With evidence of a thaw in frozen corporate hospital budgets, it is time to accelerate our marketing and sales efforts, which I am pleased to report, can be done thanks to loyal investors stepping forward – they are as much a part of the CDEX team as our Tucson based staff. Finally, with the upswing in units under contract and the need to look again at increasing production for 2010, I believe it is time to bring in a commercialization management team with medical and public company experience to take us to the next level. To complement our President Greg Firmbach’s strengths in sales and marketing, we are beginning a search for a new CEO with outstanding product commercialization and public company experience. Several candidates have already contacted us and we look forward to hearing from others who may be interested and qualified.

In addition, as we expand our revenue base we will bring in additional scientific support to give us a new look at our product and technology plans, which include reopening our efforts in explosive detection, an area in which we have received inquiries from other companies.

Many of you know that Tim Shriver, our COO, has been the Company’s technical rudder in moving our technology from ideas to marketable products. I think it is safe to say that he has been the single most important individual in the Company’s advancement. While Tim has been a true work horse for the Company since its inception, with Greg moving up to the position of President, Tim will be able to step down from the day to day rigor of the COO position. He will continue to lead Technical Operations and support the Company going forward.

In my last CEO Corner I noted that the CDEX story for 2009 was pulling through during turbulent economic times with the support of clients, employees, shareholders, vendors, and investors. The CDEX story for 2010 is shaping up to be the breakout year that 2009 should have been and getting back to our 2007 and 2008 trend of record revenues. Thanks for your interest and support of the Company and stay tuned for the future.

Malcolm Philips

In my last CEO Briefing, I reported on the actions that CDEX had taken in the wake of the global economic downturn to allow the Company to move forward. With year over year record revenues in FY2007 and 2008, we had expected FY2009 to be a major breakout year for the Company. As I reported to you in both the 2nd and 3rd quarters of FY09, this will not be the case, and our quarterly numbers have borne that out. While enthusiasm for ValiMed MVS remains high, capital budgets of our potential hospital clients were all but frozen and we all know about the spending constraints on stressed local and state governments. Virtually all businesses were buffeted by the same currents we were experiencing. Many did not survive the trip with high unemployment giving testimony.

While this is the hard news, the good news is that we are coming through the downturn with positive momentum and see a great number of indications that the waters are becoming smoother. As I reported in recent Press Releases, demand for our ValiMed MVS products is strong and sales/pay per use agreements are being written. Four ValiMed MVS Units were under contract in the 4th Q FY09 compared to none in the 3rd Q. I foresee the 1st Quarter FY10, which is typically flat due to the holidays, as continuing our growing demand for ValiMed MVS Units.

I just recently returned from a three country Middle East trip supporting our regional distributors, Al Essa and Virtus Trading Company, where I presented seminars on prevention of errors in the compounding of high risk medications to many pharmacists as part of their Continuing Medical Education Program. (See our recent Press Release related to the trip (November 16, 2009 Press Release) and the Power Point Presentation related to the Seminars (Middle East Presentation). My clear and unequivocal message was well received -- human errors are being made in all compounding pharmacies and a technological safety net is needed to protect patients and save unnecessary expenses for hospitals. Studies support that message and I found that Directors of Pharmacy concur -- a change is needed! That is the market that we are developing with our ValiMed MVS product line that assures the right drug at the right dose every time.

We are also talking with Patient Safety Foundations. It is important that CDEX work with such foundations to get the message out. Friends of CDEX can help by supporting Patient Safety Foundations that are focused on medication errors in compounding of high risk medications, such as the Emily Jerry Foundation, www.EmilyJerryFoundation.org. These organizations not only provide good information to the consuming public, but also fund the purchase of products that improve safety. For example, the two ValiMed MVS Units recently purchased by Geisinger Medical Center were purchased through local contributions.

While we have devoted most of our resources recently to the medical markets, we have still been moving ahead with upgrades to our ID2™ product line. By the way, I am pleased to add that both the ValiMed MVS and ID2 Meth Scanner are now on the GSA schedule. That is a solid start for future government sales. Tim Shriver, our COO, just put a new management briefing on the CDEX website discussing some of the technical breakthroughs that we have achieved – good stuff! [INSERT LINK] Grab his briefing and catch up on what we are doing technically with both product lines. On that score, I cannot say enough about our employees. They are working double duty, hitting the road making sales calls and continuing to handle day to day issues. Again, great work!

I want to close by saying that 2009 has been a turbulent year, but there is much to be thankful for looking forward. I believe that 2010 is shaping up to be the breakout year that we felt 2009 would be. Given the haymaker that the global downturn gave our economy, I am proud of the way that CDEX supporters have hung together and helped us move through these turbulent times; that includes clients, employees, shareholders, vendors, and investors. That is the real story that is worth talking about. I will continue to keep you informed of CDEX progress. Thanks for your interest and support of the Company and stay tuned for the future.

Malcolm Philips CEO and Chairman

Interestingly, we were speaking to Decatur over a year ago and I decided to slow the discussions to allow CDEX the opportunity to market the ID2 Meth Scanner directly. However, while there was substantial interest in the ID2 Meth Scanner, the reality of the marketplace confirmed that the law enforcement market, particularly during the down economic conditions that the world is now facing, requires relationship selling and CDEX did not have those relationships. So, we altered course and consummated the deal with Decatur, and I could not be more pleased. Decatur has stepped forward as a great partner providing commercial and technical support, and has hit the ground running. We have blended our relationships with Decatur and ABMI, our 8A and Disabled Vet Partner who is placing our products on the GSA Schedule (see September 3, 2008 Press Release at http://cdexinc.com/pages/pr_2008.html), and believe that Decatur and ABMI will be a very strong team driving ID2 revenues. This is an exciting time for CDEX employees, as reports of use of the Meth Scanner in actual busts are beginning to come in across the nation. Same feelings as when we started getting reports of ValiMed™ saving lives in US hospitals – CDEX is making a difference in peoples’ lives today!

The property inspection side of the ID2 Meth Scanner market has continued to grow as the public learns more about the dangers of passive methamphetamine exposure, such as being in a house, car, apartment, or hotel room where meth has been used. And make no mistake about it, meth use spans all socio-economic levels. This growing awareness is rightly spawning action by individuals demanding meth inspections before purchase and by state legislatures requiring such actions, e.g., States with current legislation related to some form of inspections include Colorado, Idaho, Oregon, Washington, California, Minnesota, Arizona, Montana, Arkansas, and Hawaii; States with pending legislation include Texas, Oklahoma, South Dakota, Tennessee, and Ohio. Ask your representative about protection in your State. We are also working with certain inspection and remediation companies today to expand our visibility in this area and refine the procedure for use of the Scanner as a full scope meth inspection tool. We believe that sales growth in this area will accelerate as education of the public establishes a robust market.

Importantly, the basic science associated with the ID2 product line (as well as the ValiMed™ product line) is now fairly mature within our company. Product refinements and expansion are being developed in a number of areas, such as addition of other ID2 drugs (e.g., cocaine and heroin), miniaturizing the ID2 devices to provide reduced scope scanners price-pointed to different markets, and adding illegal drug signatures to our table top ValiMed unit for sale into the law enforcement market. These expansions are being done in conjunction with partners and should provide a well balanced product line in the future, particularly as we expand the ID2 line into the international markets that have different needs. For example, our distributor in China has indicated that the two major drugs used in the urban Chinese market are methamphetamine and Ketamine (a signature that we had earlier tested for the ValiMed device), with cocaine and heroin detection coming into play in coastal regions to impede drug trafficking to the US. Speaking about the international market, we look forward to working with Decatur’s parent company, Bowmer & Kirkland, LTD, in the introduction of the ID2 product line worldwide.

Turning to our ValiMed™ product line, we are continuing to make sales/rentals in both the US and international markets, albeit at a slower pace than I had hoped. While interest continues to grow and our sales pipeline continues to expand, the global economic downturn has tightened access to capital funds resulting in delay in ordering ValiMed units. To counter this potential, several months ago we introduced a new sales program based on multi-year contracts for purchase of our consumable, patented cuvettes required each time the ValiMed unit is used. This would shift funding demands from the capital budgets to the hospital pharmacies’ operating budgets. In addition, as the Stimulus Package funding process becomes more refined, we are encouraging and helping hospitals in our pipeline to purchase multiple ValiMed units using this funding source. ValiMed provides a perfect vehicle for Stimulus Package funding – it creates jobs in multiple sectors, saves lives and money and fits squarely within a major focus of the Administration – improving health care. As to the international front, announcements in the near term – stay tuned.

Next, I would like to turn to the 1st Quarter FY09 10Q we filed recently. At the outset, as you know, our 1st quarters are historically low, coming over Thanksgiving, Christmas and the New Year holidays. The bad news is that the results reflect the economic reality of tightening funding sources that is impacting sales and investments, as it is impacting most other companies around the world. The good news is that the desire for our products continues to be high; several months ago we embarked on programs to counter the economic downturn which are now gaining traction; Meth Scanner sales are kicking into the revenue side of the equation; and we have tightened our belt and are weathering the storm. Operationally we are doing the right things. Going forward, this will bear fruit. The next 2-3 calendar quarters will be helpful in understanding the extent of the global downturn. The punch line is that the near term has some uncertainties, but the longer term appears to be positive for both product lines.

Finally, I would like to talk a little about Dr. Wade Poteet and what he has meant to the Company. Wade has been with the Company since its formation in 2001. During his tenure with CDEX, he has provided valuable leadership in a number of ways. For example, he helped the CDEX Team fully understand the technology and how we could work with it. As it became a more mature science to the CDEX Team, he was critical as a problem solver not only with the science but also in practical development work. Now the principal work going forward is in developing/expanding the applications -- the “D” part of the R&D cycle. About two years ago, Wade came to me noting that he was in his mid 60s and wanted to cut back his time and eventually to work from his ranch house on projects, as needed, while he pursued his many and varied other interests. (On that score, Wade is a grandfather, rancher, hiker, member of his Church Choir, bible study leader, bass player who has performed in over 2820 gigs in the Tucson area, avid gun collector, and ham radio operator, just to name a few.) We agreed and the transition started about a year ago and will end on April 1, when he steps down as our Principal Scientist. Wade will continue to be a consultant to the company assisting with other scientific resources available to us on projects, as needed. The CDEX Team has been a family over the past seven years and that will not change. Wade will always be thought of as CDEX’s founding technical leader and, as good friends, we wish him well.

On that note, thanks for your interest in our Company and stay tuned for the future!

Malcolm Philips
CEO and Chairman

     •Our products are saving lives around the world
     •Through 2008 our products continue to produce record revenues year over year
     •We have already projected record revenues for 2009
     •We have new products in the pipeline, and, most importantly
     •Our Team has kept to our fundamental beliefs that shape us as people

2008 was a very unusual year for CDEX, and not just for us but for much of the world. While our operations moved forward aggressively, the world’s economy and stock markets took a nosedive, and our stock price slid down with the market. This was frustrating because no matter how well our company performed operationally, it was not reflected in our stock price. And make no mistake about it, 2008 was a year of major accomplishments for CDEX. To name only a few:

     •In 2008 we modified our ValiMed™ product line from one that requires onsite installation support to one where the clients could install it themselves. This was huge, We modified the ValiMed software to incorporate “artificial intelligence” allowing the unit to react to the changing conditions on site without requiring individual modifications; we developed and shipped to clients our next generation ValiMed Unit, the Model CCT (the CCT uses the same technology employed in the Model VM, currently installed at hospitals around the world, but with a smaller footprint, enhanced sensitivity, comprehensive reporting tools and networking capabilities); we completed successful TUV certification of the Model CCT to allow broad introduction of the CCT into the US and international markets; and we developed a number of medication safety related products using the CCT platform.
     •In 2008 we continued our US sales expansion of ValiMed. By the end of the year, we more than doubled our ValiMed hospital client base, had record sales of ValiMed for the year, demonstrated ValiMed at major US medical conferences/shows, and built a very robust ValiMed sales pipeline.
     •In 2008 we began a committed focus of introducing ValiMed to the European community. By the end of 2008, we had installed ValiMed units in major hospitals in Europe and the Middle East for reference testing, had signed international distribution agreements with major distributors representing about 10 countries (one distributor being a multibillion dollar company), had contractual exclusivity commitments for substantial quantities of ValiMed Units over a three year period, had been showcased at several of the major international medical shows, and had sold and shipped our first international ValiMed Units.
     •In 2008 we completed development and testing of the ID2 Meth Scanner™ (a completely independent product line that detects trace quantities of methamphetamine in the low nanogram range); modified the Scanner to add features requested by our Beta Test partners; manufactured our first production Meth Scanner; began development work on insertion of other drug signatures into the Scanner; and began developing a miniaturized version for broader market applications.
     •In the last half of 2008 we started building a sales team for the ID2 product line, sold and delivered our first ID2 Meth Scanners to national and international clients, signed a number of national and international distributors to drive sales in 2009 and beyond, and demonstrated the product line at several security and property inspection conferences and shows in the US.
     •In addition, in 2008 we significantly updated our web site, expanded our staff by around 40%, provided legal, financial, HR and logistical support for a company with employees and consultants in five different locations.
     •Finally, and most important, in 2008 we had record revenues and have already projected record revenues for 2009.

Looking at this list and our web site (with press releases) that tell a more full story, operationally we rocked in 2008 by any standard, and are well positioned for an explosive year in 2009. I have to add that we also have had our share of disappointments and struggles in 2008, and the world wide economy has not helped in that regard. However, we are committed to continue following the Mission Statement that this company was formed around – developing technology into products that are making meaningful differences in the world, while still being true to the fundamental beliefs that define us. We are honored by where this has taken us and excited about where it is leading. There will be a number of difficult challenges in 2009, all of which I am looking forward to tackling – together with the CDEX Team. To CDEX employees, consultants, shareholders, distributors, clients and vendors, I thank you for your support in 2008 and look forward to another record year in 2009. To others, think about joining us!

Thanks for your interest in our Company. Happy New Year to all and stay tuned for the future!

Malcolm Philips
CEO and Chairman

To explain what I mean, in the US we have generally consolidated our compounding practices in central pharmacies – the theory is that you can better train and control a smaller number of people (pharmacy technicians) doing this fulltime, every day. (You should know that because of deaths/injuries as a result of errors in compounding practices in the US, there is new state and federal legislation on the books/being proposed mandating increased levels of training of pharm techs that we believe will broaden a formal training market for ValiMed in the US.) However, in many countries most of the compounding (apart from some specialized medications such as chemotherapy drugs) is done in the wards by nurses. The compounding nursing staff is extremely large in comparison to the typical compounding pharmacy staff. There have been numerous studies concluding that human error is a daily occurrence with compounding nursing staffs, as with centralized pharmacy staffs. From CDEX’s standpoint, this means we need to ensure that ValiMed is seamlessly integrated into the daily practices of the nursing staff. The benefit to CDEX of selling ValiMed into a hospital where nurses do much of the compounding is obviously the increased unit sales per hospital and attendant ancillary revenue associated with more units in the field.

I was also struck with a growing problem concerning counterfeit medications. The problem is not just that counterfeit medications rob the legitimate companies of economic benefit but, and perhaps more importantly, it is often the case that counterfeit medications are “altered” and potentially dangerous to the patients. ValiMed’s ability to detect counterfeit medications that could injure patients has always been a strong point of interest, particularly in those many countries outside the US where counterfeit medications is a harsh and daily reality. (I might add that medication counterfeiting is growing and has crossed the boarders of most countries including the US – only the level of counterfeit penetration is a point of question.) The greater counterfeit penetration in some international medication supply channels is raising ValiMed’s visibility to international health care decision makers. We believe our visibility will continue to grow as counterfeiting unfortunately expands and will explode if the threat of medication terrorism becomes a reality. While we pray that this never occurs, we expect to be well positioned to assist in minimizing any resulting impact.

In summary, my trip was very successful. We strengthened our international relationships, laid foundations for new relationships and were very encouraged by the scope of the international market. I believe that the ValiMed product line is a winner for the company and will be a cornerstone in the continuing year over year expansion of CDEX revenues.

While I have run out of time, one final comment -- hey, how about the COPSWEST Trade Show and Conference in Ontario, California for the ID2 Meth Scanner™ last week! Thanks for your interest in the company and stay tuned for the future.

Malcolm Philips
CEO and Chairman

As we move forward I am mindful of global economic conditions and am watching closely how these challenging times may impact the company. For example, I expect the downturn in housing sales to have some impact on ramp up of sales of the ID2 Meth Scanner, and in some instances we may see tightening budgets in the ValiMed market. While it is too early to quantify these affects, I am confident that our revenue for our next fiscal year (FY 2009) will significantly exceed the final revenue tally for FY 2008, which we close on October 31st.

To get below the surface on 3rd Quarter revenues, they are a combination of ValiMed sales and leases, as well as recurring revenue associated with sales of non reusable cuvettes (generally around $1.50 - $2.00 each time the Unit is used) and support fees– both of which will grow in total as we continue to increase the number of ValiMed units in the field. In addition, we saw revenues in the 3rd Quarter from our first sales of our new ID2 Meth Scanner product line.

What are the actions behind the revenue snapshot? I think that if you just scanned the Press Releases for this year you would get a good indication of what we thought were important milestones. To give perspective as you review these PRs, these actions are reflective of a strategic transformation of our company into a market driven company leveraging its technology products. Putting the infrastructure in place for this transition was important – bringing in two quality Sales/Marketing VPs (Pascal Pouligny and Steve Schmidt) with strong US and international histories and restructuring the company along product lines (the newly created Medication Safety Division and Security Division) gives us that basic infrastructure. Next was having quality products filling true needs in the market place – the ValiMed and ID2 Meth Scanner product lines fit that bill. Finally, Pascal and Steve are aggressively expanding our channels of distribution in the US and internationally through the addition of distributors and the recruiting of talented sales and marketing personnel into the company. We expect that the result will be two strong product lines addressing global needs and that bodes well for CDEX in FY2009. There is a lot of hard work in front of us and no doubt we will face new challenges as we grow the company. However, we see an increasing number of opportunities to fulfill critical customer needs with our CDEX technologies.

Well, that’s it for now. In future messages I will talk about other aspects of the company, including how customers are using our products, some exciting new product developments and how we view our market opportunities. Thanks for your interest in the company and stay tuned for the future.

Malcolm Philips
CEO and Chairman