PROCEDURES and replace them with the following
statements in the amended 10-KSB to be filed:
"Management's Report on Internal Control over Financial
Reporting:
Our Company's management is responsible for establishing and
maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
for our company. Our Company's internal control over financial
reporting is designed to provide reasonable assurance, not
absolute assurance, regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the United States of America. Internal
control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our Company's assets; (ii)
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles in the
United States of America, and that our Company's receipts and
expenditures are being made only in accordance with
authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
As required by Rule 13a-15(c) promulgated under the Exchange Act,
our management, with the participation of our Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated
the effectiveness of our internal control over financial
reporting as of October 31, 2008. Management's assessment took
into consideration the size and complexity of the company and was
based on criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control over
Financial Reporting --Guidance for Smaller Public Companies. In
performing the assessment, management has concluded that our
internal control over financial reporting was effective as of
October 31, 2008.
This annual report does not include an attestation report of the
Company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not
subject to attestation by the Company's registered public
accounting firm pursuant to temporary rules of the Securities and
Exchange Commission ("SEC") that permit the Company to provide
only management's report in this annual report.
Evaluation of disclosure controls and procedures:
Disclosure controls are controls and procedures that are designed
to ensure that information required to be disclosed in our
reports filed under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a Company in
the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company's management,
including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure. Our
management carried out an evaluation under the supervision and
with the participation of our CEO and CFO, of the effectiveness
of the design and operation of our disclosure controls and
procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 ("Exchange Act"). Based upon that
evaluation, the Company's CEO and CFO have concluded that the
Company's disclosure controls and procedures were not effective
as of October 31, 2008, due to management's failure to include
its report on internal control over financial reporting in the
Form 10-KSB as required."
2. COMMENT As a related matter, please consider whether management's failure
to provide its conclusion on the effectiveness of internal
control over financial reporting impacts its conclusion regarding
the effectiveness of your disclosure controls and procedures as
of the end of the fiscal year. In particular, please consider the
definition of disclosure controls and procedures provided in Rule
13a-15(e), which indicates that effective controls and procedures
would ensure that information required to be disclosed by the
issuer is recorded, processed, summarized and reported within the
time periods specified in the Commission's rules and forms. In
addition, as discussed in Compliance and Disclosure
Interpretation 115.02, which you can find at
http:www.sec.gov/division/corpfin/guidance/regs-kinterp.htm,
failure to file management's report on Internal Control over
Financial Reporting rendered your annual report materially
deficient and also rendered the company not timely or current in
its Exchange Act Reporting. In light of these facts, please
explain how you could conclude that disclosures and procedures
were effective. Alternatively, please amend the Form 10-KSB to
disclose management's revised conclusion on the effectiveness of
your disclosure controls and procedures, i.e. that DC&P were not
effective as of the end of the fiscal year.
ANSWER: The Company will include the following statement in the amended
10-KSB to be filed:
"Evaluation of disclosure controls and procedures:
Disclosure controls are controls and procedures that are designed
to ensure that information required to be disclosed in our
reports filed under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in
the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company's management,
including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate
to allow timely decisions regarding required disclosure. Our
management carried out an evaluation under the supervision and
with the participation of our CEO and CFO, of the effectiveness
of the design and operation of our disclosure controls and
procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 ("Exchange Act"). Based upon that
evaluation, the Company's CEO and CFO have concluded that the
Company's disclosure controls and procedures were not effective
as of October 31, 2008, due to management's failure to include
its report on internal control over financial reporting in the
Form 10-KSB as required."
3. COMMENT Under "Changes in Internal Controls over Financial Reporting,"
please revise to state whether there was any change in internal
control over financial reporting during the most recent quarter
that has materially affected or is reasonably likely to
materially affect internal control over financial reporting. We
refer you to the language in Item 308T(b) of Regulation S-B.
ANSWER: The Company will remove the existing statement in ITEM 8A
CONTROLS AND PROCEDURES and will include the following statement
in the amended 10-KSB to be filed, "There has been no change in
the Company's internal control over financial reporting for the
quarter ended October 31, 2008 that materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting."
Financial Statements
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Report of Independent Registered Public Accounting Firm, page F-2
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4. COMMENT We reference the second paragraph of the audit report, which
states that "we conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board,
generally accepted in the United States of America." Please have
your auditors revised their audit report to refer to the
standards of the Public Company Accounting Oversight Board
(United States), consistent with PCAOB Auditing Standard No. 1.
ANSWER: The Company has received the updated audit opinion letter and
will include it with its amended 10-KSB.
Note11. Commitments and Contingencies, page F-16
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5. COMMENT We note your disclosure "the Company is in arrears on a
substantial number of its financial obligations." Please tell us
and revise future filings to clarify whether you are in default
of any of your obligations or borrowings.
ANSWER: The Company will include in future filings a general status of
liabilities in arrears, if appropriate, and whether the Company
has received formal notice of default regarding any of those
liabilities. Additionally, it should be noted that the Company
did disclose the existence of litigation related to a liability
in arrears in Note 11 of its financial statements.
Note 12. Going Concern, page F-16
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6. COMMENT We note that you will require $2,500,000 to satisfy your current
budgetary projections. Please tell us and disclose in Note 12 and
the liquidity section of MD&A in future filings how you plan to
raise the required funds.
ANSWER: In future filings the Company will disclose in several locations
its fundraising status related to budgetary needs, as
appropriate. For the current FY2008 Form 10-KSB, the Company
included the following in the RISK FACTORS section:
"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
revenue from the sale of our products, 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 through bank
borrowings or equity or debt financing over the next twelve
months. We continue to seek prospective investors who may provide
some of this funding. However, such funding may not be available
when needed or may not be available on favorable terms. Certain
family members or business entities of our management team have
loaned funds to CDEX on an as-needed basis although there is no
definitive or legally binding arrangement to do so. If we do not
produce revenues and become profitable, eventually, we will be
unable to sustain our business."
Note 13. Subsequent Events, page F-17
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7. COMMENT Please tell us how you plan to account for the modifications
relating to Gemini Master Fund. Specifically, we note that you
reset the conversion provisions and the exercise price of 30% of
the Transaction Document warrants.
ANSWER: The Company is currently evaluating the impact the modifications
relating to the Gemini Master Fund note will have on its
financial statements and will disclose that impact in the next
quarterly statement following the completion of the evaluation.
Exhibits 31.1 and 31.2
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8. COMMENT We note that you omitted a portion of the introductory language
in paragraph 4 of Item 301(b)(31)(i) of Regulation S-K and that
you omitted paragraph 4(b) of Item 601(b)(31)(i) of Regulation
S-K, both of which refer to internal control over financial
reporting. Please file an amendment to the Form 10-KSB to include
certifications that include the required paragraphs. In addition,
we note your reference to the Form 10-K in the first paragraph of
the certification of your Chief Financial Officer. Since you have
filed a Form 10-KSB please revise the reference in the first
paragraph.
ANSWER: The Company will include the introductory language in paragraph 4
of Item 301(b)(31)(i) of Regulation S-K and paragraph 4(b) of
Item 601(b)(31)(i) of Regulation S-K in the certifications with
the amended 10KSB. Additionally, the first paragraph of the
certification of our Chief Financial Officer will be amended to
reference the Form 10-KSB.
9. COMMENT: We also note that the identification of the certifying
individuals at the beginning of the certifications required by
Exchange Act Rule 13a-14(a) also includes the title of the
certifying individual. In future filings, the identification of
the certifying individual at the beginning of each certification
should be revised so as not to include such individuals' title.
ANSWER: In future filings, The Company will not include the title of
certifying individuals at the beginning of the certifications
required by Exchange Act Rule 13a-14(a).
COMMENT: We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts
relating to a company's disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please provide, in
writing, a statement from the company acknowledging that:
> the company is responsible for the adequacy and accuracy of
the disclosure in the filing
> staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any
action with respect to the filing; and
> The company may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person
under the federal securities laws of the United States.
ANSWER: The Company acknowledges that:
> the company is responsible for the adequacy and accuracy of
the disclosure in the filing
> staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any
action with respect to the filing; and
> The company may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person
under the federal securities laws of the United States.
Please do not hesitate to contact the undersigned if you have any
comments or questions.
Very truly yours,
CDEX, Inc.
By: /s/ Stephen A. McCommon
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Stephen A. McCommon
Chief Financial Officer