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EX-31 - CERTIFICATION - VITRO DIAGNOSTICS INCexhibit310713.htm
EX-32 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - VITRO DIAGNOSTICS INCexhibit320713.htm
EXCEL - IDEA: XBRL DOCUMENT - VITRO DIAGNOSTICS INCFinancial_Report.xls

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


FORM 10-Q


[ X ]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2013

OR


[   ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT

For the transition period from          to         


Commission file number 1-17378


VITRO DIAGNOSTICS, INC.

(Exact Name of Small Business Issuer as Specified in its Charter)


               Nevada               

     84-1012042     

(State or other jurisdiction

I.R.S. Employer

of incorporation or organization)

Identification number


4621 Technology Drive, Golden, CO  80403
(Address of Principal Executive Offices)

Issuer's telephone number:     (303) 999-2130

 

Former name, former address, and former fiscal year, if changed since last report

 

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


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,  a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):  

Large accelerated filer [    ] Accelerated filer [    ]   Non-accelerated filer [    ]

Smaller Reporting Company [  X  ]  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ]  No  [ X ].


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [  ]


As of September 16, 2013, the Registrant had 19,803,403 shares of its Common Stock outstanding.






PART 1.  FINANCIAL INFORMATION


Item 1.

   Financial Statements


The financial statements included herein have been prepared by Vitro Diagnostics, Inc. (the Company), pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such SEC rules and regulations.  In the opinion of management of the Company the accompanying statements contain all adjustments necessary to present fairly the financial position of the Company as of July 31, 2013 and October 31, 2012, and its results of operations for the three and nine month periods ended July 31, 2013 and 2012, its statement of changes of shareholders’ deficit for the period November 1, 2011 through July 31, 2013, and its cash flows for the nine month periods ended July 31, 2013 and 2012.  The results for these interim periods are not necessarily indicative of the results for the entire year.  The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto filed as a part of the Company's annual report on Form 10-K.    












VITRO DIAGNOSTICS, INC.

 

 

Balance Sheets

 

 

 

 

 

 

 

July 31, 2013

 

October 31, 2012

 

 

(unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

 

Cash

 $                    -   

 

 $                5,286

 

Accounts receivable

                  4,543

 

                  4,688

 

Inventory, at cost

                 28,751

 

                 26,678

 

     Total current assets

                 33,294

 

                 36,652

Equipment, net of accumulated depreciation of $105,454 and $94,991

                 12,402

 

                 17,026

Patents, net of accumulated amortization of $13,200 and $10,802 (Note A)

                 18,775

 

                 20,583

Deferred costs (Note A)

                 11,987

 

                  9,471

Other assets

                  1,449

 

                  1,449

 

     Total assets

 $              77,907

 

 $              85,181

Liabilities and Shareholders' Deficit

 

 

 

Current liabilities:

 

 

 

 

Cash overdraft

 $                4,542

 

 $                    -   

 

Lines of credit (Note D)

                 37,673

 

                 37,091

 

Accounts payable

                 36,155

 

                 38,024

 

Accounts payable - related parties (Note B)

                 23,629

 

                 30,533

 

Advances and accrued interest payable to officer (Note B)

               667,738

 

               544,058

 

Accrued payroll expenses (Note B)

            1,199,658

 

            1,190,208

 

     Total liabilities

            1,969,395

 

            1,839,914

Commitments and contingencies (Notes A, B, C, D, E, F, G, and H)

 

 

 

Shareholders' deficit (Note E):

 

 

 

Preferred stock, $.001 par value; 5,000,000 shares authorized;

   -0- shares issued and outstanding

 

 

 

                       -   

 

                       -   

Common stock, $.001 par value; 50,000,000 shares authorized;

    19,803,403 and 19,308,912 shares issued and outstanding

 

 

 

                 19,803

 

                 19,309

 

Additional paid-in capital

            5,413,015

 

            5,382,509

 

Services prepaid with common stock

                 (2,500)

 

                 (1,458)

 

Accumulated deficit

           (7,321,806)

 

           (7,155,093)

 

     Total shareholders' deficit

           (1,891,488)

 

           (1,754,733)

 

     Total liabilities and shareholders' deficit

 $              77,907

 

 $              85,181




See accompanying notes to these unaudited financial statements

1




VITRO DIAGNOSTICS, INC.

Statements of Operations

(unaudited)

 

 

 

For the Three Months Ended

 

 

 

July 31,

 

 

 

2013

 

2012

Product sales

 $            7,081

 

 $            5,397

 

Cost of goods sold

             (1,369)

 

             (1,445)

 

 

Gross profit

               5,712

 

               3,952

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

Research and development

             27,543

 

             28,971

 

Selling, general and administrative

             11,223

 

             13,750

 

 

Total operating costs and expenses

             38,766

 

             42,721

 

 

Loss from operations

           (33,054)

 

           (38,769)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

Interest expense

           (15,351)

 

           (12,633)

 

Fair value of stock purchase warrants

 

 

                   -   

 

License fee income

 

 

                   -   

 

Forgiveness of debt

                   -   

 

                   -   

 

 

 

 

 

 

 

 

Income (loss) before income taxes

           (48,405)

 

           (51,402)

 

 

 

 

 

 

Provision for income taxes (Note C)

                   -   

 

                   -   

 

 

 

 

 

 

 

 

Net income (loss)

 $         (48,405)

 

 $         (51,402)

 

 

 

 

 

 

Net loss per common share, basic and diluted

 $            (0.00)

 

 $            (0.00)

 

 

 

 

 

 

Shares used in computing net loss per common share:

 

 

 

 

Basic and diluted

       19,729,277

 

       19,260,814




See accompanying notes to these unaudited financial statements

2




 

VITRO DIAGNOSTICS, INC.

Statements of Operations

(unaudited)

 

 

 

 

 

For the Nine Months Ended

 

 

 

July 31,

 

 

 

2013

 

2012

Product sales

 $          27,223

 

 $          13,166

 

Cost of goods sold

             (8,627)

 

             (5,582)

 

 

Gross profit

             18,596

 

               7,584

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

Research and development

             97,248

 

           101,249

 

Selling, general and administrative

             44,133

 

             60,243

 

 

Total operating costs and expenses

           141,381

 

           161,492

 

 

Loss from operations

          (122,785)

 

          (153,908)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

Interest expense

           (43,928)

 

           (35,190)

 

Fair value of stock purchase warrants

 

 

                   -   

 

License fee income

 

 

                   -   

 

Forgiveness of debt

                   -   

 

                   -   

 

 

 

 

 

 

 

 

Income (loss) before income taxes

          (166,713)

 

          (189,098)

 

 

 

 

 

 

Provision for income taxes (Note C)

                   -   

 

                   -   

 

 

 

 

 

 

 

 

Net income (loss)

 $       (166,713)

 

 $       (189,098)

 

 

 

 

 

 

Net loss per common share, basic and diluted

 $            (0.01)

 

 $            (0.01)

 

 

 

 

 

 

Shares used in computing net loss per common share:

 

 

 

 

Basic and diluted

       19,517,068

 

       18,887,009





See accompanying notes to these unaudited financial statements

3






VITRO DIAGNOSTICS, INC.

Statement of Changes in Shareholders' Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Prepaid with

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Common

 

Accumulated

 

 

 

Shares

 

Amount

 

Shares

 

Par Value

 

Capital

 

Stock

 

Deficit

 

Total

Balance October 31, 2011

             -   

 

 $         -   

 

     18,528,995

 

 $   18,529

 

 $     5,346,604

 

 $     (3,958)

 

 $     (6,927,436)

 

 $     (1,566,261)

Prepaid services earned (Note E)

             -   

 

            -   

 

                 -   

 

            -   

 

                   -   

 

        12,500

 

                    -   

 

              12,500

Common stock issued to director for future services (Note E)

             -   

 

            -   

 

         222,222

 

          222

 

              9,778

 

      (10,000)

 

                    -   

 

                    -   

Common stock issued for consulting services (Note E)

             -   

 

            -   

 

         120,000

 

          120

 

              4,680

 

              -   

 

                    -   

 

               4,800

Conversion of accounts payable (Note E)

             -   

 

            -   

 

         437,695

 

          438

 

            21,447

 

              -   

 

                    -   

 

              21,885

Net loss for the year October 31, 2012

             -   

 

            -   

 

                 -   

 

            -   

 

                   -   

 

              -   

 

          (227,657)

 

          (227,657)

Balance October 31, 2012

             -   

 

            -   

 

     19,308,912

 

 $   19,309

 

 $     5,382,509

 

 $     (1,458)

 

 $     (7,155,093)

 

 $     (1,754,733)

Prepaid services earned (Note E)

             -   

 

            -   

 

                 -   

 

            -   

 

                   -   

 

         8,958

 

                    -   

 

               8,958

Common stock issued to director for future services (Note E)

             -   

 

            -   

 

         169,491

 

          169

 

              9,831

 

      (10,000)

 

                    -   

 

                    -   

Common stock issued for consulting services (Note E)

             -   

 

            -   

 

           75,000

 

            75

 

              5,925

 

              -   

 

                    -   

 

               6,000

Conversion of accounts payable (Note E)

             -   

 

            -   

 

         250,000

 

          250

 

            14,750

 

              -   

 

                    -   

 

              15,000

Net loss for the nine months ended July 31, 2013

             -   

 

            -   

 

                 -   

 

            -   

 

                   -   

 

              -   

 

          (166,713)

 

          (166,713)

Balance July 31, 2013 (unaudited)

             -   

 

            -   

 

     19,803,403

 

 $   19,803

 

 $     5,413,015

 

 $     (2,500)

 

 $     (7,321,806)

 

 $     (1,891,488)





See accompanying notes to these unaudited financial statements

4





VITRO DIAGNOSTICS, INC.

Statements of Cash Flows

(unaudited)

 

 

For The Nine Months Ended

 

 

July 31,

 

 

2013

 

2012

Cash Flows from operating activities:

 

 

 

 

Net loss

 $     (166,713)

 

 $     (189,098)

Adjustments to reconcile net loss to net cash used in

  operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

           12,861

 

           15,609

 

Stock-based compensation

             8,958

 

             9,375

 

Common stock issued for consulting services

             6,000

 

             4,800

 

Changes in current assets and current liabilities:

 

 

 

  Increase in accounts receivable, inventories,

   prepaid expenses and deposits

 

 

 

           (1,928)

 

           (4,818)

 

  Increase in accounts payable and accrued expenses

           54,325

 

           47,889

Net cash used in operating activities

          (86,497)

 

        (116,243)

Cash flows from investing activities:

 

 

 

 

Purchases of equipment

           (5,839)

 

           (2,155)

 

Payments for patents and deferred costs

           (3,106)

 

           (3,360)

Net cash used in investing activities

           (8,945)

 

           (5,515)

Cash flows from financing activities:

 

 

 

 

Proceeds from advances from officer

           85,032

 

         132,300

 

Draws on lines of credit, net

               582

 

             2,835

 

Principal payments on capital lease

                 -   

 

           (7,763)

Net cash provided by financing activities

           85,614

 

         127,372

 

Net change in cash

           (9,828)

 

             5,614

Cash, beginning of year

             5,286

 

             3,023

 

Cash (Overdraft), end of period

 $         (4,542)

 

 $          8,637

Supplemental disclosure of cash flow information:

 

 

 

 

Cash paid during the year for:

 

 

 

 

   Interest

 $          5,280

 

 $          6,151

 

   Income taxes

 $               -   

 

 $               -   

 

Non-cash investing and financing activities:

 

 

 

 

  Common stock issued to directors for services

 $        10,000

 

 $        10,000

 

  Common stock issued for consulting services

 $          6,000

 

 $          4,800

 

  Common stock issued upon conversion of accounts payable

 $        15,000

 

 $        21,885





See accompanying notes to these unaudited financial statements

5



VITRO DIAGNOSTICS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS


NOTE A: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Nature of Organization


The Company was incorporated under the laws of Nevada on February 3, 1986.  From November of 1990 through July 31, 2000, the Company was engaged in the development, manufacturing and distribution of purified human antigens (“Diagnostics”) that were derived primarily from human tissues.  The Company also developed cell technology including immortalization of certain cells that allowed entry into other markets besides diagnostics.  However, during the 1990’s, the Company’s sales were solely attributable to the sales of purified human antigens for diagnostic applications.   


Following the sale of its Diagnostics operations in August of 2000, the Company began devoting all efforts to its cellular generation technology which evolved from a focus on induction of cellular immortalization to technology related to stem cells.  Stem cell technology has potentially broad application to many medical areas, including drug discovery and development together with numerous therapeutic applications to diseases involving cellular degeneration, injury or to the treatment of cancer.  The Company launched a series of products targeting basic research in stem cell technology in 2009.  These Tools for Stem Cell and Drug Discovery offer researchers basic tools needed to advance stem cell technology including stem cells and their derivatives, media for growth and differentiation of stem cells and advanced tools for measurement of stem cell quality, potency and response to toxic agents.  The Company has been granted patents for its proprietary technology related to the immortalization of human cells and subsequently expanded this technology to include patented and patent-pending technology involving generation of stem cells with potential application to a variety of commercial opportunities including the treatment of degenerative diseases and drug discovery.


The Company also owns patented technology related to treatment of human infertility.  The Company has been granted a US patent for its process to manufacture VITROPIN.  VITROPIN is a highly purified urinary follicle-stimulating hormone (FSH) preparation produced according to the Company’s patented purification process.


The Company also owns patented technology that provides protection to a specific cell line derived from human pancreatic tissues that gives rise to structures comparable to the Islets of Langerhans (beta islets).  These islets also synthesize and secrete insulin in response to elevated glucose levels, as do beta islets contained within pancreatic tissue.  Vitro has also developed a process for the commercial production its cell line-derived islets.  Furthermore, the Company previously obtained regulatory approval for an animal protocol to determine reversal of Type I diabetes, a critical step in the demonstration of efficacy.  This patent affords an exclusive proprietary position to the Company for a new cellular therapy to treat Type I diabetes.




6



Basis of Presentation – Going Concern


The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has suffered significant losses since inception and has working capital and shareholders’ deficits at July 31, 2013, that raise substantial doubt about its ability to continue as a going concern. In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financial requirements, raise additional capital, and generate revenues and profits from operations.


The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  The Company has financed its operations primarily through cash advances from the Company’s president, as well as through various private placements of equity securities.  Since the year ended October 31, 2011, the president has advanced the Company a total of $228,832 for working capital on an “as needed” basis, including $85,032 during the nine months ended July 31, 2013.  There is no assurance that these advances will continue in the future.

 

The Company has formed strategic alliances and is presently engaged in discussions with other companies that have expressed interest in the commercialization of the Company’s stem cell and fertility drug technology. Management intends to pursue these and other opportunities with the objective of establishing strategic alliances to enhance its revenue generation and to fund further development and commercialization of its key technologies.  Initial revenues from stem cell products previously launched have been established and management is pursuing additional revenue generation from this product line, as well as the development of other related products to the fullest extent possible given its resources.  A current focus is expanding distribution of the Company’s advanced stem cell media, MSCGro, since management believes that these products show performance advantages over the current leaders in this market sector.  There is no assurance that any of these initiatives will yield sufficient capital to maintain the Companys operations. In such an event, management intends to pursue various strategic alternatives.



Summary of Significant Accounting Policies


Use of estimates


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







7



Cash equivalents


For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.


Accounts receivable


Accounts receivable consists of amounts due from customers.  The Company considers accounts more than 30 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable.  At July 31, 2013 and October 31, 2012, no allowances were recorded and all amounts due from customers were considered collectible.


Inventory


Inventories, consisting of raw materials and finished goods, are stated at the lower of cost (using the specific identification method) or market.  Finished goods inventories include certain allocations of labor and overhead.  At July 31, 2013 and October 31, 2012, finished goods included approximately $9,600 and $9,800 of labor and overhead allocations, respectively.  Inventories consisted of the following:


 

July 31, 2013

 

October 31, 2012

Raw materials

 $  12,904

 

 $       12,074

Finished goods

15,847

 

          14,604

 

 $  28,751

 

 $     26,678


Shipping and freight costs


All freight costs associated with the receiving of goods and materials are expensed during the period in which it is received.  For the nine months ended July 31, 2013 and 2012, $2,816 and $2,504 are included in research and development costs in the accompanying statements of operations.  Shipping costs for products shipped to customers is generally charged to the customer at invoicing and are considered a component of the sale transaction.  For the nine months ended July 31, 2013 and 2012, $1,166 and $548, respectively, are included in product sales in the accompanying statements of operations.




8



Research and development


The Company’s operations are predominantly in research and development (“R&D”).  These costs are expensed as incurred and are primarily comprised of costs for: salaries, overhead and occupancy, contract services and other outside costs, quality assurance and analytical testing. As the Company’s operations include manufacturing and R&D, we report cost of goods sold, including estimates of labor, materials and overhead allocations to the production of specific products. 



Property, equipment and depreciation


Property and equipment, generally consisting of laboratory equipment and office equipment and furniture, are stated at cost and are depreciated over the assets’ estimated useful lives ranging from three to seven years using the straight-line method.  Depreciation expense totaled $10,463 and $13,255 for the nine months ended July 31, 2013 and 2012, respectively.


Upon retirement or disposition of equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations.  Repairs and maintenance are charged to expense as incurred and expenditures for additions and improvements are capitalized.


Patents, deferred costs and amortization


Patents consist of costs incurred to acquire issued patents.  Amortization commences once a patent is granted.  Costs incurred to acquire patents that have not been issued are reported as deferred costs.  If a patent application is denied or expires, the costs incurred are charged to operations in the year the application is denied or expires.


The Company amortizes patents over a period of ten years.  Amortization expense totaled $2,398 and $2,354 for the nine months ended July 31, 2013 and 2012, respectively.  Estimated future amortization expense for each of the next five fiscal years is as follows:


Year ended October 31,

 

 

2013

$

800 

2014

 

3,198 

2015

 

3,198 

2016

 

3,198 

2017

 

      3,198

Thereafter

 

 5,183    

 

$

 18,775 




9




At July 31, 2013 the Company had one patent as follows:

Generation and differentiation of adult stem cell lines

 $

31,975 

(This patent is for a proprietary stem cell line with potential application to treatment of diabetes in both animals and humans.)

 

 

    Less accumulated amortization

 

(13,200)

 

 $

18,775


The Company has incurred costs relating to the filing of a new United States patent application entitled “POU5-F1 Expression in Human Mesenchymal Stem Cells” and the development of new technology related to generation of human induced pluripotent stem cells (iPS).  These costs totaled $10,096 and $8,000 at July 31, 2013 and October 31, 2012, respectively, and are included as deferred patent costs in the accompanying balance sheets.


The Company has also incurred costs relating to the filing of a new United States patent application entitled “Methods to Culture Mesenchymal Stem Cells and Related Materials” and the development of new technology related to this patent application.  These costs totaled $1,891 and $1,471 at July 31, 2013 and October 31, 2012, respectively, and are included as deferred patent costs in the accompanying balance sheets.


Impairment and Disposal of Long-Lived Assets


The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable.  If such assets are considered impaired, the impairment to be recognized is determined as the amount by which the carrying value exceeds the fair value of the assets.


The Company periodically reviews the carrying amount of it long-lived assets for possible impairment.  The Company recorded no asset impairment charges during either of the nine months ended July 31, 2013 or 2012.  A contingency exists with respect to these matters, the ultimate resolution of which cannot presently be determined.


Income taxes


The Company uses the liability method of accounting for income taxes.  Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.




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Revenue recognition and concentration of revenues


The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred (or service has been performed), the sales price is fixed and determinable, and collectability is reasonably assured.


For the nine months ended July 31, 2013, 63% of the Company’s sales were made to customers of a company controlled by a director who was elected to the Company’s Board of Directors on February 20, 2013.  Of the remaining 30%, no significant concentrations existed.  For the nine months ended July 31, 2012, 69% of the Company’s sales were made to the Company’s top two customers.



Advertising Costs


The Company expenses all advertising costs as they are incurred.  Advertising costs were $1,354 and $6,446 for the nine months ended July 31, 2013 and 2012, respectively.


Consulting Expenses


From time-to-time the Company engages consultants to perform various professional and administrative functions including public relations and corporate marketing.  Expenses for consulting services are generally recognized when services are performed and billable by the consultant.  In the event an agreement requires payments in which the timing of the payments is not consistent with the performance of services, expense is recognized as either service events occur, or recognized evenly over the period of the consulting agreement where specific services performed under the agreement are not readily identifiable.  Consulting agreements in which compensation is contingent upon the successful occurrence of one or more events are only expensed when the contingency has been, or is reasonably assured, to be met.


Fair value of financial instruments


The carrying amounts of cash, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to the short-term maturity of the instruments. Based on the borrowing rates currently available to the Company for loans with similar terms and average maturities, the fair value of long-term obligations consisting of various capital lease obligations approximates its carrying value.


Concentrations of credit risk


Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and cash equivalents, and trade accounts receivable.  As of July 31, 2013 and October 31, 2012, the Company had no amounts of cash or cash equivalents in financial institutions in excess of amounts insured by agencies of the U.S. Government.






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Net loss per share


The Company reports net loss per share using a dual presentation of basic and diluted loss per share. Basic net loss per share excludes the impact of common stock equivalents.  Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents.  For the nine months ended July 31, 2013, common stock equivalents of 300,000 representing outstanding options, were not included in the diluted per share calculation as all potentially dilutive securities were anti-dilutive due to the net loss in the period.  For the nine months ended July 31, 2012, common stock equivalents of 322,500 representing outstanding options, were not included in the diluted per share calculation as all potentially dilutive securities were anti-dilutive due to the net loss in the period.


Stock-based compensation


Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “ASC”) Topic 718, “Stock Compensation,” establishes fair value as the measurement objective in accounting for share based payment arrangements, and requires all entities to apply a fair value based measurement method in accounting for share based payment transactions with employees.  Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the period during which the holder is required to provide services in exchange for the award, i.e., the vesting period.


Recent accounting standards

There were various accounting standards and interpretations issued during 2013 and 2012, none of which are expected to have a material impact on the Company’s consolidated financial position, operations, or cash flows.


NOTE B: RELATED PARTY TRANSACTIONS

Advances and accrued interest payable to officer


Through July 31, 2013, the Company’s President had advanced the Company a total of $548,014 used for working capital including $85,032 during the nine months ended July 31, 2013.  The advances are uncollateralized, due on demand and accrue interest on the unpaid principal at a rate of 10% per annum.  Accrued interest payable on the advances totaled $119,724 and $81,076 at July 31, 2013 and October 31, 2012, respectively.  The total advances plus accrued interest totaling $667,738 and $544,058 at July 31, 2013 and October 31, 2012, respectively, are included as “Advances and accrued interest payable to officer” in the accompanying financial statements.


Employment agreements and accrued compensation


Effective May 1, 2008, the Company entered into an Executive Employment Agreement with its President.  The Agreement established annual base salaries of $80,000, $85,000, and $90,000 over the three years of the Agreement, which was to expire on April 30, 2011.  On April 27, 2011 the Company’s board of directors ratified a modification to the original agreement establishing an



12



annual base salary of $12,000 per year, effective February 1, 2011 and continuing for three years.  The Agreement also provides for incentive compensation based on the achievement of minimum annual product sales and an option to purchase one million shares of the Company’s common stock that includes contingent vesting requirements. The employment agreement includes changes in control accelerating vesting for exercise of underlying stock options and also includes severance provisions.  As of July 31, 2013, 100,000 of these common stock options were vested, and are exercisable at $0.19 per share and expire in July 2018.  These options are further discussed in Note E under the “Stock options granted to officer” caption.


The Company has accrued the salaries of its President due to a lack of working capital.  Total accrued salaries and payroll taxes were $1,199,658 and $1,190,208 at July 31, 2013 and October 31, 2012.  His accrued salaries totaled $1,152,422 and $1,143,422 as of July 31, 2013 and October 31, 2012, respectively.  His salary is allocated as follows: 70% to research and development and 30% to administration.


In addition, accrued salaries totaling $833 are due a former executive officer from a previous employment agreement.


Total accrued payroll taxes on the above salaries totaled $46,403 and $45,953 at July 31, 2013 and October 31, 2012, respectively.


Office lease


On July 1, 2008, the Company entered into a five-year non-cancelable operating lease for a facility located in Golden, Colorado, which expired in June 2013.  The facility has been leased from a company that is owned by the President’s wife.  Upon expiration of the lease, the Company has agreed to continue leasing the facility under the same terms on a month-to-month basis.


The total rental expense was $19,746 and $20,092 and for the nine months ended July 31, 2013 and 2012, respectively.  At July 31, 2013 and October 31, 2012, $19,998 and $26,902 were unpaid and are included in accounts payable related parties in the accompanying balance sheets.


Other


The President has personally guaranteed all debt instruments of the Company including all credit card debt.




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NOTE C: INCOME TAXES


A reconciliation of the U.S. statutory federal income tax rate to the effective rate is as follows for the years ended:

 

October 31,

 2012

 

October 31,

2011

Benefit related to U.S. federal statutory graduated rate

-21.80%

 

-27.42%

Benefit related to State income tax rate, net of federal benefit

-3.62%

 

-3.36%

Accrued officer salaries

1.41%

 

-344.58%

Net operating loss for which no tax benefit is currently available

24.01%

 

375.36%

 

Effective rate

    0.00%

 

    0.00%


The primary components of temporary differences that give rise to the Company’s net deferred tax assets are as follows:


 

October 31,

2012

 

October 31,

 2011

Net operating loss carry forwards

$

   1,578,251 

 

$

    1,529,879 

Accrued officer salaries

 

      441,091 

 

 

        436,425 

Deferred tax asset (before valuation allowance)

 $

    2,019,342

 

     1,966,304 



At October 31, 2012, deferred taxes consisted of a net tax asset of $2,019,342, due to operating loss carry forwards and other temporary differences of $8,293,049, which was fully allowed for in the valuation allowance of $2,019,342.  The valuation allowance offsets the net deferred tax asset for which there is no assurance of recovery.  The changes in the valuation allowance for the years ended October 31, 2012 and 2011 totaled $53,038 and $56,866, respectively.  Net operating loss carry forwards will expire in various years through 2032.


The Company is delinquent on filing its federal and state tax returns and may be subject to penalties and interest.  A contingency exists with respect to this matter, the ultimate resolution of which may not be presently determined.


The valuation allowance will be evaluated at the end of each year, considering positive and negative evidence about whether the asset will be realized.  At that time, the allowance will either be increased or reduced; reduction could result in the complete elimination of the allowance if positive evidence indicates that the value of the deferred tax asset is no longer impaired and the allowance is no longer required.



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Should the Company undergo an ownership change as defined in Section 382 of the Internal Revenue Code, the Company’s tax net operating loss carry forwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer the utilization of these losses.


NOTE D: LINES OF CREDIT


The Company has a $12,500 line of credit of which was fully utilized at July 31, 2013.  The interest rate on the credit line was 21.90% at July 31, 2013.  The credit line is collateralized by the Company’s checking account.  Principal and interest payments are due monthly.


At July 31, 2013 the Company also had three credit cards with a combined credit limit of $26,700, of which $1,527 was unused.  The interest rates on the credit cards range from 10.24% to 29.4%, with a weighted average rate of 15.33% at July 31, 2013.  All other credit cards previously used by the Company have been paid off and closed.



NOTE E: SHAREHOLDERS’ DEFICIT


Preferred Stock


The Company has authorized 5,000,000 shares of $.001 par value preferred stock, of which none were issued and outstanding at April 30, 2013.  These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors.


Stock options granted to officer


On May 1, 2008, the Company granted a non-qualified stock option to its President to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.19 per share, and expire in 2018.  On the grant date, the traded market value of the stock was $0.19 per share.  The options vest upon the achievement of certain contingencies.  As a result of the patent license agreements in March 2011, a contingency was met resulting in the vesting of 100,000 of these options.  None of the other contingencies have been met as of July 31, 2013, and as of that date $170,100 of unamortized stock compensation expense remains for the unvested portion of these options. The weighted average exercise price and weighted average fair value of these options on the grant date were $0.19 and $0.19, respectively.  


The fair value of the options was determined to be $189,000, and was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:


Risk-free interest rate

3.68%

Dividend yield

0.00%

Volatility factor

228.72%

Weighted average expected life

6.5 years




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Common Stock Issued for Services


On February 21, 2013, the Company’s Board of Directors ratified the issuance of 169,491 shares of the Company’s common stock to Mr. Pete Shuster, Director, as compensation for services for fiscal year ending October 31, 2013.  The transaction was valued at $10,000 or $0.059 per share, which was the weighted average closing price of the Company’s common stock for the last twenty days preceding the date of the transaction.  A total of $8,958 of stock compensation expenses has been charged to operations for the nine months ended July 31, 2013, and is reflected in “services prepaid with common stock” in the accompanying balance sheet.


Conversion of accounts payable


On May 28, 2013, the Company issued 250,000 shares of common stock, $.001 par value to a consultant in satisfaction for certain professional accounting services previously performed totaling $15,000.  The shares were valued at $0.06 per share, the closing price of the Company’s common stock on the effective date.


Incentive plans


Effective December 2, 2000, the Company’s Board of Directors adopted an Equity Incentive Plan (the “Plan”), which replaced the Company’s 1992 Stock Option Plan.  The purpose of the Plan is to attract and retain qualified personnel, to provide additional incentives to employees, officers, consultants and directors, and to promote the Company’s business.  The Plan authorizes total awards of up to 1,000,000 shares of the Company's common stock. Awards may take the form of incentive stock options, non-qualified stock options, restricted stock awards, stock bonuses and other stock grants. If an award made under the Plan expires, terminates, is canceled or settled in cash without the issuance of all shares of common stock covered by the award, those shares will be available for future awards under the Plan.  Awards may not be transferred, except by will or the laws of descent and distribution.  No awards may be granted under the Plan after September 30, 2010.


The Plan is administered by the Company's Board of Directors, which may delegate its authority to a committee of the Board of Directors. The Board of Directors has the authority to select individuals to receive awards, to determine the time and type of awards, the number of shares covered by the awards, and the terms and conditions of such awards in accordance with the terms of the Plan. In making such determinations, the Board of Directors may take into account the recipient's current and potential contributions and any other factors the Board of Directors considers relevant. The recipient of an award has no choice regarding the form of a stock award. The Board of Directors is authorized to establish rules and regulations and make all other determinations that may be necessary or advisable for the administration of the Plan. All options granted pursuant to the Plan shall be exercisable at a price not less than the fair market value of the common stock on the date of grant. Unless otherwise specified, the options expire ten years from the date of grant.


At July 31, 2013 a total of 543,500 options had been issued under the Plan, of which 43,500 have expired.  The 200,000 options outstanding and vested under the Plan have a weighted average exercise price of $0.08 per share, and a weighted average remaining contractual life of 2.53 years at



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July 31, 2013.  Three hundred thousand (300,000) outstanding options not yet vested have an exercise price of $0.17 per share, and expire in April 2015.  For the nine months ended July 31, 2013 and 2012, no compensation expense was recognized for options under the Plan. No additional options may be issued under the Plan.




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The following schedule summarizes the changes in the Company’s stock options including non-qualified options and options issued under the 2000 Plan:


 

 

 

 Number of Shares

Exercise Price Per Share

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price Per Share

Balance at October 31, 2011

 1,527,000

 

$0.08 to $0.45

5.66 years

$0.17

 

Options granted

 

 -   

 

 

 

 

 

 

 

Options exercised

 

 -   

 

 

 

 

 

 

 

Options expired

 

 27,000   

 

  $0.12 to $0.31

-

 

$0.13

Balance at October 31, 2012

 1,500,000

 

$0.08 to $0.19

4.75 years

$0.17

 

Options granted

 

 -   

 

 

 

 

 

 

 

Options exercised

 

 -   

 

 

 

 

 

 

 

Options expired

 

 -

 

 

    

 

 

Balance at July 31, 2013

 1,500,000

 

$0.08 to $0.19

4.00 years

$0.17

Exercisable at October 31, 2012

 300,000

 

$0.08 to $0.19

4.10 years

$0.12

Exercisable at July 31, 2013

 300,000

 

$0.08 to $0.19

3.35 years

$0.12


NOTE F: CONSULTING AGREEMENTS


On February 7, 2012, the Company’s board of directors ratified the terms of a consulting agreement dated January 24, 2012 with a marketing firm to provide certain public and investor relations services.  The agreement had an initial six-month term and may be terminated by either party upon a material breach of the agreement.  It includes several phases for which the consultant shall be compensated upon completion.  The initial phase includes the completion of various strategies for which the consultant received cash compensation of $5,000 and 120,000 of the Company’s common stock, which was valued at $4,800 as discussed above.  Phases II & III includes certain services regarding the Company’s online efforts, including the design and implementation of a more robust Company website, and positioning the Company as a potential investment and supplier of stem cell products within select social media.  The consultant was entitled to additional compensation for completion of Phases II & III.  In February 2013, it was determined that all phases of the project were complete, and as such the Company issued the consultant 75,000 shares of the Company’s common stock, valued at $6,000, and is included in selling, general and administrative expenses in the accompanying statement of operations for the nine months ended July 31, 2013.  For the nine months ended July 31, 2012 a total of $18,800 was charged to operations consisting of cash payments totaling $14,000 and the common stock issued.


On August 20, 2007, the Company entered into a Consulting Agreement with Mr. Joe Nieusma of Superior Toxicology & Wellness (“Superior”).  This agreement was initially extended without modification through August 20, 2010, although no further extension has been made as of the date of



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this report.  Under the terms of the original agreement, Superior will provide services including, but not limited to:


·

The development and funding of the Company’s current business plan;


·

The launch of products targeting applications in the development and discovery of new drug and biological products; and


·

The marketing and sales of all existing and proposed products and technology that are now available, or will be available for commercial distribution during the term of the agreement.


In exchange for the above services, the Company will pay Superior $50 per hour capped at a maximum of 240 hours for the term of the agreement.  In addition, the Company has agreed to issue Mr. Nieusma the following stock bonuses to be paid in shares of the Company’s common stock:


a.

100,000 shares upon the sale of stem-derived human beta islets as evidenced by issuance of a commercial invoice;


b.

100,000 shares upon the submission of a validation package to the United States Food and Drug Administration requesting approval of the use of Vitro’s stem cell-derived human beta islets for safety and efficacy testing and the use of this data within applications submitted for marketing approval of new drugs and biological products; and


c.

100,000 shares upon the receipt of $100,000 or more in capital funding of the Company based upon Vitro’s current business plan or subsequent versions thereof.  This event occurred during fiscal year ending October 31, 2008 and the Company issued 100,000 shares to its consultant on March 27, 2008.


Compensation for the successful sale of Vitro’s products, patent licenses or other revenue-generating event shall be based on industry standards and include a gross sales commission of 15% in addition to the compensation described above.



NOTE G: JOINT PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION AGREEMENTS



On April 27, 2010 the Company executed an Agreement for Joint Product Development, Manufacture and Distribution (“Agreement”) with HemoGenix, Inc., a privately held biotechnology firm located in Colorado Springs, Colorado.  The Agreement provides for the joint manufacture and distribution of stem cell analysis tools.  The agreement provides for the expansion of assay platforms from HemoGenix, in particular, LUMENESC for mesenchymal stem cells (MSC).  Also, this original agreement between the Company and HemoGenix® was expanded during the latter portions of 2010 to include joint development of cell-specific toxicity assays including those targeting liver cells, heart, kidney and neuronal cells.  Furthermore, the strategic partners intend to jointly develop



19



additional stem cell media products and align their respective quality programs to ensure consistency.



NOTE H: PATENT LICENSE AGREEMENT


Effective March 30, 2011, the Company entered into a Technology License, License Option and Technical Assistance Agreement with a former officer of the Company, granting him an exclusive license covering two of the Company’s patents: United States Patent Number 5,990,288, Method for Purifying FSH and United States Patent Number 6,458,593 B1, Immortalized Cell Lines and Methods of Making The Same.  The patents are related to treatment of infertility and know-how relating to the commercial production and cellular generation of the hormone, follicle-stimulating hormone and related gonadotropin hormones for use in the treatment of infertility in both humans and animals.  In addition, the License grants the exclusive option to license a pending patent application for the commercial production of clinical grade gonadotropin hormones and, in addition, the Company’s intellectual property related to generation of crude materials containing gonadotropin hormones from certain cellular sources. The License has an initial term of five years and shall be automatically renewed for additional two year periods until terminated by either party; however, the license can be terminated after two and one-half years if there have been no sales of licensed products.


The licensee was previously an executive officer of the Company, and the Company had carried a $200,833 liability for unpaid compensation.  The terms of the license agreement required payment of a non-refundable license fee of $10,000, which was paid by a reduction of the unpaid compensation liability.  In addition, the license agreement also required the licensee to forgive an additional $190,000 of the unpaid compensation liability.  In addition to the license fee and the forgiveness of the unpaid compensation liability, there shall be royalty payments of 3% and 4% of the gross sales of all licensed products sold by or on behalf of Licensee during the first and second years, respectively.  Such royalty payment shall be 4.5% of the gross sales of all licensed products during the third year of product sales and shall remain at that level throughout the remaining term of the agreement.  As of July 31, 2013, no sales have been made under this agreement.



NOTE I: SUBSEQUENT EVENTS


The Company has evaluated subsequent events through the date that the financial statements were available to be issued.






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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Introduction


This section discusses the financial condition of Vitro Diagnostics, Inc. (the “Company”) at July 31 30, 2013 and compares it to the Company’s financial condition at October 31, 2012.  It also discusses the Company’s results of operations for the three and nine-month periods ending July 31, 2013 and 2012.  This information should be read in conjunction with the information contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2012, including the audited financial statements and notes contained therein.


Certain statements contained herein and subsequent oral statements made by or on behalf of the Company may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements include, without limitation, statements regarding the Company’s plan of business operations, potential contractual arrangements, and receipt of working capital, anticipated revenues and related expenditures.  Factors that could cause actual results to differ materially include, among others, acceptability of the Company’s products in the market place, general economic conditions, receipt of additional working capital, the overall state of the biotechnology industry and other factors set forth in the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended October 31, 2012 under the caption, “Risk Factors.”  Most of these factors are outside the control of the Company.  Investors are cautioned not to put undue reliance on forward-looking statements.  Except as otherwise required by applicable securities statutes or regulations, the Company disclaims any intent or obligation to update publicly these forward looking statements, whether as a result of new information, future events or otherwise.


Liquidity and Capital Resources


At July 31, 2013, the Company had a working capital deficit of $1,936,101, consisting of current assets of $33,294 and current liabilities of $1,969,395.  This represents a decrease in working capital of $132,839 from fiscal year end October 31, 2012.  The decrease in working capital was mainly due to $129,481 in increased current liabilities due to operating expenses in excess of revenue from product sales.


Current assets decreased by $3,358 and current liabilities increased by $129,481 due to decreased cash & accounts receivable, while liabilities increased due to operating expenses in excess of revenues.  The Company reported a $1,891,488 deficit in shareholders’ equity at July 31, 2013, which was $136,755 more than the deficit reported at October 31, 2012.  The majority of the working capital deficit is due to accrued salaries and notes due to the president and CEO.  


During the nine months ended July 31, 2013, the Company’s financing activities provided $85,614 in cash to support our operating activities.  During that time, the Company’s operations used $86,497 in cash compared to $116,243 of cash used by operations during the nine months ended July 31, 2012.  The Company reported an overall decrease in cash for the first nine months of 2013 of $9,828 that was $15,442 less than the increase in cash for the first nine months of 2012.  The decrease in cash



21



usage during the first nine months of 2013 was primarily due to increased revenue from product sales resulting in a decrease in net loss. Cash raised from financing activities was derived through loans from the Company’s president and CEO.  Cash usage reflects a minimum cash requirement of about $9,610 per month for operations.   

 

The Company had lines of credit outstanding totaling $37,673 with $1,527 available in credit at July 31, 2013.  The Company must continue to service this debt and the president and CEO personally guarantees most of the Company debt.  Management is actively pursuing measures to reduce corporate debt while at the same time implementing various measures to increase revenues, as described elsewhere in this report.


The Company continues to pursue various activities to obtain additional capitalization, as described in the Companys Annual Report on Form 10-K for the fiscal year ended 2012.  A current focus is product sales derived from launch of its Tools of Stem Cell and Drug Development product line during 2009.   We now have distribution agreements with other companies who provide considerable assistance in sales of our products.  Our distribution agreement with Neuromics, Inc. has been solidified and expanded recently through the appointment of Mr. Pete Shuster, Neuromics, CEO, to the Board of Directors of the Company.  Through joint activities with Neuromics, Inc., we are expanding efforts to target drug discovery and development customers.  Our abilities to sell into these markets are also expanded by addition of new products including osteoblasts derived from human stem cells.  (These new products are described in greater detail below, See: Results of Operations.)  The Company focuses its limited resources on product development, manufacture and expansion of its product lines and has only limited available resources for direct sales efforts.  Thus the distributors of the Company’s products are an important component of our current sales program.   In addition, we continue to work closely with the licensee of our FSH patents to develop business opportunities.  We anticipate commercialization of these products during 2013 and additional revenues to the Company from royalty income.  Management has also conserved working capital by reducing administrative expenses and expenditures related to its operational activities as described above.  A goal of our business development program is to identify and pursue suitable business partners as exemplified by our strategic alliance partnerships including HemoGenix®, Inc., Neuromics, Inc, Stemgenesis, Inc, Dr. Lane Gilcrest, at the City College of New York and our patent license with Dr. James Posillico. The Company is also pursuing other approaches to increase its capital resources such as investment, further out-licensing of its intellectual property, sale of assets or other transactions that may be appropriate.  

Results of Operations


During the three months ended July 31, 2013, the Company realized a net loss of $(48,405) or $(0.00) per share on $7,081 in product revenue.  The net loss was $2,997 less than the net loss for the three months ended July 31, 2012.  The decrease in net loss in the third quarter of 2013 compared to the same quarter in 2012 was primarily due to decreased operating expenses. Total operating expenses were $3,955 less in the third quarter 2013 than the comparable period in 2012.  Research and development expenses decreased by $1,428 and selling, general and administrative expenses decreased by $2,527.





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During the nine months ended July 31, 2013, the Company realized net loss of $(166,713) or $(0.01) per share on $27,223 in revenue.  The net loss in the first nine months of 2013 was $22,385 less than the loss reported during the nine-month period ended July 31, 2012.  The decrease in net loss was primarily due to the $11,012 increase in our gross profit, as well as $20,111in decreased expenses for the nine months ended July 31, 2013 as compared to the first nine months of 2012.


Current activities of the Company are focused on manufacturing and sales of its stem cell based product line, while R&D efforts are directed towards development of new products to add to the commercial products presently available. The research markets being targeted by our present product line are relatively limited and the Company faces substantial competition from much larger firms with well-funded marketing and sales programs. During the first nine months of 2013, the Company added several new products, especially differentiated cells derived from stem cells.  These products have application to development of new cell-based assays for use in drug development, discovery and toxicology and represent more substantial markets that are distinct from strictly research products currently marketed by the Company.  Thus, these new products open additional markets to the Company and we have recently begun commercial development of our initial products.   Our strategy includes initial identification of the target market, use of our extensive stem cell-based intellectual property, experience and technical know-how regarding cell line generation and stem cell differentiation to create cell culture systems in a dish that reflect the human physiological condition while being amenable to multiplexed quantitative readout of critical cellular and molecular events.  We are in discussions with potential collaborators who own and develop various technical platforms to provide appropriate informatics output of the cellular systems that we offer.   In addition, our commercial development strategy includes business development activities to rapidly penetrate target markets and enhance competitive advantages of our products.


In addition to our products intended for drug discovery and development, the Company is also developing products with applications in regenerative medicine including both cell culture media and stem cell lines.   We have media formulations for use in the expansion of MSCs for clinical applications and we also developed novel technology for the generation of MSCs.  We are presently extending these activities to further develop and determine the commercial potential of pluripotent adult cells.  We have intellectual property in this field and continue to pursue development of this technology and our patent position.  There are recent reports of the presence of pluripotent stem cells within various adult cell populations including MSCs.  Pluripotency means that a stem cell can differentiate into any cell in the body.  The ability to generate iPSC from adult cells led to award of the Nobel Prize in Physiology and Medicine in 2012 and additional advances may yield significant advances in regenerative medicine for both animals and humans.


Research and development expenses (R&D) were $97,248 during the nine months ended July 31, 2013, which was a decrease of $4,001 over the comparable period in 2012.  While the R&D necessary for launch of its initial products is complete, the Company continues enhancement and improvement of its existing products together with the development of new products to add to its product line.   Our strategy for growth of revenues includes both increased market penetration together with expanding product offerings targeting additional markets within the stem cell industry.  Key expansion areas in 2013 are products for use in drug, discovery and development, especially stem cell-derived cellular systems, assays and media as well as therapeutic products targeting select markets in veterinary medicine.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Not applicable.


ITEM 4. CONTROLS AND PROCEDURES

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures:

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures. Our management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives.


Our management, with the participation of our CEO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, our CEO concluded that our disclosure controls and procedures were not effective as of such date as a result of a material weakness in our internal control over financial reporting due to lack of segregation of duties and a limited corporate governance structure as discussed in Item 9A of our Form 10-K for the fiscal year ended October 31, 2012.


While we strive to segregate duties as much as practicable, there is an insufficient volume of transactions at this point in time to justify additional full time staff. We believe that this is typical in many R&D companies. We may not be able to fully remediate the material weakness until we generate more revenues at which time we would expect to hire more staff. We will continue to monitor and assess the costs and benefits of additional staffing.


Changes in Internal Control over Financial Reporting:

 

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




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PART II

OTHER INFORMATION


Item 1.

Legal Proceedings


None, except as previously disclosed.


Item 1A.

Risk Factors


None, except as previously disclosed.


Item 2

Unregistered Sales of Equity Securities and Use of Proceeds


None, except as previously disclosed.


Item 3.

Defaults Upon Senior Securities


None, except as previously disclosed.


Item 4.

 [Removed and Reserved]



Item 5.

Other Information


None, except as previously disclosed.


Item 6.

Exhibits


Certification*

Certification pursuant to 18 U.S.C. Section 1350*

101.INS

 

XBRL Instance**

101.SCH

 

XBRL Taxonomy Extension Schema**

101.CAL

 

XBRL Taxonomy Extension Calculation**

101.DEF

 

XBRL Taxonomy Extension Definition**

101.LAB

 

XBRL Taxonomy Extension Labels**

101.PRE

 

XBRL Taxonomy Extension Presentation**


*

filed herewith

**

provided herewith





25



SIGNATURES


       Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

VITRO DIAGNOSTIC, INC.

 

 

Date September 23, 2013

By __/s/ James R. Musick                   

 

     James R. Musick

      President, Chief Executive Officer and Chief

      Financial Officer






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