You should read the following discussion in conjunction with our audited financial statements and related notes included elsewhere in this document. The following discussion (as well as other discussions in this document) contains forward-looking statements. Please see "Cautionary Statement Regarding Forward-Looking Statements" for a discussion of uncertainties, risks and assumptions associated with these statements. 13 --------------------------------------------------------------------------------
Results of Operations
The following table summarizes our operating results for fiscal 2013 compared to fiscal 2012: For the year ended October 31, Percent of Percent of 2013 Revenue 2012 Revenue Revenue
$ 526,706100.0 % $ 242,568100.0 Cost of revenue 127,109 24.1 110,204 45.4 Gross profit 399,597 75.9 132,364 54.6 Operating expenses: Selling, general and administrative 1,027,418 195.1 715,083 294.8 Research and development 145,557 27.6 136,035 56.1 Total operating expenses 1,172,975 222.7 851,118 350.9 Loss from operations $ (773,378 )(146.8 ) % $ (718,754 )(296.3 ) Revenue was approximately $527,000and $243,000for the fiscal years ended October 31, 2013and 2012, respectively, an increase of $284,000or 117%. This increase was primarily attributable to the $338,000sale of our Valimed CCTs to Al-Essa Medical & Scientific Equipment Companyin Safat, Kuwait, which also included installation, training and supplies. We also realized an increase in revenue from the sales of our ID2 Meth Scanner product of approximately $5,000. Offsetting these increases are approximately $70,000reductions in maintenance, lease and Pay Per Use revenues. Cost of revenue was $127,000and $110,000for the fiscal years ended October 31, 2013and 2012, respectively, an increase of $17,000or 15%. This slight increase was primarily attributable to the lower cost of materials of our older CCT product. Gross profit margins increased to 76% in fiscal 2013 from 55% in fiscal 2012. Selling, general and administrative expense was $1,027,000and $715,000for the fiscal years ended October 31, 2013and 2012, respectively, an increase of $312,000or 44%. This increase primarily relates to increases in non-cash share-based compensation expenses of approximately $346,000and compensation of approximately $93,000. These increases were partially offset by the posting in 2011 of previously unrecognized claims arising from the bankruptcy proceedings of approximately $71,000, and reduction in 2013 of legal and professional expenses of $35,000and travel and marketing of $35,000. Research and development expense was $146,000and $136,000for the fiscal years ended October 31, 2013and 2012, respectively, an increase of $10,000or 7%. The increase primarily relates to an increase in travel of $10,000, employee and consultant compensation expense of approximately $5,000partially offset by a decrease in materials of $5,000.
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. To date,
CDEXhas incurred substantial losses, and may require financing for operating expense, working capital and other corporate purposes. 14 -------------------------------------------------------------------------------- As of October 31, 2013, we had positive net working capital of $382,000including $99,000of cash. We had a net decrease in cash of $462,000during fiscal year ended October 31, 2013all of which were used in operating activities during fiscal 2013 primarily related to our net loss of $745,000and an increase in inventory of $63,000, a decrease in current liabilities of $55,000and negotiated settlements on accounts payable of $43,000, partially offset by non-cash share-based compensation of $415,000and depreciation and amortization of $31,000.
Off-Balance Sheet Arrangements
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in
the United Statesrequires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, Management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Significant estimates include revenue recognition, the valuation of inventory and valuation assumptions used in recognizing stock-based compensation expense.
Sales revenues are recognized when persuasive evidence of an agreement with the customer exists, products are shipped and installation, if necessary, completed, title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, collectability is reasonably assured and there are no significant future performance obligations. Service revenues are recognized at the time of performance. Service maintenance revenues are recognized ratably over the term of the agreement. Deferred revenue represents amounts invoiced or received but not recognized as revenue if the above revenue recognition terms are not met.
Inventory is valued at the lower of actual cost based on a first-in, first-out basis or market. Inventory includes the cost of component raw materials and manufacturing.
We typically determined stock-based compensation expense based on the fair value of awards at the measurement date. In the case of employees, the measurement date is the date of grant. In the case of outside consultants, the measurement date is typically the date at which performance is complete. When the measurement date is not the date of grant, the total cost is typically re-measured at the end of each reporting period based on the fair value on that date. Expense related to share-based payments is recognized over the period during which services are provided.