0001294606-13-000016.txt : 20130212 0001294606-13-000016.hdr.sgml : 20130212 20130212172920 ACCESSION NUMBER: 0001294606-13-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20121031 FILED AS OF DATE: 20130212 DATE AS OF CHANGE: 20130212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITRO DIAGNOSTICS INC CENTRAL INDEX KEY: 0000793171 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 841012042 STATE OF INCORPORATION: NV FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17378 FILM NUMBER: 13598430 BUSINESS ADDRESS: STREET 1: 4621 TECHNOLOGY DRIVE CITY: GOLDEN STATE: CO ZIP: 80403 BUSINESS PHONE: (720) 859-4120 MAIL ADDRESS: STREET 1: 4621 TECHNOLOGY DRIVE CITY: GOLDEN STATE: CO ZIP: 80403 FORMER COMPANY: FORMER CONFORMED NAME: LABTEK INC DATE OF NAME CHANGE: 19870217 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL MANAGEMENT INC DATE OF NAME CHANGE: 19870201 10-K 1 f10k1012v6.htm VITRO DIAGNOSTICS, INC. - ANNUAL REPORT OF FORM 10-K FOR OCTOBER 31, 2012 Form 10-KSB  (00341691.DOC;2)



 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-K

:

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2012

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

4621 Technology Drive, Golden, Colorado

 

80403

(Address of principal executive offices)

 

(Zip Code)

(303) 999-2130

(Issuer's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Common Stock, $.001 par  value

(Title of each class)

Securities registered pursuant to Section 12(g) of the Exchange Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

[___] Yes  [__x_] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes [___]  No [_x_]

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 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 [ x ] No [  ]


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [___]

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 [___] (Do not check if a smaller reporting company)     

 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   [_x_]  No

State issuer's revenue for its most recent fiscal year:  $28,079.

The aggregate market value of the 13,394,372 shares of voting stock held by non-affiliates of the Company at January 5, 2013, calculated by taking the last sales price of the Company's common stock of $0.16 on April 30, 2012 was $2,143,100.


The number of shares outstanding of the issuer’s common equity as of January 5, 2013 was 19,308,912.


DOCUMENTS INCORPORATED BY REFERENCE


List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  The listed documents should be clearly described for identification purposes


Exhibits


See Part IV, Item 15.

 








Additional Information


Descriptions in this report are qualified by reference to the contents of any contract, agreement or other document described herein and are not necessarily complete.  Reference is made to each such contract, agreement or document filed as an exhibit to this report, or incorporated herein by reference as permitted by regulations of the Securities and Exchange Commission.  (See "ITEM 15. EXHIBITS.")


Special Note Regarding Forward-Looking Statements


Please see the note under "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION," for a description of special factors potentially affecting forward-looking statements included in this report.









PART I


ITEM 1.

 BUSINESS


History


Vitro Diagnostics, Inc. ("we" or the "Company") was incorporated under the laws of the State of Nevada on February 3, 1986.  From November 1990 to July 31, 2000, the Company was engaged in the development, manufacture and distribution of purified human antigens and the development of therapeutic products and related technologies.  In August 2000, the Company sold the assets used in the manufacture and sale of purified antigens for diagnostic applications.  Since 2000, the Company has developed its stem cell technology, expanded its patent portfolio and proprietary technology and cell lines for applications in stem cell research, cancer and diabetes.  Our operations are currently focused on development, manufacturing and distribution of stem cell products and related tools for use in research and drug discovery.  We are presently expanding our stem cell product line to include products for use in clinical studies of the therapeutic benefits of stem cell transplantation.


Our common stock is currently traded over the counter and quoted on the OTC-QB exchange under the ticker symbol "VODG."  Because the company is no longer involved in the manufacture of diagnostic products, we operate under the name Vitro Biopharma which is registered by the Company as a trade mark in the state of Colorado.  The legal name of the Company is Vitro Diagnostics, Inc, doing business as (dba) Vitro Biopharma. We maintain a website at www.vitrobiopharma.com.


Narrative Description of Business


Our current focus is the development and commercialization of new products derived from our stem cell research.  We presently develop, manufacture and market products for use in research and related applications that do not require approval of the United States Food and Drug Administration ("FDA") prior to market introduction.  We have previously developed products and product candidates for treatment of infertility.  


The Company’s stem cell technology includes cell lines, supporting products and methods for generation and differentiation of stem cells into products with application to treatment of numerous diseases such as heart disease, stroke, Parkinson’s and Alzheimer’s disease.  While the Company’s technology represents a platform with broad application to several medical markets, the present business model focuses on the commercialization of products targeting niche markets in research and drug development that do not require FDA pre-market approval.  The Company launched its initial product line in 2009 and we are continuing to implement our business plan that includes expanding both our product line and global distribution of these products with the goal of attaining profitable operations and earnings growth. Our 2013 operating plan includes addition of several products to our offerings targeting stem cell research and clinical development together with a series of products targeting therapeutic applications of stem cells.  We also plan to coordinate various marketing and distribution efforts through both direct sales and sales through our expanding network of distributors to enhance revenue growth to profitability while positioning the Company for sustained earnings growth




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The predominant focus of operations during the fiscal year ended October 31, 2012, which we refer to in this report as 2012, was to continue commercialization of a series of products targeting global markets in stem cell research, including products needed by most scientists engaged in stem cell research. These products are classified as Type I Medical Devices meaning that all usage is non-therapeutic and therefore do not require FDA pre-market approval.  Thus, access to our primary market is not dependent on FDA pre-market approval.  This is also a significant market segment that is growing rapidly especially as stem cell research shows promise in the treatment of diseases and conditions that were previously under-treated or untreatable and prior restrictions on federal support of stem cell research by the US government have been reduced.   During 2012, we expanded our product offerings considerably, by adding new cell lines and media formulations to our 2012 Product Catalog.  Our product offerings now include a specific type of human adult stem cell & certain derivatives of these cells, cell culture media for stem cell growth and differentiation into specific cell types together with various test kits for quantitative determination of stem cell quality, potency and response to toxic agents.  The latter products are jointly manufactured by the Company and its strategic partner, HemoGenix, Inc., a privately held stem cell firm located in Colorado Springs, CO while all other products are developed and manufactured solely by the Company.  Our products are distributed through a combination of direct sales from the Company and sales through distributors as described in more detail below.


We have also developed patented and patent-pending technology for use in stem cell research, drug development and therapeutic products for treatment of cancer and diabetes.  Modern stem cell technology is rapidly evolving towards commercialization and holds promise to revolutionize medicine by allowing replacement of any type of cell within the human body. Diseases characterized by cellular degeneration, including cardiovascular disease, diabetes, spinal cord injury and several other disorders may be cured through the development and commercialization of stem cell technology. In addition, cancer may be treated by stem cells that target selective destruction of cancer cells leading to novel therapies especially for poor prognosis conditions including pancreatic, lung and brain cancer. Thus the Company’s business plan involves commercialization of research products for broad usage in the stem cell research and drug development fields while at the same time developing specific proprietary technology with application to treatment of a broad range of diseases. For example, we own proprietary technology related to  novel methods for the reprogramming of adult cells to the pluripotent state whereby such stem cells may be differentiated into any type of cell in the body.


Stem Cell Products for Research and Drug Development.


Based upon a desire to produce an infinite supply of human cells for various medical applications, the Company had previously developed technology for the immortalization of cells based upon genetic engineering.  More recently, the Company has shifted its efforts to the discovery, characterization and development of methods to maintain proliferation and to induce differentiation of stem cells.


The Company’s stem cell technology focuses on adult stem cells that are derived from human tissues without the necessity of the sacrifice of embryos as is usually needed to generate embryonic stem cells. New advances have shown that stem cells with properties comparable to embryonic stem cells including differentiation into any cell type may be derived from adult cells.  So-called induced pluripotent stem cells (iPS) may obviate the need for embryonic stem cells in the future and also



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eliminate the ethical controversy surrounding use of embryonic stem cells.  The scientists who developed this technology received the Nobel Prize for Physiology or Medicine in 2012.


A thorough understanding of embryonic stem cell properties is critical to advancement of stem cell research.  However, from a practical perspective, embryonic stem cell therapies have revealed safety issues associated with transplantation of embryonic stem cells including tumor formation and other problems that resulted in withdrawal of a major US company’s FDA- application use of human embryonic stem cells for treatment of spinal cord injury.  On the other hand, adult stem cell therapies have been FDA-approved for the past 50 years for the treatment of blood disorders including leukemia, lymphoma and other blood cell cancers as well as autoimmune disorders.  These treatments originally relied on hematopoietic stem cells derived from bone marrow but now more commonly utilize hematopoietic stem cells derived from umbilical cord blood, since these cells are more readily matched to the recipient with regard to immunological compatibility.  The Company is presently focused on mesenchymal stem cells that are a type of adult stem cell that is also located in bone marrow and known to have important roles in the function of hematopoietic stem cells.  Numerous studies have demonstrated a low incidence of safety issues or adverse effect of transplantation of this type of stem cell while showing efficacy in the treatment of a variety of disorders.


During 2009, Vitro introduced into commercial distribution specialized products to support stem cell research and drug development based on mesenchymal stem cells. This new product line called, “Tools for Stem Cell and Drug Development features novel products to support research involving mesenchymal stem cells (MSCs), induced pluripotent stem cells (iPS) and cancer research that specifically utilizes stem cells that preferentially migrate to cancer cells and facilitate their destruction.  This initial product line includes stem cells and related products to facilitate studies of transplantation into animals, migration to certain targets and differentiation into specific cell types. Our products include mesenchymal stem cells that were derived from human umbilical cord blood.  We also provide fluorescent labeled stem cells, using a variety of specific labels to enhance utility for various applications in stem cell research.  To our knowledge, we are one of the only companies to offer fluorescent-labeled human stem cells for sale.  We also provide cell culture media optimized to support growth of our stem cell products. Cell culture media is a complex solution of salts and nutrients designed to support growth and differentiation of living human cells; each type of cell requires specific components within the media to optimize its growth.  Our initial formulations have now been expanded considerably to offer various options for the growth and differentiation of mesenchymal stem cells. Some of our stem cell culture media products are specifically intended for use in clinical trial studies of human stem cells.


Stem cell therapy has the potential to revolutionize treatment of many difficult–to-treat diseases.  A global effort by various scientists and businesses are rapidly developing modern stem cell therapies through targeted R&D, clinical trials and regulatory studies with the goal of obtaining regulatory marketing approval for clinical use. Vitro now provides needed stem cell and drug development tools to support critical applications of adult stem cell technology to develop these advanced new treatments.  Vitro’s new tools provide vital components to advance stem cell research and drug development.  These products are classified as Type I Medical Devices meaning that all usage is non-therapeutic and therefore these products do not require FDA pre-market approval.   During 2012 the Company added products for use in clinical studies and plans additional advances in the regulatory status of these products during 2013, which will enable the Company to expand its



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markets by providing products for both research and clinical studies.  These additional clinical products require regulatory controls by the US FDA and other regulatory agencies that are described below (See: “Regulatory Approval”)


During 2012, we:

·

Launched a new and improved website featuring E-commerce of our products, expanded technical and investor relations information and utilization of social media to expand awareness of the Company and its products.

·

Established distribution of our products through Neuromics, Inc., a privately held firm in Minneapolis, MN focused exclusively on sales of a variety of products to support life science research.

·

Attended and presented a technical presentation at the International Society for Cellular Therapy Annual meeting resulting in increased collaborative opportunities and product sales.

·

Established a distribution agreement with Stemgenesis, Inc. for the exclusive distribution of our products into select Chinese Provinces.

·

Launched new products with application to enhancement of cellular therapy of articular (joint) diseases and injury & filed a new US Patent application to expand our near-term product pipeline.

·

Continued support of business development by our FSH patent licensee resulting in advancements in fertility drug manufacturing, distribution and regulatory approvals for treatment of human infertility.



An important advancement during 2012 was increased product distribution leading to increased revenue generation.  We have previously demonstrated competitive advantages of our MSC-Gro Brand of cell culture media optimized for mesenchymal stem cell (MSC) growth and differentiation, including increased cell growth, cellular recovery and shelf-life.  While sales of this product line developed more slowly, sales of our lead MSC-Gro product (Low-serum complete MSC-Gro medium) have grown since commercial introduction including an increase in sales during 2012 compared to 2011.    Sales of our other MSC-Gro media products and MSC-based cell lines have also increased.


Our primary corporate objective is the attainment of profitability and earnings growth.  With the platform now established, our operations are focused on increased manufacturing capacity to maintain appropriate inventories to support increased product sales.  We are now adding needed human resources, equipment and raw materials to serve our customers as rapidly as possible.  We are also continuing our marketing program to enhance awareness of our products and technology to our global markets.  Our management team is seasoned and experienced in the issues faced by a growing biotechnology operation and provides expert guidance to support our growth.  We are also committed to the expansion of our product lines to expand revenue opportunities.  For example, we have recently added human chondrocytes derived from human MSCs and plan additional new products.  Chondrocytes produce collagen and are essential to the function of joints.  Stem cell therapy of injured or diseased joints is an active area of clinical research that shows pre-clinical support of safety and efficacy of MSC-based therapy.  Thus our new products provide important tools to advance cell therapy of injury, diseases and regeneration of joints. MSC therapy may eventually be developed to allow for regeneration of injured or diseased joints, without the necessity



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of using artificial joints. We plan to launch additional new products during 2013 to support and sustain our revenue growth.


While our initial products target research use, we are also expanding our offerings to include products with clinical application.  We now have select MSC-Gro products with clinical application and intend to strengthen these products in 2013 through appropriate regulatory filings with the FDA.  It is especially important that cell culture media products do not contain human or animal serum and are chemically defined to minimize potential contamination of cultured cells that are subsequently administered to patients to test for clinical benefit.  This, serum-free, chemically defined media is classified as a medical device and requires much less time and money to achieve FDA approval than new drugs or biologics. Approval of a medical device typically requires less than one year and only laboratory testing while drugs and biologics can require 8-10 years, extensive clinical trial testing and cost $0.5 to $1 billion to gain approval, which is not guaranteed. We are also developing cellular products targeting therapeutic veterinary applications.  Furthermore, through our interactions with local physicians, we are exploring additional clinical applications of our products and technology.


During the two fiscal years ended October 31, 2012 and 2011, the Company spent $126,180and $138,038, respectively, for research and development.


Marketing and Distribution. To capture niche markets in stem cell research and drug development involves implementation of a multi-faceted marketing and sales initiative including various approaches such as: a strong internet marketing program, direct sales to end-users, identification and interaction with medical decision makers, selective use of distributors and in certain cases market generation efforts.  During 2012, the Company gained visibility and sales of its products through an expanded product line, featuring several new media products and stem cell lines.  We launched a completely revised and newly formatted website featuring E-commerce capabilities, a considerably expanded product offering, enhanced and readily accessible information for investors together with improved navigation, communication with the Company and ease of use.  We established product distribution through a partnership with Neuromics, Inc., a privately held firm focused on sales of various critical components used by life science researchers engaged in basic research to develop new drug candidates for neurodegenerative diseases, inflammatory conditions, autoimmune diseases and some forms of cancer.


The market for our products is global in nature, comprising numerous foreign markets that are more advanced than US markets due to the less restrictive governmental regulations on stem cell research and clinical applications.  Our marketing plan is directly integrated with new product development to ensure a steady stream of new innovative products perceived to be needed by our target markets.  We are also transiting from strictly research products to clinical products that considerably expand our available markets by including clinical applications of stem cell technology.  We now offer stem cell media products that are suitable for use in clinical applications.  We also established a separate distribution agreement with Stemgenesis, Inc, a Chinese-based firm with offices in the US as well for the distribution of our entire product line into select Chinese provinces that together comprise about two-thirds of China. This agreement developed through contact with the CEO of Stemgenesis that occurred at the annual meeting of the International Society for Cell Therapeutics, where the Company presented a technical presentation regarding its clinical grade MSC-Gro cell culture medium.  We completed a distribution agreement through these initial contacts and are now in the



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early stages of developing this business opportunity.  We also have an established distribution channel for our products through our strategic alliance with HemoGenix, Inc, our manufacturing partner for the Lumenesc Brand of MSC assay test kits.


The Company has focused its limited resources on product development, manufacturing and continual expansion of its product offerings while simultaneously developing marketing and distribution based on collaboration with distribution partners together with direct sales. Management made advances in 2012 in the establishment of partnerships to assist with product distribution.  We consider this strategic approach appropriate especially for targeting research markets for stem cell media. Modern marketing of stem cell products requires numerous skills and resources; there are several life science firms committed to these specialized capabilities.  Also, out-licensing of our stem cell-related intellectual property is an attractive option that we intend to pursue.  We also plan attendance at trade shows in 2013 and beyond to expand awareness of our products, technology and business opportunities.  


Fertility Drug Candidates.  


The Company's previous manufacture and sale of purified antigens for diagnostic purposes resulted in the discovery of several products and technologies with potential application for therapeutic purposes.  An initial target was the pituitary hormone FSH and related products, since FSH has been used as a drug to treat infertility since the mid-1960’s.  The present worldwide market for FSH and related products is estimated to be approximately $3 to $4 billion per year.  However, in the recent past, the Company has utilized its limited resources for its stem cell research in an effort to establish financial support and revenue through product sales in the near term.  During 2011, we completed out-licensing of our patented technology related to FSH manufacture as described elsewhere in this report.  We have a well-established business relationship with the licensee through numerous prior business activities and now also provide the licensee with assistance in sourcing necessary raw materials, distribution of finished product and options to advanced stem-cell based methods for FSH production.  During 2012, our licensee and his team of professionals began the process of registration of Vitropin and related products in certain foreign markets. This registration is being pursued together with the establishment of a separate manufacturing contract and various distribution partnerships. Product marketing, distribution and sales will be managed by an international group of professionals that have considerable expertise in the distribution of similar products in the ART field.  The development plan also contemplates registrations for marketing approval of Vitropin in several additional countries including the US and EU.


Description of Products and Product Candidates.  


VITROPIN is highly purified FSH derived from the urine of post-menopausal women.  It is produced through the Company's patented technology that management believes represents a significant improvement over previous methods used to produce this product. This product is not yet approved by the US FDA and such approval is required prior to marketing in the United States.


Cell Line-Derived FSH:  Vitro has previously patented technology for the immortalization of pituitary cells known as gonadotropes that synthesize and secrete FSH and LH.  This patent is also licensed to our licensee through our agreement was finalized in 2011.  Our licensee intends to use cell line-derived FSH as part of a FSH pipeline including Vitropin and related products initially,



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followed by cell-line derived FSH.  This product would require further development prior to commercial launch, as well as regulatory approvals.  This product has potential competitive advantages to recombinant human FSH, including a completely humanized molecular form.


Stem-cell Derived FSH:  The Company's stem cell technology has potential application to generation of new cell lines for FSH production but this development would require additional R&D to demonstrate feasibility


Patents and Other Intellectual Property Protection


The Company has applied for and has obtained or is in the process of obtaining patents and other protection for its intellectual property in order to protect its investments.  The United States Patent and Trademark Office, or USPTO, issued the Company's first patent on November 23, 1999 (US Patent No. 5,990,288).  This invention was entitled "Methods for Purifying FSH" and details methods to manufacture highly purified FSH from various sources.  Management believes this invention represents a significant advance in the methods previously used to purify FSH and to produce therapeutic FSH.  The Company maintains this patent in an active status.


The Company was granted another patent by the USPTO (No. 6,458,593 B1) in 2002 entitled, "Immortalized Cell Lines and Methods of Making the Same."  This patent provides protection to the Company's technology related to immortalization of pituitary cells by genetic engineering.  This technology has potential application to the commercial production of FSH and other human pituitary hormones through immortalization of the cells of the pituitary gland that normally produce these hormones.  The Company maintains this patent in an active status.


In May, 2009 the Company was awarded United States Patent number 7,527,971 entitled, “Generation and Differentiation of Adult Stem Cells.” The patent 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.  Thus, the recently issued patent affords an exclusive proprietary position to the Company for a new cellular therapy to treat Type I diabetes. We are presently pursuing suitable partners for out-license opportunities.


During January 2009 and January 2010, the Company also filed provisional patent applications with the USPTO concerning use of its stem cell technology in cancer treatments, “MATERIALS AND METHODS USEFUL TO RESEARCH AND TREAT CANCER.” The Company has developed cell lines and compositions with potential application to the targeted eradication of cancer stem cells which may occur without significant side-effects. This application has now lapsed, but the Company may elect to advance development of this technology at a later point in time, with adequate resources.  We do not believe that our prior patent applications will limit our ability to gain future patent protection.


During December 2009 the Company filed a new United States patent application entitled “POU5-F1 EXPRESSION IN HUMAN MESENCHYMAL STEM CELLS”, based on the development of new



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technology related to generation of human induced pluripotent stem cells (iPS). IPS technology allows the use of reprogrammed adult cells to achieve properties of embryonic stem cells including the ability to differentiate into any type of cell in the body. IPS technology is subject to intense research because it may allow generation of stem cells with the primary properties of embryonic stem cells without sacrifice or use of embryos, thus avoiding ethical and religious controversies surrounding the use of embryonic stem cells.


Human iPS technology was originally reported in 2007 and evolved from increased understanding of the function of genetic factors controlling cellular fate and specific genes involved in the determination of “stemness”, i.e., those genes whose expression result in classic stem cell properties.  The original methods of iPS generation involved genetic engineering of human fibroblast (skin) cells to express elevated levels of four key genes. Vitro’s new technology involves elevated expression of a single gene called POU5-F1, which is considered a master regulatory element or gatekeeper of pluripotentiality.   Such cells may be used to eventually generate iPS without use of genetic engineering, which is a key goal necessary for clinical application of iPS technology.


The Company recently filed an additional international patent application entitled:  “INDUCED PLURIPOTENT STEM CELLS AND RELATED METHODS.” The application extends prior applications and describes a method for the generation of iPS cells from adult stem cells that completely avoids introduction of foreign DNA or RNA by using environmental factors only to induce pluripotency in adult stem cells.  This technology arose from the company’s demonstration that over-expression of just a single gene is required to induce pluripotent properties if adult stem cells are reprogrammed instead of somatic cells such as skin fibroblasts.  This finding has also been independently confirmed by other research groups.  From this discovery and the well-known, complex regulatory systems affecting expression of this gene, Vitro scientists determined methods for the inducing pluripotency through use of appropriate environmental factors. The Company believes that such technology has significant application to the field of regenerative medicine. Thus, the new patent allows generation of personalized, autologous stem cells from adult stem cell cells such as those present in bone marrow, blood and adipose tissue, etc that may differentiate into any cell type.  Such autologous stem cells may be used as substitutes for embryonic stem cells even though the cells are derived from adult stem cells.  During 2012, this international application was converted to a regular application that was submitted to the USPTO.


In 2012, the Company filed a new application with the USPTO entitled, “METHODS TO CULTURE MESENCHYMAL STEM CELLS AND RELATED MATERIALS” seeking patent protection for the Company’s proprietary technology related to generation and expansion of mesenchymal stem cell lines.  This includes various methods for generation of MSC lines for therapeutic applications including both human and animal-derived cell lines.  The Company plans to further expand this patent filing to protect its novel technology related to therapeutic products based on mesenchymal stem cells.


There can be no assurance that the Company will succeed in obtaining any patent protection from its pending applications or that its issued patents would withstand legal challenges.

 

The Company's technology related to the production of cell culture media is protected as trade secret.  




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The Company has trademark claims to its VITROPIN product informally by publication.  This trademark is thus a common law mark that may be challenged by the owners of similar, established and registered marks that existed prior to initial publication by the Company, but no such challenge has occurred since original publication in 2000.  The Company also has the following trademarks registered in the State of Colorado: "Vitro Biopharma", "VITROCELL" and "Harnessing the Power of Cells"; these registrations expired or expire on 7/2/2012, 11/25/2013 and 11/25/2013 respectively.  The Company has also established a common law mark for the phrase, Tools for Stem Cell and Drug Development, and MSC-Gro.  The Company may elect to formally protect some or all of these marks through registration with the USPTO in the future.  However, we do not believe the absence of formal trademark protection will adversely affect our business.  The registered domain names owned by the company include vitrodiag.com,, vitrostemcells.com, autologousstemcellmedia.com and common derivatives thereof.


Some of the limitations of intellectual property protection are:


·

No assurance can be given that any patent will be issued or that the scope of any patent protection will exclude competitors or that any patent, if issued, will be held valid if subsequently challenged.

·

When we apply for registration of trademarks and registered domain names in an effort to protect them, we cannot be sure of the nature or extent of the protection afforded, since trademark registration does not assure any enforceable rights under many circumstances and there exists significant uncertainty surrounding legal protections of domain names.


·

There can be no assurance that any steps the Company takes in this regard will be adequate to deter misappropriation of its proprietary rights or independent third parties developing functionally equivalent products.  Despite precautions, unauthorized parties may attempt to engineer, reverse engineer, copy, or obtain and use the Company’s products or other information.


·

Although management believes that the Company’s products do not infringe on the intellectual property rights of others, there can be no assurance that an infringement claim will not be asserted in the future.  The prosecution or defense of any intellectual property litigation can be extremely expensive and would place a material burden upon the Company’s’ working capital.


Regulatory Approval


Drugs used to treat human infertility require registration with, and approval from, appropriate government authorities prior to sale.  In the United States, the U.S. Food and Drug Administration, or FDA, oversees approval of such products.  Since the FDA has previously approved FSH, the Company has determined that the appropriate means to gain VITROPIN approval is a type of abbreviated version of a new drug application.  The process of FDA can be time consuming and require millions of dollars in capital expenditures.  The Company has no plans to make such application in the foreseeable future.




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Our stem cell products including cell lines, their derivatives and media for stem cell growth and differentiation are Class I Medical Devices and do not require FDA-pre-market approval.  However, we are expanding our stem cell media product line to include media for clinical applications.  In the US, these products require the filing and approval of Form 510K with the FDA.  This filing provides evidence for substantial equivalence of the medical device with a previously approved device manufactured by another firm.  We intend to pursue such filings for our clinical grade stem cell media during 2013.  The Company has previously filed several 510K requests and gained approval of diagnostic devices.  Also, we must register with the FDA as a Class II Medical Device manufacturer and are then subject to GMP inspections by the agency.  Such inspections require compliance with cGMP (current good manufacturing) guidelines that stipulate control of traceable manufacturing procedures, including independence of manufacturing and quality control as well as several other provisions.  The Company has operated to the cGMP standard previously and been subject to cGMP inspections by the FDA.  The Company intends to comply with all regulations necessary to reach this standard.


Competition and Competitive Advantages


Products to support stem cell research are also produced and marketed by other companies with substantially greater resources than the Company.  Present suppliers of human stem cells and related products include In-Vitrogen/Life Technologies, Inc., Millipore, Stem Cell Technologies and several other firms.  Most of these firms have long-standing histories and significant financial resources.  Studies completed during 2010 by the Company of our MSC-Gro Brand of stem cell media have provided results showing performance advantages of MSC-Gro compared to major competitors including In-Vitrogen, Lonza and Stem Cell Technologies, Inc.  Several other independent third parties have also provided corroborating evidence showing performance advantages of the Companys MSC-Gro Brand of stem cell media in a variety of applications extending the commercial utility of these products.


We believe our products for use in stem cell and cancer research have competitive features unlike other marketed products.  We may be the only commercial source of fluorescent-labeled stem cells.  As we develop additional media products, we anticipate comparable competitive advantages since these formulations are based upon the original MSC-Gro formulation. We further intend to patent additional products that we may develop providing exclusive use of such products to the Company and its licensees.


The Company faces competition from a number of larger, well-established entities in the area of fertility treatment.  Serono-Merck controls approximately 50% of the worldwide FSH market.  Organon Biosciences, now owned by Schering Plough, has the majority of the remaining market and Ferring Pharmaceuticals has the remaining share of the market.  These manufacturers have diversified product lines including impure LH/FSH combination drugs, purified urinary and recombinant FSH.


Employees


The Company presently has one full time employee, the Company's President, CEO, Chairman, and CFO.  This individual provides primary support of technical operations, including research and development, production of the current stem cell product line and all administrative functions of the



10





Company.  We also have two additional part-time employees who have recently joined the Company.  One individual assists us in product manufacturing, analytical testing and other routine laboratory procedures. The other part-time employee now assists with business development and will also be trained in production, R&D and QC.  The Company has adequate access to talented employees in the region of its Corporate Headquarters. The Company's Vice President provides the Company with periodic consultation related to the achievement of its business objectives.  


The Company has a consulting contract with one of its Scientific Advisory Board Members, Dr. Rice, who provides valuable consultation with regard to molecular biology issues related to manufacturing and R&D operations.


The Company also utilizes the services of other consultants and advisors to supplement the resources of its employees from time to time.  These include scientific and laboratory personnel, accountants, auditors and attorneys.  Some of these positions, especially those of a technical nature, may be converted to employment if and when the Company's business requires and resources permit.



ITEM 1B

UNRESOLVED STAFF COMMENTS


None.



ITEM 2.

DESCRIPTION OF PROPERTY


The Company owns no real property.  During 2008 the Company moved into an expanded facility located at 4621 Technology Drive, Golden Colorado.  The Company leases 1200 square feet and has access to common areas.  The lease began July 1, 2008 and has a five-year term.     


ITEM 3.

LEGAL PROCEEDINGS


There are currently no legal matters or other regulatory proceedings pending or, to the knowledge of our management, threatened that involve the Company or its property or any of the principal shareholders, officers or directors in their capacities as such.


ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.




11





PART II


ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


The following information sets forth the high and low bid price for the Company's common stock for each quarter within the last two fiscal years.  The Company's common stock is traded over-the-counter and quoted on the OTC Bulletin Board.  The following information was obtained from Yahoo.com.  The prices set forth below do not include retail mark-ups, mark-downs or commissions, and may not represent prices at which actual transactions occurred.


Fiscal Quarter Ended

High

Low

2012

 

 

January 31

$0.18

$0.04

April 30

$0.27

$0.04

July 31

$0.19

$0.03

October 31

$0.08

$0.03

2011

 

 

January 31

$0.21

$0.10

April 30

$0.20

$0.07

July 31

$0.23

$0.07

October 31

$0.20

$0.07

 



Rules Restricting Trading Activity in our Stock


The Company's common stock is presently classified as a "penny stock" under existing securities laws since the stock is not listed on a national securities exchange and trades below $5 per share and since the Company does not meet the minimum financial requirements established by these rules.  Since our stock is characterized as a penny stock, our stock is subject to rules adopted by the SEC regulating broker-dealer practices in connection with transactions in penny stocks.  The broker or dealer proposing to effect a transaction in a penny stock must furnish his customer a document containing information prescribed by the SEC and obtain from the customer an executed acknowledgment of receipt of that document.  The broker or dealer must also provide the customer with pricing information regarding the security prior to the transaction and with the written confirmation of the transaction.  The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with such transaction prior to consummating the transaction and with the written confirmation of the trade.  The broker or dealer must also send an account statement to each customer for which he has executed a transaction in a penny stock each month in which such security is held for the customer’s account.  The existence of these rules may have an effect on the price of our stock, and the willingness of certain brokers to effect transactions in our stock.




12





Holders of our Common Stock


As of January 5, 2013 the Company had approximately 1,926 shareholders of record, not including persons who hold their shares in "street name".


Dividends


The Company has paid no dividends since inception and it is not anticipated that any will be paid in the foreseeable future.  The payment of dividends in the future is dependent on the generation of revenue and profit, and the discretion of the Board of Directors based upon such matters as the Company's capital needs and costs of obtaining capital from outside sources.


Recent Sales of Unregistered Securities


None, except as previously reported.




ITEM 6.     SELECTED FINANCIAL DATA


We have set forth below certain selected financial data.  The information has been derived from the financial statements, financial information and notes thereto included elsewhere in this report.


Statement of Operations Data:

 

Year Ended Oct.,

31, 2012

 

Year Ended Oct.

31, 2011

Total revenues

 

$    28,079

 

$       22,999

Operating expenses

 

$  194,085

 

$     216,016

Net loss

 

$(227,657)

 

$    (14,022)

Basic and diluted loss per common share

 

$     (0.01)

 

$        (0.00)

Shares used in computing basic and diluted loss per share

 

18,993,351

 

18,543,652

 

 

 

 

 

Balance Sheet Data:

 

Oct. 31, 2012

 

Oct. 31, 2011

Working capital deficit

 

$ (1,803,262)

 

$  (1,628,845)

Total assets

 

$        85,181

 

$         86,374

Total liabilities

 

$   1,839,914

 

$    1,652,635

Shareholder’s deficit

 

$ (1,754,733)

 

$  (1,566,261)




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ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION


Introduction


The following discussion and analysis summarizes the financial condition of the Company at fiscal year- end October 31, 2012, and compares that to its financial condition at October 31, 2011.  It also analyzes our results of operation for the year ended October 31, 2012 and compares those results to the year ended October 31, 2011.  This discussion and analysis should be read in conjunction with our financial statements and notes appearing elsewhere in this report.  The discussion should also be read with the cautionary statements and risk factors appearing at the end of this section.


Overview


During 2012, the Company built on progress made during 2011 by gaining increased revenue from our stem cell-based products while also achieving advances in product development and expansion viewed by management as necessary for the Company to further expand revenue growth to attain profitable operations and to sustain earnings growth in the future.  There were also additional advances in the commercialization of FSH for use in the treatment of infertility facilitated through interactions between the Company and it patent licensee who licensed two patents related to FSH production for use in the treatment of infertility during 2011. Since the Company has royalty income provisions within this patent license agreement, such developments also enhance potential revenue generation opportunities especially since royalty income translates primarily to the bottom line with minimal associated expenses.


Our 2012 operations were highlighted by increased revenue generation from our stem cell products through increased distribution achieved by both direct sales and establishment of strategic distribution agreements.  Our lead MSC-Gro cell culture media product showed increases in sales revenue during 2012.   In addition, we added several new cell lines and media products during 2012, especially focused on differentiated cells derived from adult stem cells known as mesenchymal stem cells (MSCs).  These include, for example, human MSC-derived chondrocytes that synthesize collagen and are important to function of joints and connective tissues.   These products allow the Company to approach additional markets in drug discovery and development and in therapeutic applications as well.  In addition, several different cell types may be differentiated from MSCs and each of these cell types represents a different potential product line for the Company.


The Company also advanced its technology related to labeling of stem cells including new and expanded methods for fluorescent labeling and for the introduction of fluorescent & magnetic nanoparticles into stem cells.  Management believes that the combination of nanotechnology and stem cells represents an important new avenue for the enhancement of regenerative capacity of stem cells through in-vivo imaging and monitoring.  We now offer both our MSC products and terminally differentiated cells in native and multiple labeled formats including four different fluorescent labels and supra-paramagnetic iron oxide as well, the latter label is detectable by magnetic resonance imaging (MRI) a common clinical imaging method.  The Company anticipates additional sales of its cell lines based on these advances in labeling technology.



14






We also filed a new patent application with the United States Patent Office in 2012 for our novel technology for mesenchymal stem cell generation from the umbilical cord.  We plan to launch additional new products during 2013 based on these technologies targeting therapeutic applications, also expanding opportunities for revenue generation by the Company. Additional details regarding our 2012 business development achievements are presented elsewhere in this report (See: Part I: Item 1: Business)


Liquidity and Capital Resources


At fiscal year-end October 31, 2012, the Company had a working capital deficit of $ 1,803,262, consisting of current assets of $36,652 and current liabilities of $1,839,914.  The working capital deficit increased by $174,417 from fiscal year end October 31, 2011.  Current assets increased by $12,862, from year-end 2011 to 2012 while total assets decreased $1,193 during that time, the former from inventory increase while this increase was offset by equipment depreciation in our total assets.  Increase inventory reflects increased demand for our products.   Current liabilities increased $187,279 at October 31, 2012 compared to October 31, 2011due to operating expenses in excess of revenues.  The majority of the working capital deficit and the shareholder deficit of $1,754,733 is due to accrued salaries and notes/advances due to the president and CEO, which totaled $1,734,266 at October 31, 2012.  


The Company remains dependent on receipt of additional cash to continue its business plan and achieve profitability in the future.  The report of the independent accountant that audited the Company's financial statements for the year ended October 31, 2012 includes a qualification that the Company may not continue as a going concern.  In that event, the Company might be liquidated and its assets sold to satisfy any claims of creditors.  See Note A to the financial statements attached to this report for a more complete description of this contingency.  


During the fiscal year ended October 31, 2012, the Company's financing activities provided $138,923 to support operations.  During that time, the Company's operations used $130,629 of cash compared to $115,850 of cash used during the twelve months ended October 31, 2011.  The use of cash during 2012 reflects an operating cash requirement of about $10,886 per month for operations while the cash raised was primarily from product revenues, and cash advances provided by its president.  While most R&D necessary for manufacture of the current line of products has been performed previously, the Company focused its efforts on marketing and expansion of its product lines resulting in increased cash expenditures of $14,779 for fiscal year 2012.  Operating expenses are anticipated to be similar in 2013 from the operating plans described elsewhere in this report.


The Company had lines of credit totaling $37,091 with $2,109 in available credit at October 31, 2012.  The Company must continue to service debt and the Chairman personally guarantees most of the Company debt.  


Sales of products increased from $6,103 in 2009 to $15,651 in 2010, to $22,999 in 2011, and were $28,079 in 2012 that was a 22% increase over 2011.  Management anticipates increases in product revenue during fiscal year 2013 due to product line expansion and marketing efforts as described in greater detail elsewhere in this report (See Part I, Item 1, Marketing and Distribution).  We now have distribution agreements with other companies who provide considerable assistance in sales of



15





our products; during 2012 11% of our total sales were through distributors and 89% were direct.  We anticipate expanded business relations with our distributors in 2013 and an increased proportion of our total sales through our distributors.  We may also engage in additional alliances with other third parties who provide expanded distribution of the Company’s products.  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 continuously 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.  The Company remains committed to a growth strategy based on suitable business combinations with private entities and is engaged in discussions with potential merger/acquisition candidates.  The present capital structure of the Company is conducive to acquisition of synergistic private entities operating in comparable business sector to the Company.  Management believes that because of the focus of the Company on adult stem cell products and technology together with the strong growth of this industry due numerous demonstrations of clinical efficacy for a variety of indications, both in animals and humans, that there are significant business combination opportunities available to the Company.  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 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 year ended October 31, 2012, the Company realized a net loss of $227,657, or ($.01) per share, with $28,0879 in revenue from products.  The operating loss in 2012 was $213,635 more than the operating loss of $14,022 in 2011.  The increase in the net loss during 2012 as compared to 2011 was primarily due to the lack of other income items during the year ended October 31, 2011 including income from a patent license, the forgiveness of certain debt associated with the patent licensing, and the expiration of  certain stock purchase warrants.  Research and development expenses decreased by $11,858 and selling, general and administrative expenses decreased by $10,073 in 2012. Product revenue increased 22% during 2012 as the Company continued commercialization of its new stem cell-based products. The Company has initiated a multi-faceted product marketing plan including internet marketing, use of social media, direct sales, use of distributors and attendance at trade shows.  The Company believes it has significant prospective sales opportunities that management is pursuing to the full extent possible.  These efforts have been supported by addition of new products to expand the Company’s offerings to the research community.  Additional detail regarding specific operational achievements during 2012 is presented elsewhere in this report (Part I. Item 1: Business).


Total operating expenses were $21,931 less in 2012 than in 2011, as the expense reduction activities enacted in 2011 became effective. Also, management has increased certain expenses, e.g., by addition of necessary employees and increased marketing expenses, that partly offset some of the expense reductions previously described.  Additional operational goals of 2013 may entail



16





necessary expense increases.  However, management intends to tightly control expenses while at the same time ensuring achievement of profitability through revenue growth.


Research and development expenses (R&D) decreased by $11,858 during fiscal year 2012 compared to fiscal year 2011.  While the R& D necessary for launch of its initial products was completed in 2009, the Company continued development of several new products during 2012 including cell culture media formulations and cell lines including both MSC lines and differentiated cells derived from MSCs.  During 2012 our product development activities were focused on the development of novel and effective MSC differentiation methods that yielded our initial MSC-derived human chondrocytes that are terminally differentiated cells producing collagen.  Terminally differentiated cells have application to new drug development discovery and toxicology studies.  Thus, these new products open additional markets to the Company and include numerous other cell types.  We are currently developing MSC-derived endothelial cells and plan launch of these products in our first quarter of 2013. The addition of differentiated cells to our product offerings is complemented by our enhanced cell labeling technology including use of nanotechnology to label MSCs with both fluorescent and magnetic nanoparticles.  We are thus able to offer stem cells and differentiated cells derived from stem cells as native unlabeled cells together with 4 different types of fluorescent label and magnetic labeling as well.  These different cell lines offer our customers numerous options to support various research applications.  Also, such cells have diagnostic applications including in-vivo imaging by MRI.


In addition to our products intended for research and clinical development, the Company is also developing products with therapeutic applications 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 from umbilical cord during 2012.  This intellectual property is the subject of a new USPTO patent application.  


During the year ended October 31, 2011, the Company realized a net loss of $14,022, or ($.00) per share, on $22,999 of revenue.  


Operating expenses decreased $53,659 from fiscal 2010 to fiscal 2011, due to decreased S, G & A and R&D expenses.  Selling, general and administrative expenses decreased by $14,189 in 2011, while research and development expenses decreased by $39,470 in 2011.






17






RISK FACTORS


This 10-K report, including Management's Discussion and Analysis of Financial Condition and Results of Operation, contains forward-looking statements that may be materially affected by several risk factors including those discussed below.


The Company is wholly dependent on the efforts and expertise of its sole employee to further its business plan, and the loss of his service for any reason would have a material adverse effect on the Company and its business and may require a suspension of operations.  


Achievement of the objectives described in this report depends critically upon Dr. James Musick, who has contributed substantially to the development of the products and technology presently owned by the Company.  At present, the Company has an employment contract with Dr. Musick.  However, the Company does not maintain "key man" life insurance on his life.  Loss of his services would adversely impact the efforts to commercialize of the Company's products.



We are required to formally assess our internal controls under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such assessment could result in a loss of investor confidence in our financial reports and have a material adverse effect on the price of our common stock.


The Sarbanes-Oxley Act of 2002 (SOX), which became law in July 2002, has required changes in some of our corporate governance, securities disclosure and compliance practices. In response to the requirements of SOX, the SEC and major stock exchanges have promulgated new rules and listing standards covering a variety of subjects. Compliance with these new rules and listing standards that are likely to increase our general and administrative costs, and we expect these to continue to increase in the future. In particular, we are required to include the management report on internal control as part of this and future annual reports pursuant to Section 404 of SOX. We have evaluated our internal control systems in order (i) to allow management to report on those controls, as required by these laws, rules and regulations, (ii) to provide reasonable assurance that our public disclosure will be accurate, complete, and timely, and (iii) to comply with the other provisions of Section 404 of SOX.  Future compliance with SOX 404 may require additional expenditures of human resources and capital, and could adversely impact our operations.  Furthermore, there is no precedent available by which to measure compliance adequacy.  If we are not able to implement the requirements relating to internal controls and all other provisions of Section 404 in a timely fashion or achieve adequate compliance with these requirements or other requirements of SOX, we might become subject to sanctions or investigation by regulatory authorities such as the SEC or FINRA. Any such action may materially adversely affect our reputation, financial condition and the value of our securities, including our common stock. We expect that SOX and these other laws, rules and regulations will increase legal and financial compliance costs and will make our corporate governance activities more difficult, time-consuming and costly. We also expect that these requirements will make it more difficult and expensive for us to obtain director and officer liability insurance.




18





Current economic conditions in the global economy generally, including ongoing disruptions in the debt and equity capital markets, may adversely affect our business and results of operations, and our ability to obtain financing.


The global economy is currently undergoing numerous challenges, and the future economic environment may continue to be less favorable than that of past years. We are unable to predict the likely duration and severity of the current disruptions in debt and equity capital markets and adverse economic conditions in the United States and other countries, which may continue to have an adverse effect on our business and results of operations, in part because we are dependent upon customer behavior and the impact on consumer spending that the continued market disruption may have.


The global stock and credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective and outstanding debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings materially less attractive, and in certain cases have resulted in the unavailability of certain types of financing. This volatility and illiquidity has negatively affected a broad range of mortgage and asset-backed and other fixed income securities. As a result, the market for fixed income securities has experienced decreased liquidity, increased price volatility, credit downgrade events, and increased defaults. Global equity markets have also been experiencing heightened volatility and turmoil, with issuers exposed to the credit markets particularly affected. These factors and the continuing market disruption have an adverse effect on us, in part because we, like many companies, from time to time may need to raise capital in debt and equity capital markets including in the asset-backed securities markets.


In addition, continued uncertainty in the stock and credit markets may negatively affect our ability to access additional short-term and long-term financing, including future securitization transactions, on reasonable terms or at all, which would negatively impact our liquidity and financial condition. In addition, if one or more of the financial institutions that support our future credit facilities fails, we may not be able to find a replacement, which would negatively impact our ability to borrow under the credit facilities. These disruptions in the financial markets also may adversely affect our credit rating and the market value of our Common Stock. If the current pressures on credit continue or worsen, we may not be able to refinance, if necessary, our outstanding debt when due, which could have a material adverse effect on our business. While we believe we will have adequate sources of liquidity to meet our anticipated requirements for working capital, contractual commitments and capital expenditures for approximately the following 6 to 12 months based on curtailed operating plans, (of which there can be no assurance), or if our operating results worsen significantly, or our cash flow or capital resources prove inadequate, we could face liquidity problems that could materially and adversely affect our results of operations and financial condition.


We cannot predict our future capital needs and we may not be able to secure additional financing.


Our projection of future capital needs is based on our operating plan, which in turn is based on assumptions that may prove to be incorrect. As a result, our financial resources may not be sufficient to satisfy our future capital requirements. Should these assumptions prove incorrect, there is no



19





assurance that we can raise additional financing on a timely basis or on favorable terms. If funding is insufficient at any time in the future, we may not be able to develop or commercialize our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.



Significant increases in interest rates could adversely affect our operations and our ability to raise additional capital.


While we have not depended upon outside financing, we have significantly depended upon advances from our president to fund operations.  These advances accrue interest at an annual rate of 10%.  Significant increases in interest rates could affect the Company’s ability to secure future advances as well as have adverse effects upon interest expenses of possible future advances.



Future financings may result in dilution to our shareholders and restrictions on its business operations.


If we raise additional funds by issuing equity or convertible debt securities, further dilution to our shareholders could occur. Additionally, we may grant registration rights to investors purchasing equity or debt securities. Debt financing, if available, may involve pledging some or all of our assets and may contain restrictive covenants with respect to raising future capital and other financial and operational matters. If we are unable to obtain necessary additional capital, we may be unable to execute our business strategy, which would have a material adverse effect on our business, financial condition and results of operations.



We have incurred losses since inception and may never achieve profitability. 

 

We are subject to many of the risks common to developing enterprises, including undercapitalization, cash shortages, limitations with respect to financial and other resources, and insufficient revenue to be self-sustaining. There is no assurance that we will ever attain profitability.


We have limited human resources; we need to attract and retain highly skilled personnel; and we may be unable to manage our growth with our limited resources effectively.


We expect that the expansion of our business will place a significant strain on our limited managerial, operational, and financial resources.  We will be required to expand our operational and financial systems significantly and to expand, train and manage our work force in order to manage the expansion of our operations. Our future success will depend in large part on our ability to attract, train, and retain additional highly skilled executive level management with experience in the pharmaceutical industry.  Competition is intense for these types of personnel from more established organizations, many of which have significantly larger operations and greater financial, marketing, human, and other resources than we have.  We will need substantial additional capital in order to attract and retain critical management.  We may not be successful in attracting and retaining qualified personnel on a timely basis, on competitive terms or at all.  We currently are required to limit the engagement of critical management to part-time due to limited resources and there is no



20





assurance that we will be successful in raising the necessary additional financial resources to employ them, and other key employees, on a full time basis. If we are not successful in attracting and retaining these personnel, our business, prospects, financial condition and operating results would be materially adversely affected. Further, our ability to manage our growth effectively will require us to continue to improve our operational, financial and management controls, reporting systems and procedures, to install new management information and control systems and to train, motivate and manage employees.  If we are unable to manage growth effectively and new employees are unable to achieve adequate performance levels, our business, prospects, financial condition and operating results could be materially adversely affected.


If clinical trials of our current or future product candidates do not produce results necessary to support regulatory approval in the United States or elsewhere, we will be unable to commercialize these products.


To receive regulatory approval for the commercial sale of our product candidates that we may develop or out-license, we must conduct, at our own expense, adequate and well controlled clinical trials to demonstrate efficacy and safety in humans. Clinical testing is expensive, takes many years and has an uncertain outcome. Clinical failure can occur at any stage of the testing.  Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or non-clinical testing.  Our failure to adequately demonstrate the efficacy and safety of any product candidate that we may develop or out-license would prevent receipt of regulatory approval of that product candidate.


Our assumptions concerning the regulatory approval pathway for our diagnostic products may prove to be incorrect.


Our business plan makes certain assumptions concerning the regulatory approval pathway for our planned diagnostic and therapeutic products.  While such assumptions are based on the guidance of regulatory consultants, there is no assurance the FDA will agree with our conclusions, which could result in a longer, more costly process than we are currently anticipating.


Delays in the commencement or completion of clinical testing could result in increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates.


Delays in the commencement or completion of clinical testing could significantly affect our product development costs. The commencement and completion of clinical trials requires us to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs for the same indication as our product candidates or may not be eligible to participate in or may be required to withdraw from a clinical trial as a result of changing standards of care. The commencement and completion of clinical trials can be delayed for a variety of other reasons, including delays related to:


·

reaching agreements on acceptable terms with prospective clinical research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

·

obtaining regulatory approval to commence a clinical trial;



21





·

obtaining institutional review board approval to conduct a clinical trial at a prospective site;

·

recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for the same indication as our product candidates; and

·

retaining patients who have initiated a clinical trial but may be prone to withdraw due to the treatment protocol, lack of efficacy, personal issues, side effects from the therapy or who are lost to further follow-up.


In addition, a clinical trial may be suspended or terminated by us, the FDA or other regulatory authorities, due to a number of factors, including:


·

failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

·

inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

·

unforeseen safety issues or any determination that a trial presents unacceptable health risks; or

·

lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and increased expenses associated with the services of our CROs and other third parties.


Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to institutional review boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, our clinical trials, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenues will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Even if we are able to ultimately commercialize our product candidates, other therapies for the same indications may have been introduced to the market and established a competitive advantage.


Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties.


Even if U.S. regulatory approval or clearance is obtained, the FDA can impose significant restrictions on a product’s indicated uses or marketing or may impose ongoing requirements for potentially costly post-approval studies. Any of these restrictions or requirements could adversely affect our potential product revenues.  Our product candidates will also be subject to ongoing FDA requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. In addition, approved products, manufacturers and manufacturers’ facilities are subject to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requiring



22





withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, such as current Good Manufacturing Practices, or “CGMPs”, a regulatory agency may:


·

issue warning letters or untitled letters;

·

require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

·

impose other civil or criminal penalties;

·

suspend regulatory approval;

·

suspend any ongoing clinical trials;

·

refuse to approve pending applications or supplements to approved applications filed by us;

·

impose restrictions on operations, including costly new manufacturing requirements; or

·

seize or detain products or require a product recall.


Our commercialization efforts will be greatly dependent upon our ability to demonstrate product efficacy in clinical trials. Pharmacies and other dispensing facilities will be reluctant to order our products, and medical practitioners will be reluctant to prescribe our products, without compelling supporting data. While we believe that our products will be effective for our planned indications, there is no assurance that this will be proven in clinical trials.  The failure to demonstrate efficacy in our clinical trials, or a delay or failure to complete our clinical trials, would have a material adverse effect on our business, prospects, financial condition and operating results.


Our failure to convince medical practitioners to use our technologies will limit our revenue and profitability.


If we, or our commercialization partners, fail to convince medical practitioners to prescribe products using our technologies, we will not be able to sell our products or license our technologies in sufficient volume for our business to become profitable. We will need to make leading physicians aware of the benefits of products using our technologies through published papers, presentations at scientific conferences and favorable results from our clinical studies. Our failure to be successful in these efforts would make it difficult for us to convince medical practitioners to prescribe products using our technologies for their patients. Failure to convince medical practitioners to prescribe our products will damage our commercialization efforts and would have a material adverse effect on our business, prospects, financial condition and operating results.


If we are unsuccessful in establishing strategic licensing arrangement with strategic industry partners, our efforts to develop our products will be more costly and involve significant delays.


Our product development plan relies upon our ability to join with strategic industry partners in licensing arrangements.  This approach would allow us to utilize the resources and scientific talent of our strategic licensing partners.  However, if we are not successful in establishing these relationships, we will be required to bear the cost of commercializing our technology, both financial and human resources, alone. As a result, we would expect that our future capital requirements would be significantly increased than presently projected, and the time to market materially delayed.



23






We may not be able to market or generate sales of our products to the extent anticipated.


Assuming that we are successful in receiving regulatory clearances to market any of our products, our ability to successfully penetrate the market and generate sales of those products may be limited by a number of factors, including the following:


·

Certain of our competitors in the field have already received regulatory approvals for and have begun marketing similar products, which may result in greater physician awareness of their products as compared to ours.


·

Information from our competitors or the academic community indicating that current products or new products are more effective than our products could, if and when it is generated, impede our market penetration or decrease our existing market share.


·

Physicians may be reluctant to switch from existing treatment methods, including traditional therapy agents, to our products.


·

The price for our products, as well as pricing decisions by our competitors, may have an effect on our revenues.


·

Our revenues may diminish if third-party payors, including private health coverage insurers and health maintenance organizations, do not provide adequate coverage or reimbursement for our products.


If any of our future marketed products were to experience problems related to their efficacy, safety, or otherwise, or if new, more effective treatments were to be introduced, our revenues from such marketed products could decrease.


If any of our current or future marketed products become the subject of problems, including those related to, among others:


·

efficacy or safety concerns with the products, even if not justified;


·

unexpected side-effects;


·

regulatory proceedings subjecting the products to potential recall;


·

publicity affecting doctor prescription or patient use of the product;


·

pressure from competitive products; or


·

introduction of more effective treatments.


Our revenues from such marketed products could decrease. For example, efficacy or safety concerns may arise, whether or not justified, that could lead to the recall or withdrawal of such marketed products. In the event of a recall or withdrawal of a product, our revenues would significantly decline.



24






If our competitors succeed in developing products and technologies that are more effective than our own, or if scientific developments change our understanding of the potential scope and utility of our products, then our products and technologies may be rendered less competitive.


We will face significant competition from industry participants that are pursuing similar products and technologies that we are pursuing and are developing pharmaceutical products that are competitive with our planned products and potential products. Nearly all of our industry competitors have greater capital resources, larger overall research and development staffs and facilities, and a longer history in drug discovery and development, obtaining regulatory approval and pharmaceutical product manufacturing and marketing than we do. With these additional resources, our competitors may be able to respond to the rapid and significant technological changes in the biotechnology and pharmaceutical industries faster than we can. Our future success will depend in large part on our ability to maintain a competitive position with respect to these technologies. Rapid technological development, as well as new scientific developments, may result in our compounds, products or processes becoming obsolete before we can recover any of the expenses incurred to develop them. For example, changes in our understanding of the appropriate population of patients who should be treated with a targeted therapy like we are developing may limit the product's market potential if it is subsequently demonstrated that only certain subsets of patients should be treated with the targeted therapy.


If the manufacturers upon whom we rely fail to produce our product candidates in the volumes that we require on a timely basis, or to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, our products and may lose potential revenues.


We do not yet have agreements established regarding commercial supply of any product candidates. There is no assurance that we will be successful in negotiating an agreement on commercially reasonable terms. There is no assurance that our commercialization partner will approve of our manufacturer.  Any problems or delays we experience in preparing for commercial-scale manufacturing of any product candidate may impair our ability to manufacture commercial quantities, which would adversely affect our business. For example, our manufacturers will need to produce specific batches of our product candidates to demonstrate acceptable stability under various conditions and for commercially viable lengths of time. Furthermore, if our commercial manufacturers fail to deliver the required commercial quantities of bulk drug substance or finished product on a timely basis and at commercially reasonable prices, we would likely be unable to meet demand for our products and we would lose potential revenues.


The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Our manufacturers may not perform as agreed. If our manufacturers were to encounter any of these difficulties, our ability to provide product to commercialization partners or product candidates to patients in our clinical trials would be jeopardized.  In addition, all manufacturers of



25





our product candidates must comply with CGMP requirements enforced by the FDA through its facilities inspection program. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our product candidates may be unable to comply with these CGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.


The use of any of our potential products in clinical trials and the sale of any approved products exposes us to liability claims.


The nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of drug candidates and products. If any of our drug candidates in clinical trials or our marketed products harm people or allegedly harm people, we may be subject to costly and damaging product liability claims. A number of patients who participate in trials are already critically ill when they enter a trial. The waivers we obtain may not be enforceable and may not protect us from liability or the costs of product liability litigation. Although we intend to obtain product liability insurance that we believe is adequate, we are subject to the risk that our insurance will not be sufficient to cover claims. There is also a risk that adequate insurance coverage will not be available in the future on commercially reasonable terms, if at all. The successful assertion of an uninsured product liability or other claim against us could cause us to incur significant expenses to pay such a claim, could adversely affect our product development and could cause a decline in our product revenues. Even a successfully defended product liability claim could cause us to incur significant expenses to defend such a claim, could adversely affect our product development and could cause a decline in our product revenues.


If other companies claim that we infringe on their intellectual property rights, we may be subject to costly and time-consuming litigation and delays in product introduction.


Our processes and potential products may conflict with patents that have been or may be granted to competitors, academic institutions or others. As the biotechnology and pharmaceutical industries expand and more patents are filed and issued, the risk increases that our product candidates may give rise to a declaration of interference by the U.S. Patent and Trademark Office, to administrative proceedings in foreign patent offices or to claims of patent infringement by other companies, institutions or individuals. These entities or persons could bring legal proceedings against us seeking substantial damages or seeking to enjoin us from testing, manufacturing or marketing our products. If any of these actions were successful, we may also be required to cease the infringing activity or obtain the requisite licenses or rights to use the technology that may not be available to us on acceptable terms, if at all. Any litigation, regardless of the outcome, could be extremely costly to us.


Because it is difficult and costly to protect our proprietary rights, we may not be able to ensure their protection.


Our commercial success will depend in part on maintaining patent protection and trade secret protection for our products, as well as successfully defending these patents against third-party



26





challenges. We will only be able to protect our technologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them.


The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical or biotechnology patents has emerged to date in the United States. The patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents.


The degree of future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:


·

our licensors might not have been the first to make the inventions covered by each of our pending patent applications and issued patents;


·

our licensors might not have been the first to file patent applications for these inventions;


·

others may independently develop similar or alternative technologies or duplicate any of our product candidates or technologies;


·

it is possible that none of the pending patent applications licensed to us will result in issued patents;


·

the issued patents covering our product candidates may not provide a basis for commercially viable active products, may not provide us with any competitive advantages, or may be challenged by third parties;


·

we may not develop additional proprietary technologies that are patentable; or


·

patents of others may have an adverse effect on our business.


In the event that a third party has also filed a U.S. patent application relating to our product candidates or a similar invention, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial and it is possible that our efforts would be unsuccessful, resulting in a material adverse effect on our U.S. patent position. It is also possible we may not have the financial resources to pursue infringement actions on a timely basis if at all. Furthermore, we may not have identified all U.S. and foreign patents or published applications that affect our business either by blocking our ability to commercialize our drugs or by covering similar technologies that affect our drug market.




27





In addition, some countries, including many in Europe, do not grant patent claims directed to methods of treating humans, and in these countries patent protection may not be available at all to protect our drug candidates. Even if patents issue, we cannot guarantee that the claims of those patents will be valid and enforceable or provide us with any significant protection against competitive products, or otherwise be commercially valuable to us.


We may also rely on trade secrets to protect our technology, particularly where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we use reasonable efforts to protect our trade secrets, our licensors, employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.


If our licensors or we fail to obtain or maintain patent protection or trade secret protection for our products, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and achieve profitability.


If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in any litigation would harm our business.


Our ability to develop, manufacture, market and sell our products depends upon our ability to avoid infringing the proprietary rights of third parties. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third party claims that we infringe on their products or technology, we could face a number of issues, including:


·

infringement and other intellectual property claims which, with or without merit, can be expensive and time consuming to litigate and can divert management’s attention from our core business;


·

substantial damages for past infringement which we may have to pay if a court decides that our product infringes on a competitor’s patent;


·

a court prohibiting us from selling or licensing our product unless the patent holder licenses the patent to us, which it is not required to do;


·

if a license is available from a patent holder, we may have to pay substantial royalties or grant cross licenses to our patents; and


re-designing our processes so they do not infringe, which may not be possible or could require substantial funds and time.






28





The public trading market for our Common Stock is subject to the “penny stock” rules.


Our Common Stock is currently quoted on the OTC Electronic Bulletin Board, a FINRA sponsored and operated quotation system for equity securities.  This is a more limited trading market than the Nasdaq Captial Market, and timely, accurate quotations of the price of our Common Stock may not always be available.  You may expect trading volume to be low in such a market.  Consequently, the activity of only a few shares may affect the market and may result in wide swings in price and in volume.


Our Common Stock is subject to the requirements of Rule 15g.9, promulgated under the Securities Exchange Act as long as the price of our Common Stock is below $5.00 per share.  Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's consent prior to the transaction.  The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock.  Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on Nasdaq that has a market price of less than $5.00 per share.  The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document prepared by the SEC, to provide the customer with additional information including current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customer's account, and to make a special written determination that the penny stock is a suitable investment for the Subscriber and receive the Subscriber’s written agreement to the transaction. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it.  Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.


Over-the-counter stocks are subject to risks of high volatility and price fluctuation.


The OTC market for securities has experienced extreme price and volume fluctuations during certain periods.  These broad market fluctuations and other factors, such as new product developments and trends in our Company's industry and the investment markets generally, as well as economic conditions and quarterly variations in our results of operations, may adversely affect the market price of our Common Stock and make it more difficult for investors in this offering to sell their shares.


Investors may also find it difficult to obtain accurate information and quotations as to the price of our Common Stock.  


Our stock price is volatile and as a result, investors could lose all or part of their investment.  The value of an investment could decline due to the impact of any of the following factors upon the market price of our Common Stock:


·

failure to meet sales and marketing goals or operating budget

·

failure to achieve development goals

·

failure to obtain regulatory approvals



29





·

concerns regarding insufficient financial resources

·

inability to create an active trading market for our Common Stock

·

decline in demand for our Common Stock

·

operating results failing to meet the expectations of securities analysts or investors in any quarter

·

downward revisions in securities analysts' estimates or changes in general market conditions

·

investor perception of our Company's industry or prospects

·

general economic trends


In addition, stock markets have experienced extreme price and volume fluctuations and the market prices of securities have been highly volatile.  These fluctuations are often unrelated to operating performance and may adversely affect the market price of our Common Stock.  As a result, investors may be unable to resell their shares at or above the Offering price.


We do not expect to pay cash dividends in the foreseeable future.  Any return on investment may be limited to the value of our stock.


We have never paid any cash dividends on any shares of our capital stock, and we do not anticipate that we will pay any dividends in the foreseeable future.  Our current business plan is to retain any future earnings to finance the expansion of our business.  Any future determination to pay cash dividends will be at the discretion of our Board of Directors, and will be dependent upon our consolidated financial condition, results of operations, capital requirements and other factors as our board of directors may deem relevant at that time.  If we do not pay cash dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates.


If the Company were to dissolve or wind-up, holders of our Common Stock may not receive a liquidation distribution.  


If we were to wind-up or dissolve the Company and liquidate and distribute our assets, our shareholders would share ratably in our assets only after we satisfy any amounts we would owe to our creditors.  If our liquidation or dissolution were attributable to our inability to profitably operate our business, then it is likely that we would have material liabilities at the time of liquidation or dissolution.  Accordingly, we cannot give you any assurance that sufficient assets will remain available after the payment of our creditors to enable you to receive any liquidation distribution with respect to any shares you may hold.


If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock, should a public market develop in the future.

 

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide financial reports or prevent fraud, our business reputation and operating results could be harmed. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.



30







ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Not applicable.





31







ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


       The following consolidated financial statements are filed as part of this report:


 

 

 

 

1.

Report of Independent Registered Public Accounting Firm – Schumacher & Associates, Inc.

 

 

 

 

2.

Balance Sheets at October 31, 2012 and 2011

 

 

 

 

3.

Statements of Operations for the years ended October 31, 2012 and 2011

 

 

 

 

4.

Statement of Changes in Shareholders’ Deficit for the period

November 1, 2010 through October 31, 2012.

 

 

 

 

5.

Statements of Cash Flows for the Years Ended October 31, 2012 and 2011

 

 

 

 

6.

Notes to Financial Statements








F-1






Report of Independent Registered Public Accounting Firm

Board of Directors

Vitro Diagnostics, Inc.


We have audited the accompanying balance sheets of Vitro Diagnostics, Inc., as of October 31, 2012 and 2011, and the related statements of operations, shareholders’ (deficit), and cash flows for the two years ended October 31, 2012 and 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vitro Diagnostics, Inc. as of October 31, 2012 and 2011, and the results of its operations and cash flows for the two years ended October 31, 2012 and 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note A, the Company has suffered significant losses since inception and has working capital and shareholders’ deficits at October 31, 2012, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also discussed in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


SCHUMACHER & ASSOCIATES, INC.

Denver, Colorado
February 9, 2013








F-2







VITRO DIAGNOSTICS, INC.

 

 

Balance Sheets

 

 

 

 

 

 

 

October 31, 2012

 

October 31, 2011

 

 

 

 

 

Assets

 

 

 

Current assets:

 

 

 

 

Cash

 $                5,286

 

 $                3,023

 

Accounts receivable

                  4,688

 

                  3,594

 

Inventory, at cost

                 26,678

 

                 17,173

 

     Total current assets

                 36,652

 

                 23,790

 

 

 

 

 

Equipment, net of accumulated depreciation of $94,991 and $78,043

                 17,026

 

                 31,819

Patents, net of accumulated amortization of $10,802 and $7,664 (Note A)

                 20,583

 

                 23,721

Deferred costs (Note A)

                  9,471

 

                  5,595

Other assets

                  1,449

 

                  1,449

 

 

 

 

 

 

     Total assets

 $              85,181

 

 $              86,374

 

 

 

 

 

Liabilities and Shareholders' Deficit

 

 

 

Current liabilities:

 

 

 

 

Lines of credit (Note D)

 $              37,091

 

 $              33,834

 

Current maturities on capital lease obligations (Note E)

                       -   

 

                  8,134

 

Accounts payable

                 38,024

 

                 39,993

 

Accounts payable - related parties

                 30,533

 

                 30,344

 

Accrued expenses

                       -   

 

                  2,903

 

Advances and accrued interest payable to officer (Note B)

               544,058

 

               359,809

 

Accrued payroll expenses (Note B)

            1,190,208

 

            1,177,618

 

     Total liabilities

            1,839,914

 

            1,652,635

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Shareholders' deficit (Note F):

 

 

 

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;

                 19,309

 

                 18,529

    19,308,912 and 18,528,995 shares issued and outstanding

 

 

Additional paid-in capital

            5,382,509

 

            5,346,604

 

Services prepaid with common stock

                 (1,458)

 

                 (3,958)

 

Accumulated deficit

           (7,155,093)

 

           (6,927,436)

 

     Total shareholders' deficit

           (1,754,733)

 

           (1,566,261)

 

 

 

 

 

 

     Total liabilities and shareholders' deficit

 $              85,181

 

 $              86,374




The accompanying notes are an integral part of these financial statements

F-3






VITRO DIAGNOSTICS, INC.

Statements of Operations

 

 

 

 

 

 

 

 

 

For the Years Ended

October 31,

 

 

 

 

 

 

2012

 

2011

Product sales

 $          28,079

 

 $          22,999

 

Cost of goods sold

           (13,139)

 

             (9,454)

 

 

Gross profit

             14,940

 

             13,545

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

Research and development

           126,180

 

           138,038

 

Selling, general and administrative

             67,905

 

             77,978

 

 

Total operating costs and expenses

           194,085

 

           216,016

 

 

Loss from operations

          (179,145)

 

          (202,471)

 

 

 

 

 

 

Other income (expense):

 

 

 

 

Interest expense

           (48,512)

 

           (40,851)

 

Fair value of stock purchase warrants

-

 

             29,300

 

License fee income

-

 

             10,000

 

Forgiveness of debt

                   -   

 

           190,000

 

 

 

 

 

 

 

 

Income (loss) before income taxes

          (227,657)

 

           (14,022)

 

 

 

 

 

 

Provision for income taxes (Note C)

                   -   

 

                   -   

 

 

 

 

 

 

 

 

Net income (loss)

 $       (227,657)

 

 $         (14,022)

 

 

 

 

 

 

Net income (loss) per common share, basic and diluted

 $            (0.01)

 

 $            (0.00)

 

 

 

 

 

 

Shares used in computing net loss per common share:

 

 

 

 

Basic and diluted

       18,993,351

 

       18,543,652






The accompanying notes are an integral part of these financial statements

F-4








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, 2010

             -   

 

 $         -   

 

18,379,985

 

 $   18,380

 

 $     5,312,853

 

 $     (3,559)

 

 $(6,913,414)

 

 $(1,585,740)

Prepaid services earned (Note F)

             -   

 

            -   

 

                 -   

 

            -   

 

                   -   

 

        14,601

 

                    -   

 

              14,601

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

             -   

 

            -   

 

           99,010

 

            99

 

              9,901

 

      (10,000)

 

                    -   

 

                    -   

Vesting of officer stock options (Note F)

             -   

 

            -   

 

                 -   

 

            -   

 

            18,900

 

              -   

 

                    -   

 

              18,900

Common stock issued to SAB member for future services (Note F)

             -   

 

            -   

 

           50,000

 

            50

 

              4,950

 

        (5,000)

 

                    -   

 

                    -   

Net loss for the year ended October 31, 2011

             -   

 

 

 

                 -   

 

            -   

 

                   -   

 

              -   

 

 (14,022)

 

            (14,022)

Balance, October 31, 2011

             -   

 

            -   

 

18,528,995

 

 $   18,529

 

 $     5,346,604

 

 $     (3,958)

 

 $(6,927,436)

 

 $  (1,566,261)

Prepaid services earned (Note F)

             -   

 

            -   

 

                 -   

 

            -   

 

                   -   

 

        12,500

 

                    -   

 

              12,500

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

             -   

 

            -   

 

         222,222

 

          222

 

              9,778

 

      (10,000)

 

                    -   

 

                    -   

Common stock issued for consulting services (Note G)

             -   

 

            -   

 

         120,000

 

          120

 

              4,680

 

              -   

 

                    -   

 

               4,800

Conversion of accounts payable (Note F)

             -   

 

            -   

 

         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)





The accompanying notes are an integral part of these financial statements

F-5







VITRO DIAGNOSTICS, INC.

Statements of Cash Flows

 

 

 

For The Years Ended

October 31,

 

 

 

 

2012

 

2011

 

 

 

 

 

Cash Flows from operating activities:

 

 

 

 

Net income (loss)

 $     (227,657)

 

 $       (14,022)

Adjustments to reconcile net loss to net cash used in

  operating activities:

 

 

 

 

 

Depreciation and amortization

           20,086

 

           20,612

 

Stock-based compensation

           12,500

 

           33,501

 

Common stock issued for consulting services

             4,800

 

                 -   

 

Fair value of stock purchase warrants

                 -   

 

          (29,300)

 

Changes in current assets and current liabilities:

 

 

 

  (Increase) decrease in accounts receivable, inventories,

   prepaid expenses and deposits

          (10,599)

 

               996

 

 

  Increase (decrease) in accounts payable and accrued expenses

           70,241

 

        (127,637)

Net cash used in operating activities

        (130,629)

 

        (115,850)

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchases of equipment

           (2,155)

 

           (1,359)

 

Payments for patents and deferred costs

           (3,876)

 

           (4,833)

Net cash used in investing activities

           (6,031)

 

           (6,192)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from advances from officer

         143,800

 

         179,500

 

(Payments) draws on lines of credit, net

             3,257

 

          (56,998)

 

Principal payments on capital lease

           (8,134)

 

          (14,750)

Net cash provided by financing activities

         138,923

 

         107,752

 

 

 

 

 

 

Net change in cash

             2,263

 

          (14,290)

Cash, beginning of year

             3,023

 

           17,313

 

Cash, end of period

 $          5,286

 

 $          3,023

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

Cash paid during the year for:

 

 

 

 

   Interest

 $          8,063

 

 $        16,275

 

   Income taxes

 $               -   

 

 $               -   

 

Non-cash investing and financing activities:

 

 

 

 

  Common stock issued to directors for services

 $        10,000

 

 $        15,000

 

  Common stock issued for consulting services

 $          4,800

 

 $               -   

 

  Common stock issued upon conversion of accounts payable

 $        21,885

 

 $               -   





The accompanying notes are an integral part of these financial statements

F-6



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



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.  Additional details regarding the Company’s business and intellectual property is presented elsewhere in this report (See Part I, Business Narative.)


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.



F-7



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



However, the Company has suffered significant losses since inception and has working capital and shareholders’ deficits at October 31, 2012, 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, 2010, the president has advanced the Company a total of $323,300 for working capital on an “as needed” basis, including $143,800 during the year ended October 31, 2012.  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 Companys 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 Company’s operations. In such an event, management intends to pursue various strategic alternatives.


In March 2011, the Company formed a license agreement with a third party for its patented technology related to treatment of infertility.  The terms of this agreement included a license fee and royalties on any future sales derived from the patent license by the licensee.  The transaction resulted in a significant reduction of the Company’s accrued payroll obligation to a former employee.  See Note I for further discussion regarding this transaction.


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.




F-8



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



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 October 31, 2012 and October 31, 2011, 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 October 31, 2012 and 2011, finished goods included approximately $9,800 and $5,600, respectively, of labor and overhead allocations.  Inventories consisted of the following:


 

October 31, 2012

 

October 31, 2011

Raw materials

 $  12,074

 

 $       9,320

Finished goods

14,604

 

          7,853

 

 $  26,678

 

 $     17,173


Shipping and freight costs


All freight costs associated with the receiving of goods and materials is expensed during the period in which it is received.  For the years ended October 31, 2012 and 2011, $3,815 and $1,937 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 years ended October 31, 2012 and 2011, $1,521 and $1,310 are included in product sales in the accompanying statements of operations.


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 has also expanded its operations to 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. 





F-9



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



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 $16,948 and $17,473 for the years ended October 31, 2012 and 2011, 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 its patents over a period of ten years.  Amortization expense totaled $3,139 for each of the years ended October 31, 2012 and 2011, respectively.  Estimated future amortization expense for each of the next five fiscal years is as follows:


Year ended October 31,

 

 

2013

$

3,139 

2014

 

3,139 

2015

 

3,139 

2016

 

3,139 

2017

 

      3,139

Thereafter

 

 4,888  

 

$

 20,583 




F-10



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012




The Company’s patents consisted of the following at October 31, 2012:

Generation and differentiation of adult stem cell lines

 $

31,385 

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

 

 

    Less accumulated amortization

 

(10,802)

 

 $

20,583


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 $8,000 and $5,595 at October 31, 2012 and 2011, 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 $1,471 and $-0- at October 31, 2012 and 2011, 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 year ended October 31, 2012.  For the year ended October 31, 2011 the Company recorded an impairment charge of $135 relating to the write off of costs for an abandoned provisional filing.  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.






F-11



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012




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 years ended October 31, 2012 and 2011, 53% and 61% of the Company’s non-related party sales, respectively, were made to the Company’s top two customers.


Advertising Costs


The Company expenses all advertising costs as they are incurred.  Advertising costs were $6,871 and $6,557 for the years ended October 31, 2012 and 2011, 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 October 31, 2012 and 2011, 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.


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



F-12



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



common stock equivalents.  For the year ended October 31, 2012, 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 year ended October 31, 2011, common stock equivalents of 327,000 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.


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 2012 and 2011, 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 October 31, 2012, the Company’s President had advanced the Company a total of $462,982 used for working capital including $143,800 during the year ended October 31, 2012.  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 $81,076 and $40,627 at October 31, 2012 and 2011, respectively.  The total advances plus accrued interest totaling $544,058 and $359,809 at October 31, 2012 and 2011, 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 a new 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 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



F-13



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



control accelerating vesting for exercise of underlying stock options and also includes severance provisions.


As a result of the patent licenses agreement on March 29, 2011, a contingency was met and as a result, 100,000 common stock options became vested.  These options are exercisable at $.19 per share and expire in July 2018.  As a result, $18,900 of stock based compensation was recorded at March 29, 2011.  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 $1,190,208 and $1,177,618 at October 31, 2012 and 2011, respectively.  His accrued salaries totaled $1,143,422 and $1,131,432 as of October 31, 2012 and 2011, respectively.  His salary is allocated as follows: 70% to research and development and 30% to administration.


On March 30, 2011 the Company licensed two of its existing patents to a former executive officer.  The transaction included license fees totaling $10,000, and a forgiveness of previously accrued payroll amounts due the former officer of $190,000.  This transaction is further discussed in Note I.  His accrued salaries totaled $833 at both October 31, 2012 and October 31, 2011.


Total accrued payroll taxes on the above salaries totaled $45,953 and $45,353 at October 31, 2012 and 2011, 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 expires in June 2013.  The facility has been leased from a company that is owned by the President’s wife.  Future minimum rental payments for the remaining term of the lease are $14,920.


The total rental expense was $26,902 and $26,747 for the years ended October 31, 2012 and 2011, respectively.  At October 31, 2012 and 2011, $26,902 and $30,344 were unpaid and are included in accounts payable related parties in the accompanying balance sheets.


Sales and account receivable


During the fourth quarter of 2012, the Company sold various distributed inventory material products to the President’s wife since the Company gained competitive pricing on these items through group purchasing discounts.  The total amount of the sales was $5,694, of which $3,316 had been paid at October 31, 2012.  The remaining $2,378 due on the transactions is included in accounts receivable.


Other


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




F-14



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



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.




F-15



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



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 $534 was unused at October 31, 2012.  The interest rate on the credit line was 21.90% at October 31, 2012.  The credit line is collateralized by the Company’s checking account.  Principal and interest payments are due monthly.


At October 31, 2012 the Company also had three credit cards with a combined credit limit of $26,700, of which $1,575 was unused.  The interest rates on the credit cards range from 10.24% to 29.4%, with a weighted average rate of 25.93% at October 31, 2012.  All other credit cards previously used by the Company have been paid off and closed.


NOTE E: CAPITAL LEASE OBLIGATIONS


In July 2007, the Company entered into a capital lease agreement to acquire laboratory equipment.  The Company was obligated to make 3 monthly payments of $25 and monthly payments of $382 through August 2012.


In June 2008, the Company entered into a capital lease agreement, also for the acquisition of laboratory equipment.  The Company was obligated to make monthly payments of $830 through May 2012.


In July 2009, the Company entered into a capital lease agreement, also for the acquisition of laboratory equipment.  The Company was obligated to make monthly payments of $570 through June 2011.


As of October 31, 2012, all the Company’s capital lease obligations had been fully paid.



NOTE F: 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 October 31, 2012.  These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors.


Sale of Common Stock and Warrants


On December 29, 2009 the Company sold an aggregate of 500,000 shares of common stock together with an aggregate of 500,000 warrants for $87,500 to three investors.  The warrants were exercisable for a period of twelve months from the date of issuance to purchase an additional 500,000 shares of common stock at an exercise price of $0.175 per share.



F-16



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012




The Company applied the provisions of ASC Topic 815, “Derivatives and Hedging” and related standards for the accounting of the valuation of the common stock warrants issued as part of the private placement of common stock completed on December 29, 2009. Accordingly, the Company recorded a warrant liability upon the issuance of its common stock, equal to the estimated fair market value of the various features of the warrants.  The initial warrant liability of $75,000 represented a non-cash adjustment to the carrying value of the related financial instruments.  The warrants were exercisable upon issuance, and expired unexercised on December 29, 2010.  The liability was adjusted quarterly to the estimated fair market value based upon then current market conditions, and any change in the estimated fair market value was charged to the Company’s operating results.

  


The following assumptions were utilized to determine the estimated fair value of the warrants upon issue:


Expected volatility

 

142%

Contractual term

 

1 year

Risk free interest rate

 

0.47%

Expected dividend rate

 

0%

 

 

 


Common stock issued for services


On February 7, 2012, the Company’s board of directors ratified the issue of 222,222 shares of the Company’s common stock to Mr. Erik Van Horn, Director as compensation earned to date, and to be earned during his service in fiscal year ending October 31, 2012.  The transaction was valued at $10,000, or $.045 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.  Since the shares represent services performed for the year ended October 31, 2012, the total of $10,000 was expensed for the year ended October 31, 2012, and is reflected in “Services paid with common stock” in the accompanying balance sheets.


Also on February 7, 2012, the Company’s board of directors ratified the terms of a consulting agreement dated January 24, 2012 with a marketing entity which included the issuance of 120,000 shares of the Company’s common stock as partial payment for certain services being provided by the consultant.  The shares were valued at a total of $4,800, or $.04 per share, the closing price of the Company’s common stock on January 24, 2012.  The initial services relating to this issuance were considered to be substantially completed, and as such the total of $4,800 was charged to operations for the year months ended October 31, 2012.  This agreement is discussed further below in Note G.


On May 18, 2011, the Company appointed Mr. Duane Knight, CPA, to its Scientific Advisory Board (“SAB”).  Concurrently, the Company issued 50,000 shares of the Company’s common stock to him as compensation to be earned during his two years of service on the SAB.  The transaction was valued at $5,000, or $.10 per share, which approximated the market value of the stock on the date of the transaction.  As of October 31, 2012, $3,542, including $2,500 during the year ended October 31,



F-17



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



2012 had been expensed, and is reflected in “Services paid with common stock” in the accompanying balance sheets.


On April 27, 2011, the Company issued 99,010 shares of the Company’s common stock to Mr. Erik Van Horn, Director as compensation to be earned during his service in 2011.  The transaction was valued at $10,000, or $.101 per share, which approximated the market value of the stock on the date of the transaction.  As of October 31, 2012, the entire $10,000 had been expensed, and is reflected in “Services paid with common stock” in the accompanying balance sheets.


Conversion of accounts payable


On May 10, 2012 the Company issued 437,695 shares of its $.001 par value common stock to an individual in satisfaction of $21,885 of legal services previously provided.  The shares were valued at $0.05 per share, the closing price of the Company’s common stock on that date.


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 of March 29, 2011 as discussed in Note I, a contingency was met resulting in the vesting of 100,000 of these options.  As such, the Company recorded $18,900 in stock based compensation on March 29, 2011.  None of the other contingencies have been met as of October 31, 2012, 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 $0.189, 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



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



F-18



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



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 October 31, 2012 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 an exercise price of $0.08 per share, a weighted average exercise price of $0.08 per share, and a weighted average remaining contractual life of 3.28 years at October 31, 2012.  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 years ended October 31, 2012 and 2011, no compensation expense was recognized for options under the Plan. No additional options may be issued under the Plan.


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, 2010

 1,543,500

 

$.08 to $.81

7.60 years

$.17

 

Options granted

 

 -   

 

 

 

 

 

 

 

Options exercised

 

 -   

 

 

 

 

 

 

 

Options expired

 

 16,500   

 

  $.42 to $.81

-

 

$.44

Balance at October 31, 2011

 1,527,000

 

$.08 to $.45

5.66 years

$.17

 

Options granted

 

 -   

 

 

 

 

 

 

 

Options exercised

 

 -   

 

 

 

 

 

 

 

Options expired

 

 27,000

 

$.12 to $.31

 -   

 

$.13

Balance at October 31, 2012

 1,500,000

 

$0.08 to $0.19

4.75 years

$.17

Exercisable at October 31, 2011

 327,000

 

$.08 to $.31

4.72 years

$.12

Exercisable at October 31, 2012

 300,000

 

$.08 to $.19

4.10 years

$.12





F-19



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



NOTE G: 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 has 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 will be entitled to additional compensation for completion of Phases II & III of approximately $12,000 payable in cash or a combination of cash and common stock to be determined by the Company upon completion.  For the year ended October 31, 2012 a total of $18,800 was charged to operations consisting of cash payments totaling $14,000 and the common stock issued.


On May 13, 2011 the Company entered into a consulting agreement with a former member of the Company’s Scientific Advisory Board.  The agreement provides for the consultant’s assistance in molecular biology and related areas needed for commercialization of the Company’s stem cell product lines, as requested by management, at a compensation rate of $50 per hour.  For the year ended October 31, 2011, the consultant had billed the Company a total of $500 in connection with this agreement.  No amounts have been billed by the consultant for the year ended October 31, 2012.


On June 3, 2009 the Company entered into a business development consulting agreement with Seraphim Life Sciences Consulting LLC, to provide services primarily designed to identify and bring to Vitro potential industrial partners that could benefit from Vitro’s technologies.  The agreement entitles the consultant to performance based compensation in the amount of 8% of all consideration received by the Company resulting from the consultant’s services.  The agreement also provides for compensation at hourly rates for services not considered project specific as may be requested by Vitro.  Either party may terminate the agreement at any time with thirty days written notice.  As of October 31, 2012 no services have been performed and no compensation has been paid under the agreement.


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 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.



F-20



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012




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 H: JOINT PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION AGREEMENTS


On May 29, 2010 the Company executed an Agreement with Mokshagundam Biotechnologies for the development of a medium formulation for growth of marine invertebrates as a potential food source.  Initially, a basal medium formulation consisting of macro nutritional substances is to be developed and this will be supplemented with growth factors commonly used in stem cell media formulations.  The Agreement provides for the Company to provide a pilot batch of medium for testing consisting of macro-nutritional support plus a mixture of common growth factors necessary for in-vitro support of self-renewal in stem cells of higher organisms.  This medium was delivered to Mokshagundam during fiscal year 2010.  The Agreement provided for a payment of $5,000 to the Company upon execution of the Agreement as an advance for the product development, and was received during the third quarter of fiscal year ended October 31, 2010. This agreement is presently inactive.


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



F-21



VITRO DIAGNOSTICS, INC.

Notes to Financial Statements - October 31, 2012



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



NOTE I: 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 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 October 31, 2012, no sales have been made under this agreement.



NOTE J: SUBSEQUENT EVENTS


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






F-22





ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

None



ITEM 9A.

CONTROLS AND PROCEDURES


(a) Evaluation of Disclosure Controls and Procedures.  Our management, with the participation of our President, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our President, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.


Management’s Annual Report on Internal Control over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations.  Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties.  Often, one or two individuals control every aspect of the Company’s operation and are in a position to override any system of internal control.  Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.


Our management, with the participation of the President, evaluated the effectiveness of the Company’s internal control over financial reporting as of October 31, 2012.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.  Based on this evaluation, our management, with the participation of the President, concluded that, as of October 31, 2012, our internal control over financial reporting was not effective due to material weaknesses in the system of internal control.


Specifically, management identified the following control deficiencies.  (1) The Company has not properly segregated duties as its President initiates, authorizes, and completes all transactions.  The Company has not implemented measures that would prevent the President from overriding the internal control system.  The Company does not believe that this control deficiency has resulted in deficient financial reporting because the President is aware of his responsibilities under the SEC’s


32





reporting requirements and personally certifies the financial reports.  In addition, the Company engaged a financial consultant to review all financial transactions to determine that they have been properly recorded in the financial statements. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.  The Company does not think that this control deficiency has resulted in deficient financial reporting because the Company has implemented a series of manual checks and balances to verify that previous reporting periods have not been improperly modified and that no unauthorized entries have been made in the current reporting period.


Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles.  Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.


(b)  Changes in Internal Control over Financial Reporting.  During fiscal year ended October 31, 2012, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



ITEM 9B.

OTHER INFORMATION


None





33






PART III


ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


The following individuals presently serve as officers and directors of the Company:


Name

Age

Position

James R. Musick, Ph.D.

65

Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and Secretary

Erik D. Van Horn

43

Vice President and Director

 

 

 

Directors of the Company serve until the next annual meeting of shareholders and until their successors are elected and qualified.  Officers serve at the will of the Board of Directors.  


The Company currently has no audit, compensation, nomination or other committee of the Board of Directors and no financial experts on its Board.  The entire Board of Directors performs the functions typically performed by an audit committee.  There is no “audit committee financial expert” on the Board, as defined by SEC rule.  The absence of a financial expert has historically been due to the Company’s inability to attract any additional candidates to its Board due to its limited working capital, but hopes to identify one or more individuals in the future to add to its existing membership.


The following represents a summary of the business history of each of the foregoing individuals for at least the last five years:


JAMES R. MUSICK, Ph.D. was appointed President and Chief Executive Officer of the Company on August 7, 2000 where he served until April 2005.  He then resigned those positions to become the Chairman and Chief Operating Officer.  On May 19, 2006 he was re-appointed President and Chief Executive Officer.  From September 1, 1989 until August 7, 2000, Dr. Musick served as Vice President, Secretary and Chief Operating Officer of the Company.  He has also served as a director of the Company since September 1, 1989.  Dr. Musick received a Bachelor of Arts in Biological Sciences in 1968 and a doctorate in Biological Sciences in 1975 from Northwestern University in Evanston, Illinois.


ERIK D. VAN HORN was appointed Vice President of the Company on August 7, 2000.  He was also the Production Manager from 1993 to 2000 and a director of the Company from 1993 to 2004.  Mr. Van Horn is presently employed as a Manufacturing Senior Specialist with Amgen, Inc. in Longmont Colorado.  He received his Bachelor of Science in Chemical Engineering from the University of Colorado in 1990. He was appointed to the Board of Directors of the Company in May 2008.


Section 16(a) Beneficial Ownership Reporting Compliance


Under the securities laws of the United States, the Company's directors, its executive officers and any persons holding more than 10% of the Company's common stock are required to report their ownership of the Company's common stock and any changes in that ownership to the Securities and



34





Exchange Commission.  Specific due dates for these reports have been established by rules adopted by the SEC and the Company is required to report in this Annual Statement any failure to file by those deadlines.  


Based solely upon public reports of ownership filed by such persons and the written representations received by the Company from those persons, all of our officers, directors and 10% owners have satisfied these requirements during its most recent fiscal year.   



ITEM 11.

EXECUTIVE COMPENSATION


The following table summarizes the total compensation of (i) the principal executive officer of the Company; (ii) any person who served as the principal executive officer during the last fiscal year, and (iii) the other individual who served as an executive officer at the end of the last fiscal year (the “Named Officers”):


SUMMARY COMPENSATION TABLE


Name

Year ended

October 31,

Salary

Total

James R. Musick, Chairman

2012

$12,000(1)

$12,000

President, Chief Executive

2011

$31,500(1)

$31,500

Officer, Chief Operating Officer, Chief Financial Officer

2010

$87,500(1)

$87,500

 

 



 

 



Eric Van Horn, Vice President

2012

-0-

-0-

 

2011

-0-

-0-

2010

-0-

-0-

 

 



 

 




(1)

All of this amount was accrued.


Employment Contracts


Effective April 8, 2005, the Company entered into an employment agreement with Dr. Musick.  This agreement provided for an initial term of three years and is automatically renewable for an additional three-year period unless either party gives notice to the other that the agreement will be terminated.


The agreement provided a base salary of $180,000 per annum for the first year, $250,000 per annum for the second year, and $300,000 per annum during the third year.  The agreement also provided that if the Company obtained financing of $3 million or more during the first two years of the agreement, the base salary would automatically increase to $300,000 per annum effective with the closing of the financing.  Dr. Musick agreed to accrue salary until such time as the Company obtains sufficient working capital.




35





The agreement with Dr. Musick provided for the grant of stock options as follows:


·

Options to purchase 150,000 shares of the Company’s common stock at a price of $.17 per share, vesting at such time as the Company reports cumulative product sales of $125,000 during any one year as reported in any financial statement filed with the Securities and Exchange Commission on Form 10-Q or 10-K; and


·

Options to purchase an additional 150,000 shares of the Company’s common stock at market price, vesting at such time as the Company reports cumulative product sales of $250,000 during any one year as reported in any financial statement filed with the Commission on Form 10-Q or 10-K.


All of the options that were subject to vesting expire ten years from the date of vesting.  Further, each of the options would terminate ninety days from the date the employee’s employment with the Company is terminated.  All of the options were intended to be granted as “incentive stock options” under the Company’s Equity Incentive Plan of 2000, although the Plan must be amended and approved by the shareholders to increase the amount of common stock reserved under the Plan in order to provide for some of the options.


The Agreement also provided that if the Employee is terminated without cause or the employee resigns with “good reason,” the Company shall pay Employee one (1) year’s base salary at the rate prevailing for employee immediately prior to such termination as severance pay, payable in accordance with Company’s policy.  Employee shall also be entitled to receive benefits to which he was entitled immediately preceding the date of termination for a period of twelve (12) months from date of termination.  Resignation with good reason includes resignation following a change in control, as defined in the agreement.


Effective May 1, 2008, the Company entered into a new Executive Employment Agreement with its sole officer.  The Agreement establishes annual base salaries of $80,000, $85,000, and $90,000 over the three years of the Agreement.  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 new employment agreement includes changes in control given exercise of underlying stock options and also includes severance provisions.


Compensation of Directors


On April 27, 2011, the Company issued 99,010 shares of the Company’s common stock to Mr. Erik Van Horn, Director as compensation to be earned during his service in fiscal year ending October 31, 2011.  The transaction was valued at $10,000, or $.101 per share, which approximated the market value of the stock on the date of the transaction.


On February 7, 2012, the Company issued of 222,222 shares of the Company’s common stock to Mr. Erik Van Horn, Director as compensation to be earned during his service in fiscal year ending October 31, 2012.  The transaction was valued at $10,000, or $.045 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.



36






Each board member is entitled to be reimbursed for reasonable expenses incurred in attending meetings or other service to the Company.


Outstanding Equity Awards at Fiscal Year-End


The following table summarizes the amount of our executive officers’ equity-based compensation outstanding at the fiscal year ended October 31, 2012:  


 

Option Awards

Stock Awards

Name

Number of Securities Underlying Unexercised Options Exercisable

Number of Securities Underlying Unexercised Options Unexercisable

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options

Option Exercise Price

Option Expiration Date

Number of Shares or Units of Stock That Have Not Vested

Market Value of
Shares
Or Units That Have Not Vested

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested

 

(#)

(#)

(#)

($)

 

(#)

(#)

(#)

($)

 




 

 





James R. Musick

200,000

0

0

 $0.08

2/10/2016

0

0

0

0

James R. Musick

0

0

 300,000

 $0.17

4/01/2015

0

0

0

0

James R. Musick

100,000

0

 900,000

 $0.19

7/29/2018

0

0

0

0

 




 

 





  


Stock Option Plan


The Company adopted an Equity Incentive Plan on October 9, 2000 (the "Plan") for the benefit of key personnel and others providing significant services to the Company.  The Plan replaced the 1992 Equity Incentive Plan (the "1992 Plan").  The 1992 Plan will remain effective only so long as options remain outstanding under the 1992 Plan.  No new options will be granted under the 1992 Plan, and the only shares that will be issued under the 1992 Plan are those shares underlying currently outstanding options.  


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 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.




37





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.  


The following table illustrates the number of shares remaining available for issuance under the Plan.


Equity Compensation Plan Information


Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)

Weighted-average exercise price of outstanding options, warrants and rights
(b)

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)

Equity compensation plans approved by security holders

200,000

$0.08

0

Equity compensation plans not approved by security holders

100,000

$0.19

0

TOTAL

300,000

$0.12

0


Compensation plan not approved by security holders included the 1992 equity incentive plan.


ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


The following table sets forth information as of January 5, 2013 based solely on information available to the Company, with respect to the ownership of the Company's common stock by all officers and directors individually, all officers and directors as a group, and all shareholders known to the Company to hold beneficially more than five percent (5%) of the Company's common stock.  The percentages in the table assume that any options or warrants owned by the beneficial owner exercisable within 60 days are exercised, but that no other outstanding options or warrants are exercised.  At January 5, 2013 the Company had outstanding 19,308,912 shares of common stock, the only class of voting stock outstanding.




38





The following shareholders have sole voting and investment power with respect to the shares, unless it is indicated otherwise.


Name and Address of Beneficial Owner

Number of Shares

%

Officers and Directors

 

 

 

 

 

James R. Musick(1) (2)
4621 Technology Drive,
Golden, Colorado 80403

5,250,755

26.91%

 



Erik Van Horn
4621 Technology Drive,
Golden, Colorado 80403

663,785

3.44%

 



 



Officers and Directors as a group(1) (2)
(2 individuals)

5,914,540

30.63%

 



Other Shareholders



 



Lloyd Hansen
2646 S.W. Mapp Rd, Ste. #304
Palm City, FL 34990

980,000

5.08%

___________________

(1)

Includes 200,000 shares of common stock underlying an option immediately exercisable.

(2)

Includes 2,665,257 shares held by The James R. Musick Trust, of which Mr. Musick is a trustee and beneficiary.


Changes in Control


The Company knows of no arrangement, including the pledge by anyone of any securities of the Company that may result in a change in control.




39





ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.


In November 2008, the Company sold 226,667 shares of its common stock to the Company's Chairman, James Musick for $8,500, or $.0375 per share.  


Between August 2002 and October 2007, the Company's Chairman, James Musick, loaned the Company $168,150 for working capital.  This loan and the accrued interest of $35,483 had been represented by a single promissory note in the amount of $203,633 dated October 31, 2007 bearing interest at the rate of 10% per year.  The note replaced a previous note.  This note was due on October 31, 2008 and was collateralized by the Company's patents regarding purification of FSH. On July 29, 2008, the Board of Directors approved the issuance of 1,238,176 shares of the Company’s common stock in exchange for the notes payable plus accrued interest to an officer not to exceed $225,000.  At that time the Note was canceled effective July 29, 2008.  The exchange was completed in February 2009.  A total of $224,333, representing the balance of the note payable and accrued interest, plus the outstanding balance of other indebtedness to the officer of $5,530 was exchanged for 1,238,176 shares of the Company’s common stock.


During November, 2006, the Company sold 535,714 shares of its common stock to Dr. Musick of the Company for $30,000, or $.056 per share.  During August 2006, the Company sold 535,714 shares of its common stock to Dr. Musick for $30,000, or $.056 per share.  During May 2006, the Company sold 625,000 additional shares of its common stock to Dr. Musick for $20,000, or $.032 per share.  Finally, during February 2006, the Company sold 312,500 shares of its commons stock to Dr. Musick for $20,000, or $.064 per share.


The Company's Board of Directors is of the opinion that the terms of these transactions are no less favorable than could be obtained from an unaffiliated third party.


ITEM 14

PRINCIPAL ACCOUNTANT FEES AND SERVICES.


The following table details the aggregate fees billed to the Company by Schumacher & Associates, Inc., its current accountant, for each of the last two fiscal years:


 

 

2012

2011

 

Audit Fees

$18,075

$17,050

 

Audit-Related Fees

-

-

 

Tax Fees

-

-

 

All Other Fees

______-

______-

 

 

 

 

 

Total

$18,075

$17,050


       The caption "Audit Fees" includes professional services rendered for the audit of the annual consolidated financial statements and review of the quarterly consolidated financial statements.


       It is the policy of the Board of Directors, acting as the audit committee to pre-approve all services to be performed by the independent accountants.




40





PART IV


ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


The following is a list of exhibits filed or incorporated by reference into this Report:


No.

Description

1

Not applicable.

2

Not applicable.

3.1.1(1)

Articles of Incorporation of the Company as filed March 31, 1986 with the Nevada Secretary of State.

3.1.2(2)

Certificate of Merger of Domestic and Foreign Corporations as filed December 17, 1986 with the Nevada Secretary of State.

3.1.3(3)

Certificate of Amendment of Articles of Incorporation as filed February 6, 1987 with the Nevada Secretary of State.

3.1.4(2)

Certificate of Amendment of Articles of Incorporation as filed May 18, 1988 with the Nevada Secretary of State.

3.1.5(4)

Amended and Restated Articles of Incorporation of the Company , as filed July 20, 2001 with the Nevada Secretary of State

3.2(3)

Bylaws of the Company.

4.1(3)

Specimen certificate for Common Shares, $.001 par value per share.

9

Not applicable.

10.1(5)

Equity Incentive Plan dated October 9, 2000

10.2

Promissory note issued by the Company to James R. Musick dated October 31, 2007.

10.3(6)

Executive Employment Agreement between the Company and James R. Musick dated April 1, 2005.

10.4(7)

Common Stock and Warrant Purchase Agreement

10.5(8)

Form of Class A Warrant Agreement

10.6(9)

License Agreement with James T. Posillico, Ph.D.

10.7(10)

Amendment No. 1 to License Agreement with James T. Posillico, Ph.D.

11

Not applicable.

13

Not applicable.

14

Not applicable.

16

Not applicable.

18

Not applicable.

20

Not applicable.

21

Not applicable.

22

Not applicable

23

Not applicable.

24

Not applicable.

31.1*

Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32*

Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99

Not applicable.

101.INS*

XBRL Instance Document

101.SCH*

XBRL Schema Document

101.CAL*

XBRL Calculation Linkbase Document

101.LAB*

XBRL Label Linkbase Document

101.PRE*

XBRL Presentation Linkbase Document

101.DEF*

XBRL Definition Linkbase Document

 

 

___________________



41





(1)

Filed as an Exhibit to Form 10-KSB dated October 31, 2000.

(2)

Filed as an Exhibit to Form 10-KSB/A dated July 31, 2000.

(3)

Filed as an Exhibit to Registration Statement on Form SB-2, SEC File No. 33-59230 and incorporated herein by reference.

(4)

Filed as an Exhibit to Form 10-KSB for the year ended October 31, 2001.

(5)

Filed as an Exhibit to the definitive Proxy Statement on Schedule 14/A as filed with the Commission on October 30, 2000 and incorporated herein by reference.

(6)

Filed as Exhibit 10.1 to the Form 8-K dated April 8, 2005 and incorporated herein by reference.

(7)

Filed as Exhibit 10.1 to the Form 8-K dated January 31, 2008.

(8)

Filed as Exhibit 10.2 to the Form 8-K dated January 31, 2008

(9)

Filed as an Exhibit to the Form 8-K dated March 30, 2011.

(10)

Filed as an Exhibit to the Form 8-K/A-1 dated June 27, 2011.

*

Filed herewith




42






SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned thereunto duly authorized in Aurora, Colorado on the 12th day of February, 2013.


VITRO DIAGNOSTICS, INC.



By:

/s/ James R. Musick

James R. Musick, Chairman


Pursuant to the requirements of the Security Exchange Act of 1934, as amended, this Report has been signed by the following persons in the capacities and on the dates indicated.


Signatures

Title

Date

 

 

 

  /s/ James R. Musick

James R. Musick

President, Chairman of the Board, Chief Executive Officer, Principal Financial and Accounting Officer, Director

February 5, 2013

 

 

 

  /s/ Erik D. VanHorn

Erik D. VanHorn

Vice President and Director

February 5, 2013






EX-31 2 exhibit311012.htm CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED Converted by EDGARwiz

Exhibit 31.1

CERTIFICATION


I, James R. Musick, President, certify that:


1.

I have reviewed this Annual Report on Form 10-K of Vitro Diagnostics, Inc.;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

 

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

 

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and







 

 

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

 

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

 

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: February 11, 2013

.


__/s/ James R. Musick----------------------

James R. Musick, President, Chief Executive Officer and Principal Financial Officer




EX-32 3 exhibit321012.htm CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Converted by EDGARwiz

Exhibit 32


CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PUSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


I certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K for the period ended October 31, 2012 fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report fairly presents in all material respect the financial condition and results of operations of Vitro Diagnostics, Inc.



Date:  February 11, 2013.

By: _/s/ James R. Musick____________

Name:  James R. Musick

Title: President, Chairman, Chief Executive Officer and Principal Financial Officer

Vitro Diagnostics, Inc.





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20086 20612 12500 33501 4800 -29300 -10599 996 70241 -127637 -130629 -115850 2155 1359 3876 4833 -6031 -6192 143800 179500 3257 -56998 -8134 -14750 138923 107752 2263 -14290 17313 8063 16275 0 0 10000 15000 4800 21885 VITRO DIAGNOSTICS INC, 10-K --10-31 19308912 13394372 false 0000793171 Yes No Smaller Reporting Company No 2012 FY 2012-10-31 <p style="line-height:12pt; margin:0px; font-size:11.5pt"> <b>NOTE A:</b> <b>NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</b> </p><br/><p style="margin:0px; font-size:11.5pt"> <b><i>Nature of Organization</i></b> </p><br/><p style="margin:0px; font-size:11.5pt"> The Company was incorporated under the laws of Nevada on February 3, 1986. &#160;From November of 1990 through July 31, 2000, the Company was engaged in the development, manufacturing and distribution of purified human antigens (&#8220;Diagnostics&#8221;) that were derived primarily from human tissues. &#160;The Company also developed cell technology including immortalization of certain cells that allowed entry into other markets besides diagnostics. &#160;However, during the 1990&#8217;s, the Company&#8217;s sales were solely attributable to the sales of purified human antigens for diagnostic applications. &#160;&#160; </p><br/><p style="margin:0px; font-size:11.5pt"> 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. &#160;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. &#160;The Company launched a series of products targeting basic research in stem cell technology in 2009. &#160;These <font style="font-family:Arial Unicode MS,Times New Roman">&#8220;</font>Tools for Stem Cell and Drug Discovery<font style="font-family:Arial Unicode MS,Times New Roman">&#8482;</font><font style="font-family:Arial Unicode MS,Times New Roman">&#8221;</font> 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. &#160;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. </p><br/><p style="margin:0px; font-size:11.5pt"> The Company also owns patented technology related to treatment of human infertility. &#160;The Company has been granted a US patent for its process to manufacture VITROPIN<font style="font-family:Arial Unicode MS,Times New Roman">&#8482;</font>. &#160;VITROPIN<font style="font-family:Arial Unicode MS,Times New Roman">&#8482;</font> is a highly purified urinary follicle-stimulating hormone (<font style="font-family:Arial Unicode MS,Times New Roman">&#8220;</font>FSH<font style="font-family:Arial Unicode MS,Times New Roman">&#8221;</font>) preparation produced according to the Company&#8217;s patented purification process. </p><br/><p style="margin:0px; font-size:11.5pt"> 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).&#160; These islets also synthesize and secrete insulin in response to elevated glucose levels, as do beta islets contained within pancreatic tissue.&#160; Vitro has also developed a process for the commercial production its cell line-derived islets.&#160; 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.&#160; This patent affords an exclusive proprietary position to the Company for a new cellular therapy to treat Type I diabetes. &#160;Additional details regarding the Company&#8217;s business and intellectual property is presented elsewhere in this report (See Part I, Business Narative.) </p><br/><p style="margin:0px; font-size:11.5pt"> <b><i>Basis of Presentation &#8211; Going Concern</i></b> </p><br/><p style="margin:0px; font-size:11.5pt"> The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. </p><br/><p style="margin:0px; font-size:11.5pt"> However, the Company has suffered significant losses since inception and has working capital and shareholders&#8217; deficits at October 31, 2012, 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&#8217;s ability to meet its financial requirements, raise additional capital, and generate revenues and profits from operations. </p><br/><p style="margin:0px; font-size:11.5pt"> 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. &#160;The Company has financed its operations primarily through cash advances from the Company&#8217;s president, as well as through various private placements of equity securities. &#160;Since the year ended October 31, 2010, the president has advanced the Company a total of $323,300 for working capital on an &#8220;as needed&#8221; basis, including $143,800 during the year ended October 31, 2012. &#160;There is no assurance that these advances will continue in the future. </p><br/><p style="margin:0px; font-size:11.5pt"> 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&#8217;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. &#160;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. &#160;A current focus is expanding distribution of the Company<font style="font-family:Arial Unicode MS,Times New Roman">&#8217;</font>s advanced stem cell media, <b>MSCGro<font style="font-family:Arial Unicode MS,Times New Roman">&#8482;</font></b>, since management believes that these products show performance advantages over the current leaders in this market sector. &#160;There is no assurance that any of these initiatives will yield sufficient capital to maintain the Company&#8217;s operations. In such an event, management intends to pursue various strategic alternatives. </p><br/><p style="margin:0px; font-size:11.5pt"> In March 2011, the Company formed a license agreement with a third party for its patented technology related to treatment of infertility. &#160;The terms of this agreement included a license fee and royalties on any future sales derived from the patent license by the licensee. &#160;The transaction resulted in a significant reduction of the Company&#8217;s accrued payroll obligation to a former employee. &#160;See Note I for further discussion regarding this transaction. </p><br/><p style="margin:0px; font-size:11.5pt"> <b><i>Summary of Significant Accounting Policies</i></b> </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Use of estimates</b> </p><br/><p style="margin:0px; font-size:11.5pt"> 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. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Cash equivalents</b> </p><br/><p style="margin:0px; font-size:11.5pt"> 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. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Accounts receivable</b> </p><br/><p style="margin:0px; font-size:11.5pt"> Accounts receivable consists of amounts due from customers. &#160;The Company considers accounts more than 30&#160;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. &#160;At October 31, 2012 and October 31, 2011, no allowances were recorded and all amounts due from customers were considered collectible. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Inventory</b> </p><br/><p style="margin:0px; font-size:11.5pt"> Inventories, consisting of raw materials and finished goods, are stated at the lower of cost (using the specific identification method) or market. &#160;Finished goods inventories include certain allocations of labor and overhead. &#160;At October 31, 2012 and 2011, finished goods included approximately $9,800 and $5,600, respectively, of labor and overhead allocations. &#160;Inventories consisted of the following: </p><br/><table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="108"> </td> <td width="98.333"> </td> <td width="22"> </td> <td width="96.667"> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="108"> <p style="margin:0px; padding:0px"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="98.333"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2012</b> </p> </td> <td style="margin-top:0px" valign="bottom" width="22"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="96.667"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2011</b> </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="108"> <p style="margin:0px; font-size:11.5pt"> Raw materials </p> </td> <td style="margin-top:0px" valign="bottom" width="98.333"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ &#160;12,074 </p> </td> <td style="margin-top:0px" valign="bottom" width="22"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="96.667"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ &#160;&#160;&#160;&#160;&#160;&#160;9,320 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="108"> <p style="margin:0px; font-size:11.5pt"> Finished goods </p> </td> <td style="margin-top:0px" valign="bottom" width="98.333"> <p style="margin:0px; font-size:11.5pt" align="right"> 14,604 </p> </td> <td style="margin-top:0px" valign="bottom" width="22"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="96.667"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;7,853 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="108"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-top:1px solid #000000; border-bottom:3px double #000000" valign="bottom" width="98.333"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ &#160;26,678 </p> </td> <td style="margin-top:0px" valign="bottom" width="22"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-top:1px solid #000000; border-bottom:3px double #000000" valign="bottom" width="96.667"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ &#160;&#160;&#160;&#160;17,173 </p> </td> </tr> </table><br/><p style="margin:0px; font-size:11.5pt"> <b>Shipping and freight costs</b> </p><br/><p style="margin:0px; font-size:11.5pt"> All freight costs associated with the receiving of goods and materials is expensed during the period in which it is received. &#160;For the years ended October 31, 2012 and 2011, $3,815 and $1,937 are included in research and development costs in the accompanying statements of operations. &#160;Shipping costs for products shipped to customers is generally charged to the customer at invoicing and are considered a component of the sale transaction. &#160;For the years ended October 31, 2012 and 2011, $1,521 and $1,310 are included in product sales in the accompanying statements of operations. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Research and development</b> </p><br/><p style="margin:0px; font-size:11.5pt"> The Company&#8217;s operations are predominantly in research and development (&#8220;R&amp;D&#8221;). &#160;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 has also expanded its operations to include manufacturing and R&amp;D, we report cost of goods sold, including estimates of labor, materials and overhead allocations to the production of specific products.&#160; </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Property, equipment and depreciation</b> </p><br/><p style="margin:0px; font-size:11.5pt"> Property and equipment, generally consisting of laboratory equipment and office equipment and furniture, are stated at cost and are depreciated over the assets&#8217; estimated useful lives ranging from three to seven years using the straight-line method. &#160;Depreciation expense totaled $16,948 and $17,473 for the years ended October 31, 2012 and 2011, respectively. </p><br/><p style="margin:0px; font-size:11.5pt"> 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. &#160;Repairs and maintenance are charged to expense as incurred and expenditures for additions and improvements are capitalized. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Patents, deferred costs and amortization</b> </p><br/><p style="margin:0px; font-size:11.5pt"> Patents consist of costs incurred to acquire issued patents. &#160;Amortization commences once a patent is granted. &#160;Costs incurred to acquire patents that have not been issued are reported as deferred costs. &#160;If a patent application is denied or expires, the costs incurred are charged to operations in the year the application is denied or expires. </p><br/><p style="margin:0px; font-size:11.5pt"> The Company amortizes its patents over a period of ten years. &#160;Amortization expense totaled $3,139 for each of the years ended October 31, 2012 and 2011, respectively. &#160;Estimated future amortization expense for each of the next five fiscal years is as follows: </p><br/><table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0" align="center"> <tr style="font-size:0"> <td width="235"> </td> <td width="21"> </td> <td width="62"> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> <b>Year ended October 31,</b> </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2013 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> $ </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> 3,139&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2014 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> 3,139&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2015 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> 3,139&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2016 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> 3,139&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2017 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> &#160;&#160;&#160;&#160;&#160;&#160;3,139 </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> Thereafter </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> <u>&#160;4,888 &#160;</u> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> $ </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> <u>&#160;20,583&#160;</u> </p> </td> </tr> </table><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> The Company&#8217;s patents consisted of the following at October 31, 2012: </p><br/><table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="474"> </td> <td width="21"> </td> <td width="87"> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="474"> <p style="margin:0px; font-size:11.5pt"> Generation and differentiation of adult stem cell lines </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160;$ </p> </td> <td style="margin-top:0px; " valign="bottom" width="87"> <p style="margin:0px; font-size:11.5pt" align="right"> 31,385&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="474"> <p style="margin:0px; font-size:11.5pt"> This patent is for a proprietary stem cell line with potential application to treatment of diabetes in both animals and humans. </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="87"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="474"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160;&#160;&#160;&#160;Less accumulated amortization </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="87"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>(10,802)</u> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="474"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ </p> </td> <td style="margin-top:0px; " valign="bottom" width="87"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>20,583</u> </p> </td> </tr> </table><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> The Company has incurred costs relating to the filing of a new United States patent application entitled &#8220;POU5-F1 Expression in Human Mesenchymal Stem Cells&#8221; and the development of new technology related to generation of human induced pluripotent stem cells (iPS). &#160;These costs totaled $8,000 and $5,595 at October 31, 2012 and 2011, respectively, and are included as deferred patent costs in the accompanying balance sheets. </p><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> The Company has also incurred costs relating to the filing of a new United States patent application entitled &#8220;Methods to Culture Mesenchymal Stem Cells and Related Materials&#8221; and the development of new technology related to this patent application. &#160;These costs totaled $1,471 and $-0- at October 31, 2012 and 2011, respectively, and are included as deferred patent costs in the accompanying balance sheets. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Impairment and Disposal of Long-Lived Assets</b> </p><br/><p style="margin:0px; font-size:11.5pt"> 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. &#160;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. </p><br/><p style="margin:0px; font-size:11.5pt"> The Company periodically reviews the carrying amount of it long-lived assets for possible impairment. &#160;The Company recorded no asset impairment charges during either of the year ended October 31, 2012. &#160;For the year ended October 31, 2011 the Company recorded an impairment charge of $135 relating to the write off of costs for an abandoned provisional filing. &#160;A contingency exists with respect to these matters, the ultimate resolution of which cannot presently be determined. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Income taxes</b> </p><br/><p style="margin:0px; font-size:11.5pt"> The Company uses the liability method of accounting for income taxes. &#160;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. &#160;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. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Revenue recognition and concentration of revenues</b> </p><br/><p style="margin:0px; font-size:11.5pt"> 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. </p><br/><p style="margin:0px; font-size:11.5pt"> For the years ended October 31, 2012 and 2011, 53% and 61% of the Company&#8217;s non-related party sales, respectively, were made to the Company&#8217;s top two customers. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Advertising Costs</b> </p><br/><p style="margin:0px; font-size:11.5pt"> The Company expenses all advertising costs as they are incurred. &#160;Advertising costs were $6,871 and $6,557 for the years ended October 31, 2012 and 2011, respectively. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Consulting Expenses</b> </p><br/><p style="margin:0px; font-size:11.5pt"> From time-to-time the Company engages consultants to perform various professional and administrative functions including public relations and corporate marketing. &#160;Expenses for consulting services are generally recognized when services are performed and billable by the consultant. &#160;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. &#160;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. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Fair value of financial instruments</b> </p><br/><p style="margin:0px; font-size:11.5pt"> 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. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Concentrations of credit risk</b> </p><br/><p style="margin:0px; font-size:11.5pt"> 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. &#160;As of October 31, 2012 and 2011, 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. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Net loss per share</b> </p><br/><p style="margin:0px; font-size:11.5pt"> 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. &#160;Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining </p><br/><p style="margin:0px; font-size:11.5pt"> common stock equivalents. &#160;For the year ended October 31, 2012, 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. &#160;For the year ended October 31, 2011, common stock equivalents of 327,000 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. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Stock-based compensation</b> </p><br/><p style="margin:0px; font-size:11.5pt"> Financial Accounting Standards Board (&#8220;FASB&#8221;) Accounting Standards Codification (the &#8220;ASC&#8221;) Topic 718, <i>&#8220;Stock Compensation</i>,&#8221; 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.&#160;&#160;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. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Recent accounting standards</b> </p><br/><p style="margin-top:11.533px; margin-bottom:0px; font-size:11.5pt"> There were various accounting standards and interpretations issued during 2012 and 2011, none of which are expected to have a material impact on the Company&#8217;s consolidated financial position, operations, or cash flows. </p><br/> 323300 9800 5600 3815 1937 1521 1310 3 7 16948 17473 3139 8000 5595 1471 0 135 0.61 6871 6557 300000 327000 <table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="108"> </td> <td width="98.333"> </td> <td width="22"> </td> <td width="96.667"> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="108"> <p style="margin:0px; padding:0px"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="98.333"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2012</b> </p> </td> <td style="margin-top:0px" valign="bottom" width="22"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="96.667"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2011</b> </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="108"> <p style="margin:0px; font-size:11.5pt"> Raw materials </p> </td> <td style="margin-top:0px" valign="bottom" width="98.333"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ &#160;12,074 </p> </td> <td style="margin-top:0px" valign="bottom" width="22"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="96.667"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ &#160;&#160;&#160;&#160;&#160;&#160;9,320 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="108"> <p style="margin:0px; font-size:11.5pt"> Finished goods </p> </td> <td style="margin-top:0px" valign="bottom" width="98.333"> <p style="margin:0px; font-size:11.5pt" align="right"> 14,604 </p> </td> <td style="margin-top:0px" valign="bottom" width="22"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="96.667"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;7,853 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="108"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-top:1px solid #000000; border-bottom:3px double #000000" valign="bottom" width="98.333"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ &#160;26,678 </p> </td> <td style="margin-top:0px" valign="bottom" width="22"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-top:1px solid #000000; border-bottom:3px double #000000" valign="bottom" width="96.667"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;$ &#160;&#160;&#160;&#160;17,173 </p> </td> </tr> </table> 12074 9320 26678 17173 <table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0" align="center"> <tr style="font-size:0"> <td width="235"> </td> <td width="21"> </td> <td width="62"> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> <b>Year ended October 31,</b> </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2013 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> $ </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> 3,139&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2014 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> 3,139&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2015 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> 3,139&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2016 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> 3,139&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> 2017 </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> &#160;&#160;&#160;&#160;&#160;&#160;3,139 </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="center"> Thereafter </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> <u>&#160;4,888 &#160;</u> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="235"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> $ </p> </td> <td style="margin-top:0px; " valign="bottom" width="62"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> <u>&#160;20,583&#160;</u> </p> </td> </tr> </table> 3139 3139 3139 3139 3139 20583 31385 20583 <p style="margin-top:11.533px; margin-bottom:0px; font-size:11.5pt"> <b>NOTE B:</b> <b>RELATED PARTY TRANSACTIONS</b> </p><br/><p style="margin-top:11.533px; margin-bottom:0px; font-size:11.5pt"> <b>Advances and accrued interest payable to officer</b> </p><br/><p style="margin:0px; font-size:11.5pt"> Through October 31, 2012, the Company&#8217;s President had advanced the Company a total of $462,982 used for working capital including $143,800 during the year ended October 31, 2012. &#160;The advances are uncollateralized, due on demand and accrue interest on the unpaid principal at a rate of 10% per annum. &#160;Accrued interest payable on the advances totaled $81,076 and $40,627 at October 31, 2012 and 2011, respectively. &#160;The total advances plus accrued interest totaling $544,058 and $359,809 at October 31, 2012 and 2011, respectively, are included as &#8220;Advances and accrued interest payable to officer&#8221; in the accompanying financial statements. </p><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> <b>Employment agreements and accrued compensation</b> </p><br/><p style="margin:0px; font-size:11.5pt"> Effective May 1, 2008, the Company entered into a new Executive Employment Agreement with its President. &#160;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. &#160;On April 27, 2011 the Company&#8217;s board of directors ratified a modification to the original agreement establishing an annual base salary of $12,000 per year, effective February 1, 2011 and continuing for three years. &#160;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&#8217;s common stock that includes contingent vesting requirements. The employment agreement includes changes in </p><br/><p style="margin:0px; font-size:11.5pt"> control accelerating vesting for exercise of underlying stock options and also includes severance provisions. </p><br/><p style="margin:0px; font-size:11.5pt"> As a result of the patent licenses agreement on March 29, 2011, a contingency was met and as a result, 100,000 common stock options became vested. &#160;These options are exercisable at $.19 per share and expire in July 2018. &#160;As a result, $18,900 of stock based compensation was recorded at March 29, 2011. &#160;These options are further discussed in Note E under the &#8220;Stock options granted to officer&#8221; caption. </p><br/><p style="margin:0px; font-size:11.5pt"> The Company has accrued the salaries of its President due to a lack of working capital. &#160;Total accrued salaries and payroll taxes were $1,190,208 and $1,177,618 at October 31, 2012 and 2011, respectively. &#160;His accrued salaries totaled $1,143,422 and $1,131,432 as of October 31, 2012 and 2011, respectively. &#160;His salary is allocated as follows: 70% to research and development and 30% to administration. </p><br/><p style="margin:0px; font-size:11.5pt"> On March 30, 2011 the Company licensed two of its existing patents to a former executive officer. &#160;The transaction included license fees totaling $10,000, and a forgiveness of previously accrued payroll amounts due the former officer of $190,000. &#160;This transaction is further discussed in Note I. &#160;His accrued salaries totaled $833 at both October 31, 2012 and October 31, 2011. </p><br/><p style="margin:0px; font-size:11.5pt"> Total accrued payroll taxes on the above salaries totaled $45,953 and $45,353 at October 31, 2012 and 2011, respectively. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Office lease</b> </p><br/><p style="margin:0px; font-size:11.5pt"> On July 1, 2008, the Company entered into a five-year non-cancelable operating lease for a facility located in Golden, Colorado, which expires in June 2013. &#160;The facility has been leased from a company that is owned by the President&#8217;s wife. &#160;Future minimum rental payments for the remaining term of the lease are $14,920. </p><br/><p style="margin:0px; font-size:11.5pt"> The total rental expense was $26,902 and $26,747 for the years ended October 31, 2012 and 2011, respectively. &#160;At October 31, 2012 and 2011, $26,902 and $30,344 were unpaid and are included in accounts payable related parties in the accompanying balance sheets. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Sales and account receivable</b> </p><br/><p style="margin:0px; font-size:11.5pt"> During the fourth quarter of 2012, the Company sold various distributed inventory material products to the President&#8217;s wife since the Company gained competitive pricing on these items through group purchasing discounts. &#160;The total amount of the sales was $5,694, of which $3,316 had been paid at October 31, 2012. &#160;The remaining $2,378 due on the transactions is included in accounts receivable. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Other</b> </p><br/><p style="margin:0px; font-size:11.5pt"> The President has personally guaranteed all debt instruments of the Company including all credit card debt. </p><br/> 462982 143800 0.10 81076 40627 544058 359809 80000 85000 90000 12000 1000000 100000 19 18900 1190208 1177618 1143422 1131432 0.70 0.30 10000 190000 833 45953 45353 14920 26902 26747 26902 30344 5694 3316 2378 <p style="margin:0px; font-size:11.5pt"> <b>NOTE C: INCOME TAXES</b> </p><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> A reconciliation of the U.S. statutory federal income tax rate to the effective rate is as follows for the years ended: </p><br/><table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="115.533"> </td> <td width="321.267"> </td> <td width="91.267"> </td> <td width="19.867"> </td> <td width="85.733"> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2012</b> </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="19.867"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2011</b> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin:0px; font-size:11.5pt"> Benefit related to U.S. federal statutory graduated rate </p> </td> <td style="margin-top:0px; " valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="right"> -21.80% </p> </td> <td style="margin-top:0px; " valign="bottom" width="19.867"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> -27.42% </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin:0px; font-size:11.5pt"> Benefit related to State income tax rate, net of federal benefit </p> </td> <td style="margin-top:0px; " valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="right"> -3.62% </p> </td> <td style="margin-top:0px; " valign="bottom" width="19.867"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> -3.36% </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin:0px; font-size:11.5pt"> Accrued officer salaries </p> </td> <td style="margin-top:0px; " valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="right"> 1.41% </p> </td> <td style="margin-top:0px; " valign="bottom" width="19.867"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> -344.58% </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin:0px; font-size:11.5pt"> Net operating loss for which no tax benefit is currently available </p> </td> <td style="margin-top:0px; " valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>24.01%</u> </p> </td> <td style="margin-top:0px; " valign="bottom" width="19.867"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>375.36%</u> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="115.533"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="321.267"> <p style="margin:0px; font-size:11.5pt"> Effective rate </p> </td> <td style="margin-top:0px; " valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>0.00%</u> </p> </td> <td style="margin-top:0px; " valign="bottom" width="19.867"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>0.00%</u> </p> </td> </tr> </table><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> The primary components of temporary differences that give rise to the Company&#8217;s net deferred tax assets are as follows: </p><br/><table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0" align="center"> <tr style="font-size:0"> <td width="283.933"> </td> <td width="26.933"> </td> <td width="83"> </td> <td width="15"> </td> <td width="21"> </td> <td width="89"> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="283.933"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="109.933" colspan="2"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2012</b> </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="top" width="15"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="110" colspan="2"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2011</b> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="283.933"> <p style="margin:0px; font-size:11.5pt"> Net operating loss carry forwards </p> </td> <td style="margin-top:0px; " valign="bottom" width="26.933"> <p style="margin:0px; font-size:11.5pt" align="right"> $ </p> </td> <td style="margin-top:0px; " valign="bottom" width="83"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;&#160;&#160;1,578,251&#160; </p> </td> <td style="margin-top:0px; " valign="top" width="15"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin:0px; font-size:11.5pt" align="right"> $ </p> </td> <td style="margin-top:0px; " valign="bottom" width="89"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;&#160;&#160;&#160;1,529,879&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="283.933"> <p style="margin:0px; font-size:11.5pt"> Accrued officer salaries </p> </td> <td style="margin-top:0px; " valign="bottom" width="26.933"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="83"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>&#160;&#160;&#160;&#160;&#160;&#160;441,091&#160;</u> </p> </td> <td style="margin-top:0px; " valign="top" width="15"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="89"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;436,425&#160;</u> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="283.933"> <p style="margin:0px; font-size:11.5pt"> Deferred tax asset (before valuation allowance) </p> </td> <td style="margin-top:0px; " valign="bottom" width="26.933"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160;$ </p> </td> <td style="margin-top:0px; " valign="bottom" width="83"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>&#160;&#160;&#160;&#160;2,019,342</u> </p> </td> <td style="margin-top:0px; " valign="top" width="15"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> $&#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="89"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>&#160;&#160;&#160;&#160;&#160;1,966,304&#160;</u> </p> </td> </tr> </table><br/><p style="margin:0px; font-size:11.5pt"> 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. &#160;The valuation allowance offsets the net deferred tax asset for which there is no assurance of recovery. &#160;The changes in the valuation allowance for the years ended October 31, 2012 and 2011 totaled $53,038 and $56,866, respectively. &#160;Net operating loss carry forwards will expire in various years through 2032. </p><br/><p style="margin:0px; font-size:11.5pt"> The Company is delinquent on filing its federal and state tax returns and may be subject to penalties and interest. &#160;A contingency exists with respect to this matter, the ultimate resolution of which may not be presently determined. </p><br/><p style="margin:0px; font-size:11.5pt"> The valuation allowance will be evaluated at the end of each year, considering positive and negative evidence about whether the asset will be realized. &#160;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. </p><br/><p style="margin:0px; font-size:11.5pt"> Should the Company undergo an ownership change as defined in Section 382 of the Internal Revenue Code, the Company&#8217;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. </p><br/> 2019342 8293049 2019342 53038 56866 <table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="115.533"> </td> <td width="321.267"> </td> <td width="91.267"> </td> <td width="19.867"> </td> <td width="85.733"> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2012</b> </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="19.867"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2011</b> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin:0px; font-size:11.5pt"> Benefit related to U.S. federal statutory graduated rate </p> </td> <td style="margin-top:0px; " valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="right"> -21.80% </p> </td> <td style="margin-top:0px; " valign="bottom" width="19.867"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> -27.42% </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin:0px; font-size:11.5pt"> Benefit related to State income tax rate, net of federal benefit </p> </td> <td style="margin-top:0px; " valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="right"> -3.62% </p> </td> <td style="margin-top:0px; " valign="bottom" width="19.867"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> -3.36% </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="436.8" colspan="2"> <p style="margin:0px; 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" valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>375.36%</u> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="115.533"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="321.267"> <p style="margin:0px; font-size:11.5pt"> Effective rate </p> </td> <td style="margin-top:0px; " valign="bottom" width="91.267"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>0.00%</u> </p> </td> <td style="margin-top:0px; " valign="bottom" width="19.867"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="85.733"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>0.00%</u> </p> </td> </tr> </table> -0.2180 -0.2742 -0.0362 -0.0336 0.0141 -3.4458 0.2401 3.7536 0.0000 0.0000 <table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0" align="center"> <tr style="font-size:0"> <td width="283.933"> </td> <td width="26.933"> </td> <td width="83"> </td> <td width="15"> </td> <td width="21"> </td> <td width="89"> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="283.933"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="109.933" colspan="2"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2012</b> </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="top" width="15"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="bottom" width="110" colspan="2"> <p style="margin:0px; font-size:11.5pt" align="center"> <b>October 31, 2011</b> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="283.933"> <p style="margin:0px; font-size:11.5pt"> Net operating loss carry forwards </p> </td> <td style="margin-top:0px; " valign="bottom" width="26.933"> <p style="margin:0px; font-size:11.5pt" align="right"> $ </p> </td> <td style="margin-top:0px; " valign="bottom" width="83"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;&#160;&#160;1,578,251&#160; </p> </td> <td style="margin-top:0px; " valign="top" width="15"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin:0px; font-size:11.5pt" align="right"> $ </p> </td> <td style="margin-top:0px; " valign="bottom" width="89"> <p style="margin:0px; font-size:11.5pt" align="right"> &#160;&#160;&#160;&#160;1,529,879&#160; </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="283.933"> <p style="margin:0px; font-size:11.5pt"> Accrued officer salaries </p> </td> <td style="margin-top:0px; " valign="bottom" width="26.933"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="83"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>&#160;&#160;&#160;&#160;&#160;&#160;441,091&#160;</u> </p> </td> <td style="margin-top:0px; " valign="top" width="15"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="89"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;436,425&#160;</u> </p> </td> </tr> <tr> <td style="margin-top:0px; " valign="bottom" width="283.933"> <p style="margin:0px; font-size:11.5pt"> Deferred tax asset (before valuation allowance) </p> </td> <td style="margin-top:0px; " valign="bottom" width="26.933"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160;$ </p> </td> <td style="margin-top:0px; " valign="bottom" width="83"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>&#160;&#160;&#160;&#160;2,019,342</u> </p> </td> <td style="margin-top:0px; " valign="top" width="15"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> &#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="21"> <p style="margin-top:6.4px; margin-bottom:6.4px; font-size:11.5pt" align="right"> $&#160; </p> </td> <td style="margin-top:0px; " valign="bottom" width="89"> <p style="margin:0px; font-size:11.5pt" align="right"> <u>&#160;&#160;&#160;&#160;&#160;1,966,304&#160;</u> </p> </td> </tr> </table> 1578251 1529879 -441091 -436425 2019342 1966304 <p style="margin:0px; font-size:11.5pt"> <b>NOTE D:</b> <b>LINES OF CREDIT</b> </p><br/><p style="margin:0px; font-size:11.5pt"> The Company has a $12,500 line of credit of which $534 was unused at October 31, 2012. &#160;The interest rate on the credit line was 21.90% at October 31, 2012. &#160;The credit line is collateralized by the Company&#8217;s checking account. &#160;Principal and interest payments are due monthly. </p><br/><p style="margin:0px; font-size:11.5pt"> At October 31, 2012 the Company also had three credit cards with a combined credit limit of $26,700, of which $1,575 was unused. &#160;The interest rates on the credit cards range from 10.24% to 29.4%, with a weighted average rate of 25.93% at October 31, 2012. &#160;All other credit cards previously used by the Company have been paid off and closed. </p><br/> 534 0.2190 26700 1575 0.1024 0.294 0.2593 <p style="margin:0px; font-size:11.5pt"> <b>NOTE E:</b> <b>CAPITAL LEASE OBLIGATIONS</b> </p><br/><p style="margin:0px; font-size:11.5pt"> In July 2007, the Company entered into a capital lease agreement to acquire laboratory equipment. &#160;The Company was obligated to make 3 monthly payments of $25 and monthly payments of $382 through August 2012. </p><br/><p style="margin:0px; font-size:11.5pt"> In June 2008, the Company entered into a capital lease agreement, also for the acquisition of laboratory equipment. &#160;The Company was obligated to make monthly payments of $830 through May 2012. </p><br/><p style="margin:0px; font-size:11.5pt"> In July 2009, the Company entered into a capital lease agreement, also for the acquisition of laboratory equipment. &#160;The Company was obligated to make monthly payments of $570 through June 2011. </p><br/><p style="margin:0px; font-size:11.5pt"> As of October 31, 2012, all the Company&#8217;s capital lease obligations had been fully paid. </p><br/> 25 382 830 570 <p style="margin:0px; font-size:11.5pt"> <b>NOTE F:</b> <b>SHAREHOLDERS&#8217; DEFICIT</b> </p><br/><p style="margin:0px; font-size:11.5pt" align="justify"> <b>Preferred Stock</b> </p><br/><p style="margin:0px; font-size:11.5pt"> The Company has authorized 5,000,000 shares of $.001 par value preferred stock, of which none were issued and outstanding at October 31, 2012.&#160;&#160;These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors. </p><br/><p style="margin:0px; font-size:11.5pt" align="justify"> <b>Sale of Common Stock and Warrants</b> </p><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> On December 29, 2009 the Company sold an aggregate of 500,000 shares of common stock together with an aggregate of 500,000 warrants for $87,500 to three investors. &#160;The warrants were exercisable for a period of twelve months from the date of issuance to purchase an additional 500,000 shares of common stock at an exercise price of $0.175 per share. </p><br/><p style="line-height:14.4pt; margin:0px; font-size:11.5pt"> The Company applied the provisions of ASC Topic 815, <i>&#8220;Derivatives and Hedging&#8221;</i> and related standards for the accounting of the valuation of the&#160;common stock warrants&#160;issued as part of the private placement of common stock completed on December 29, 2009. Accordingly, the Company recorded a warrant liability upon the issuance of its common stock, equal to the estimated fair market value of the various features of the warrants. &#160;The initial warrant liability of $75,000 represented a non-cash adjustment to the carrying value of the related financial instruments. &#160;The warrants were exercisable upon issuance, and expired unexercised on December 29, 2010. &#160;The liability was adjusted quarterly to the estimated fair market value based upon then current market conditions, and any change in the estimated fair market value was charged to the Company&#8217;s operating results. </p><br/><p style="line-height:14.4pt; margin:0px; font-size:11.5pt"> The following assumptions were utilized to determine the estimated fair value of the warrants upon issue: </p><br/><table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="193"> </td> <td width="14.8"> </td> <td width="74.2"> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; font-size:11.5pt"> Expected volatility </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; font-size:11.5pt" align="right"> 142% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; font-size:11.5pt"> Contractual term </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; font-size:11.5pt" align="right"> 1 year </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; font-size:11.5pt"> Risk free interest rate </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; font-size:11.5pt" align="right"> 0.47% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; font-size:11.5pt"> Expected dividend rate </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; font-size:11.5pt" align="right"> 0% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> </tr> </table><br/><p style="margin:0px; font-size:11.5pt"> <b>Common stock issued for services</b> </p><br/><p style="margin:0px; font-size:11.5pt"> On February 7, 2012, the Company&#8217;s board of directors ratified the issue of 222,222 shares of the Company&#8217;s common stock to Mr. Erik Van Horn, Director as compensation earned to date, and to be earned during his service in fiscal year ending October 31, 2012. &#160;The transaction was valued at $10,000, or $.045 per share, which was the weighted average closing price of the Company&#8217;s common stock for the last twenty days preceding the date of the transaction. &#160;Since the shares represent services performed for the year ended October 31, 2012, the total of $10,000 was expensed for the year ended October 31, 2012, and is reflected in &#8220;Services paid with common stock&#8221; in the accompanying balance sheets. </p><br/><p style="margin:0px; font-size:11.5pt"> Also on February 7, 2012, the Company&#8217;s board of directors ratified the terms of a consulting agreement dated January 24, 2012 with a marketing entity which included the issuance of 120,000 shares of the Company&#8217;s common stock as partial payment for certain services being provided by the consultant. &#160;The shares were valued at a total of $4,800, or $.04 per share, the closing price of the Company&#8217;s common stock on January 24, 2012. &#160;The initial services relating to this issuance were considered to be substantially completed, and as such the total of $4,800 was charged to operations for the year months ended October 31, 2012. &#160;This agreement is discussed further below in Note G. </p><br/><p style="margin:0px; font-size:11.5pt"> On May 18, 2011, the Company appointed Mr. Duane Knight, CPA, to its Scientific Advisory Board (&#8220;SAB&#8221;). &#160;Concurrently, the Company issued 50,000 shares of the Company&#8217;s common stock to him as compensation to be earned during his two years of service on the SAB. &#160;The transaction was valued at $5,000, or $.10 per share, which approximated the market value of the stock on the date of the transaction. &#160;As of October 31, 2012, $3,542, including $2,500 during the year ended October 31, </p><br/><p style="margin:0px; font-size:11.5pt"> 2012 had been expensed, and is reflected in &#8220;Services paid with common stock&#8221; in the accompanying balance sheets. </p><br/><p style="margin:0px; font-size:11.5pt"> On April 27, 2011, the Company issued 99,010 shares of the Company&#8217;s common stock to Mr. Erik Van Horn, Director as compensation to be earned during his service in 2011. &#160;The transaction was valued at $10,000, or $.101 per share, which approximated the market value of the stock on the date of the transaction. &#160;As of October 31, 2012, the entire $10,000 had been expensed, and is reflected in &#8220;Services paid with common stock&#8221; in the accompanying balance sheets. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Conversion of accounts payable</b> </p><br/><p style="margin:0px; font-size:11.5pt"> On May 10, 2012 the Company issued 437,695 shares of its $.001 par value common stock to an individual in satisfaction of $21,885 of legal services previously provided. &#160;The shares were valued at $0.05 per share, the closing price of the Company&#8217;s common stock on that date. </p><br/><p style="margin:0px; font-size:11.5pt"> <b>Stock options granted to officer</b> </p><br/><p style="margin:0px; font-size:11.5pt"> On May 1, 2008, the Company granted a non-qualified stock option to its President to purchase 1,000,000 shares of the Company&#8217;s common stock at an exercise price of $0.19 per share, and expire in 2018. &#160;On the grant date, the traded market value of the stock was $0.19 per share. &#160;The options vest upon the achievement of certain contingencies. &#160;As a result of the patent license agreements of March 29, 2011 as discussed in Note I, a contingency was met resulting in the vesting of 100,000 of these options. &#160;As such, the Company recorded $18,900 in stock based compensation on March 29, 2011. &#160;None of the other contingencies have been met as of October 31, 2012, 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 $0.189, respectively. &#160; </p><br/><p style="margin:0px; font-size:11.5pt"> 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: </p><br/><table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="349.2"> </td> <td width="90"> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="349.2"> <p style="margin:0px; font-size:11.5pt" align="justify"> Risk-free interest rate </p> </td> <td style="margin-top:0px" valign="top" width="90"> <p style="margin:0px; font-size:11.5pt" align="right"> 3.68% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="349.2"> <p style="margin:0px; font-size:11.5pt" align="justify"> Dividend yield </p> </td> <td style="margin-top:0px" valign="top" width="90"> <p style="margin:0px; font-size:11.5pt" align="right"> 0.00% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="349.2"> <p style="margin:0px; font-size:11.5pt" align="justify"> Volatility factor </p> </td> <td style="margin-top:0px" valign="top" width="90"> <p style="margin:0px; font-size:11.5pt" align="right"> 228.72% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="349.2"> <p style="margin:0px; font-size:11.5pt" align="justify"> Weighted average expected life </p> </td> <td style="margin-top:0px" valign="top" width="90"> <p style="margin:0px; font-size:11.5pt" align="right"> 6.5 years </p> </td> </tr> </table><br/><p style="margin:0px; font-size:11.5pt"> <b>Incentive plans</b> </p><br/><p style="margin:0px; font-size:11.5pt"> Effective December 2, 2000, the Company&#8217;s Board of Directors adopted an Equity Incentive Plan (the &#8220;Plan&#8221;), which replaced the Company&#8217;s 1992 Stock Option Plan. &#160;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&#8217;s business. &#160;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 </p><br/><p style="margin:0px; font-size:11.5pt"> future awards under the Plan. &#160;Awards may not be transferred, except by will or the laws of descent and distribution. &#160;No awards may be granted under the Plan after September 30, 2010. </p><br/><p style="margin:0px; font-size:11.5pt"> 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. </p><br/><p style="margin:0px; font-size:11.5pt"> At October 31, 2012 a total of 543,500 options had been issued under the Plan, of which 43,500 have expired. &#160;The 200,000 options outstanding and vested under the Plan have an exercise price of $0.08 per share, a weighted average exercise price of $0.08 per share, and a weighted average remaining contractual life of 3.28 years at October 31, 2012. &#160;Three hundred thousand (300,000) outstanding options not yet vested have an exercise price of $0.17 per share, and expire in April 2015. &#160;For the years ended October 31, 2012 and 2011, no compensation expense was recognized for options under the Plan. No additional options may be issued under the Plan. </p><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> The following schedule summarizes the changes in the Company&#8217;s stock options including non-qualified options and options issued under the 2000 Plan: </p><br/><table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="22.667"> </td> <td width="186.6"> </td> <td width="15.733"> </td> <td width="97.4"> </td> <td width="15.733"> </td> <td width="94.6"> </td> <td width="15.733"> </td> <td width="86.6"> </td> <td width="15.733"> </td> <td width="92"> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; padding:0px"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:2px solid #000000" valign="top" width="113.133" colspan="2"> <p style="margin:0px" align="center"> <b>&#160;Number of Shares</b> </p> </td> <td style="margin-top:0px; border-bottom:2px solid #000000" valign="top" width="110.333" colspan="2"> <p style="margin:0px" align="center"> <b>Exercise Price Per Share</b> </p> </td> <td style="margin-top:0px; border-bottom:2px solid #000000" valign="top" width="102.333" colspan="2"> <p style="margin:0px" align="center"> <b>Weighted Average Remaining Contractual Life</b> </p> </td> <td style="margin-top:0px; border-bottom:2px solid #000000" valign="top" width="92"> <p style="margin:0px" align="center"> <b>Weighted Average Exercise Price Per Share</b> </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Balance at October 31, 2010 </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;1,543,500 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $.08 to $.81 </p> </td> <td style="margin-top:0px" valign="top" width="102.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> 7.60 years </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.17 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options granted </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;- &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="94.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options exercised </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;- &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="94.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options expired </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:1px solid #000000" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;16,500 &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> &#160;&#160;$.42 to $.81 </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; font-size:11pt" align="right"> - </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.44 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Balance at October 31, 2011 </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;1,527,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $.08 to $.45 </p> </td> <td style="margin-top:0px" valign="top" width="102.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> 5.66 years </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.17 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options granted </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;- &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="94.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options exercised </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;- &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="94.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options expired </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;27,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $.12 to $.31 </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; font-size:11pt" align="right"> &#160;- &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.13 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Balance at October 31, 2012 </p> </td> <td style="margin-top:0px; border-top:1px solid #000000; border-bottom:3px double #000000" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;1,500,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $0.08 to $0.19 </p> </td> <td style="margin-top:0px" valign="top" width="102.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> 4.75 years </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.17 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Exercisable at October 31, 2011 </p> </td> <td style="margin-top:0px; border-bottom:3px double #000000" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;327,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $.08 to $.31 </p> </td> <td style="margin-top:0px" valign="top" width="102.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> 4.72 years </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.12 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Exercisable at October 31, 2012 </p> </td> <td style="margin-top:0px; border-bottom:3px double #000000" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;300,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $.08 to $.19 </p> </td> <td style="margin-top:0px" valign="top" width="102.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> 4.10 years </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.12 </p> </td> </tr> </table><br/> 500000 500000 87500 12 500000 0.175 75000 222222 10000 45 120000 4800 4 4800 50000 5000 10 3542 99010 10000 101 10000 437695 1 21885 0.05 1000000 0.19 100000 18900 170100 0.19 0.189 189000 1000000 543,500 43500 200000 0.08 3.28 -300000 0.17 <table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="193"> </td> <td width="14.8"> </td> <td width="74.2"> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; font-size:11.5pt"> Expected volatility </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; font-size:11.5pt" align="right"> 142% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; font-size:11.5pt"> Contractual term </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; font-size:11.5pt" align="right"> 1 year </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; font-size:11.5pt"> Risk free interest rate </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; font-size:11.5pt" align="right"> 0.47% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; font-size:11.5pt"> Expected dividend rate </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; font-size:11.5pt" align="right"> 0% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="bottom" width="193"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="14.8"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> <td style="margin-top:0px" valign="bottom" width="74.2"> <p style="margin:0px; padding:0px; font-size:11.5pt"> &#160; </p> </td> </tr> </table> 0.0047 0.00 <table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="349.2"> </td> <td width="90"> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="349.2"> <p style="margin:0px; font-size:11.5pt" align="justify"> Risk-free interest rate </p> </td> <td style="margin-top:0px" valign="top" width="90"> <p style="margin:0px; font-size:11.5pt" align="right"> 3.68% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="349.2"> <p style="margin:0px; font-size:11.5pt" align="justify"> Dividend yield </p> </td> <td style="margin-top:0px" valign="top" width="90"> <p style="margin:0px; font-size:11.5pt" align="right"> 0.00% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="349.2"> <p style="margin:0px; font-size:11.5pt" align="justify"> Volatility factor </p> </td> <td style="margin-top:0px" valign="top" width="90"> <p style="margin:0px; font-size:11.5pt" align="right"> 228.72% </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="349.2"> <p style="margin:0px; font-size:11.5pt" align="justify"> Weighted average expected life </p> </td> <td style="margin-top:0px" valign="top" width="90"> <p style="margin:0px; font-size:11.5pt" align="right"> 6.5 years </p> </td> </tr> </table> 0.0000 2.2872 <table style="margin-top:0px; font-size:10pt" cellpadding="0" cellspacing="0"> <tr style="font-size:0"> <td width="22.667"> </td> <td width="186.6"> </td> <td width="15.733"> </td> <td width="97.4"> </td> <td width="15.733"> </td> <td width="94.6"> </td> <td width="15.733"> </td> <td width="86.6"> </td> <td width="15.733"> </td> <td width="92"> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; padding:0px"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px"> &#160; </p> </td> <td style="margin-top:0px; border-bottom:2px solid #000000" valign="top" width="113.133" colspan="2"> <p style="margin:0px" align="center"> <b>&#160;Number of Shares</b> </p> </td> <td style="margin-top:0px; border-bottom:2px solid #000000" valign="top" width="110.333" colspan="2"> <p style="margin:0px" align="center"> <b>Exercise Price Per Share</b> </p> </td> <td style="margin-top:0px; border-bottom:2px solid #000000" valign="top" width="102.333" colspan="2"> <p style="margin:0px" align="center"> <b>Weighted Average Remaining Contractual Life</b> </p> </td> <td style="margin-top:0px; border-bottom:2px solid #000000" valign="top" width="92"> <p style="margin:0px" align="center"> <b>Weighted Average Exercise Price Per Share</b> </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Balance at October 31, 2010 </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; 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padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options granted </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;- &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="94.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options exercised </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;- &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="94.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="22.667"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="186.6"> <p style="margin:0px; font-size:11pt"> Options expired </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;27,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $.12 to $.31 </p> </td> <td style="margin-top:0px" valign="top" width="86.6"> <p style="margin:0px; font-size:11pt" align="right"> &#160;- &#160;&#160; </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.13 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Balance at October 31, 2012 </p> </td> <td style="margin-top:0px; border-top:1px solid #000000; border-bottom:3px double #000000" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;1,500,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $0.08 to $0.19 </p> </td> <td style="margin-top:0px" valign="top" width="102.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> 4.75 years </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.17 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Exercisable at October 31, 2011 </p> </td> <td style="margin-top:0px; border-bottom:3px double #000000" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;327,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $.08 to $.31 </p> </td> <td style="margin-top:0px" valign="top" width="102.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> 4.72 years </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.12 </p> </td> </tr> <tr> <td style="margin-top:0px" valign="top" width="225" colspan="3"> <p style="margin:0px; font-size:11pt"> Exercisable at October 31, 2012 </p> </td> <td style="margin-top:0px; border-bottom:3px double #000000" valign="top" width="97.4"> <p style="margin:0px; font-size:11pt" align="right"> &#160;300,000 </p> </td> <td style="margin-top:0px" valign="top" width="15.733"> <p style="margin:0px; padding:0px; font-size:11pt"> &#160; </p> </td> <td style="margin-top:0px" valign="top" width="110.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> $.08 to $.19 </p> </td> <td style="margin-top:0px" valign="top" width="102.333" colspan="2"> <p style="margin:0px; font-size:11pt" align="right"> 4.10 years </p> </td> <td style="margin-top:0px" valign="top" width="92"> <p style="margin:0px; font-size:11pt" align="right"> $.12 </p> </td> </tr> </table> 1543500 0.44 1527000 0.13 1500000 0.12 0.12 <p style="line-height:12pt; margin:0px; font-size:11.5pt"> <b>NOTE G:</b> <b>CONSULTING AGREEMENTS</b> </p><br/><p style="line-height:12pt; margin:0px; font-size:11.5pt"> On February 7, 2012, the Company&#8217;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. &#160;The agreement has an initial six-month term and may be terminated by either party upon a material breach of the agreement. &#160;It includes several phases for which the consultant shall be compensated upon completion. &#160;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&#8217;s common stock, which was valued at $4,800 as discussed above. &#160;Phases II &amp; III includes certain services regarding the Company&#8217;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. &#160;The consultant will be entitled to additional compensation for completion of Phases II &amp; III of approximately $12,000 payable in cash or a combination of cash and common stock to be determined by the Company upon completion. &#160;For the year ended October 31, 2012 a total of $18,800 was charged to operations consisting of cash payments totaling $14,000 and the common stock issued. </p><br/><p style="margin:0px; font-size:11.5pt"> On May 13, 2011 the Company entered into a consulting agreement with a former member of the Company&#8217;s Scientific Advisory Board. &#160;The agreement provides for the consultant&#8217;s assistance in molecular biology and related areas needed for commercialization of the Company&#8217;s stem cell product lines, as requested by management, at a compensation rate of $50 per hour. &#160;For the year ended October 31, 2011, the consultant had billed the Company a total of $500 in connection with this agreement. &#160;No amounts have been billed by the consultant for the year ended October 31, 2012. </p><br/><p style="margin:0px; font-size:11.5pt"> On June 3, 2009 the Company entered into a business development consulting agreement with Seraphim Life Sciences Consulting LLC, to provide services primarily designed to identify and bring to Vitro potential industrial partners that could benefit from Vitro&#8217;s technologies. &#160;The agreement entitles the consultant to performance based compensation in the amount of 8% of all consideration received by the Company resulting from the consultant&#8217;s services. &#160;The agreement also provides for compensation at hourly rates for services not considered project specific as may be requested by Vitro. &#160;Either party may terminate the agreement at any time with thirty days written notice. &#160;As of October 31, 2012 no services have been performed and no compensation has been paid under the agreement. </p><br/><p style="margin:0px; font-size:11.5pt"> On August 20, 2007, the Company entered into a Consulting Agreement with Mr. Joe Nieusma of Superior Toxicology &amp; Wellness (&#8220;Superior&#8221;). &#160;This agreement was initially extended without modification through August 20, 2010, although no further extension has been made as of the date of this report. &#160;Under the terms of the original agreement, Superior will provide services including, but not limited to: </p><br/><p style="margin-top:0px; margin-bottom:-2px; text-indent:24px; width:48px; font-family:Symbol; font-size:11.5pt; float:left"> &#183; </p><br/><p style="margin:0px; padding-left:48px; text-indent:-2px; font-size:11.5pt"> The development and funding of the Company&#8217;s current business plan; </p><br/><p style="margin-top:0px; margin-bottom:-2px; text-indent:24px; width:48px; font-family:Symbol; font-size:11.5pt; float:left"> &#183; </p><br/><p style="margin:0px; padding-left:48px; text-indent:-2px; font-size:11.5pt"> The launch of products targeting applications in the development and discovery of new drug and biological products; and </p><br/><p style="margin-top:0px; margin-bottom:-2px; text-indent:24px; width:48px; font-family:Symbol; font-size:11.5pt; float:left"> &#183; </p><br/><p style="margin:0px; padding-left:48px; text-indent:-2px; font-size:11.5pt"> 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. </p><br/><p style="margin:0px; font-size:11.5pt"> 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. &#160;In addition, the Company has agreed to issue Mr. Nieusma the following stock bonuses to be paid in shares of the Company&#8217;s common stock: </p><br/><p style="margin-top:0px; margin-bottom:-2px; text-indent:48px; width:96px; font-size:11.5pt; float:left"> a. </p><br/><p style="margin:0px; text-indent:-2px; font-size:11.5pt"> 100,000 shares upon the sale of stem-derived human beta islets as evidenced by issuance of a commercial invoice; </p><br/><p style="margin-top:0px; margin-bottom:-2px; text-indent:48px; width:96px; font-size:11.5pt; float:left"> b. </p><br/><p style="margin:0px; text-indent:-2px; font-size:11.5pt"> 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&#8217;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 </p><br/><p style="margin-top:0px; margin-bottom:-2px; text-indent:48px; width:96px; font-size:11.5pt; float:left"> c. </p><br/><p style="margin:0px; text-indent:-2px; font-size:11.5pt"> 100,000 shares upon the receipt of $100,000 or more in capital funding of the Company based upon Vitro&#8217;s current business plan or subsequent versions thereof. &#160;This event occurred during fiscal year ending October 31, 2008 and the Company issued 100,000 shares to its consultant on March 27, 2008. </p><br/><p style="margin:0px; font-size:11.5pt"> Compensation for the successful sale of Vitro&#8217;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. </p><br/> 5000 120000 4800 12000 18800 14000 50 500 0.08 50 240 100000 100000 100000 100,000 0.15 <p style="margin:0px; font-size:11.5pt"> <b>NOTE H:</b> <b>JOINT PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION AGREEMENTS</b> </p><br/><p style="margin:0px; font-size:11.5pt"> On May 29, 2010 the Company executed an Agreement with Mokshagundam Biotechnologies for the development of a medium formulation for growth of marine invertebrates as a potential food source. &#160;Initially, a basal medium formulation consisting of macro nutritional substances is to be developed and this will be supplemented with growth factors commonly used in stem cell media formulations. &#160;The Agreement provides for the Company to provide a pilot batch of medium for testing consisting of macro-nutritional support plus a mixture of common growth factors necessary for in-vitro support of self-renewal in stem cells of higher organisms. &#160;This medium was delivered to Mokshagundam during fiscal year 2010. &#160;The Agreement provided for a payment of $5,000 to the Company upon execution of the Agreement as an advance for the product development, and was received during the third quarter of fiscal year ended October 31, 2010. This agreement is presently inactive. </p><br/><p style="margin:0px; font-size:11.5pt"> On April 27, 2010 the Company executed an Agreement for Joint Product Development, Manufacture and Distribution (&#8220;Agreement&#8221;) with HemoGenix, Inc., a privately held biotechnology firm located in Colorado Springs, Colorado. &#160;The Agreement provides for the joint manufacture and distribution of stem cell analysis tools. &#160;The agreement provides for the expansion of assay platforms from HemoGenix, in particular, LUMENESC for mesenchymal stem cells (MSC). &#160;Also, this original agreement between the Company and HemoGenix&#174; 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. &#160;Furthermore, the strategic partners intend to jointly develop </p><br/><p style="margin:0px; font-size:11.5pt"> additional stem cell media products and align their respective quality programs to ensure consistency. </p><br/> 5000 <p style="line-height:12pt; margin:0px; font-size:11.5pt"> <b>NOTE I:</b> <b>PATENT LICENSE AGREEMENT</b> </p><br/><p style="margin:0px; font-size:11.5pt"> 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&#8217;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. &#160;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. &#160;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&#8217;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. </p><br/><p style="margin:0px; font-size:11.5pt"> The licensee was previously an executive officer of the Company, and the Company had carried a $200,833 liability for unpaid compensation. &#160;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. &#160;In addition, the license agreement also required the licensee forgive an additional $190,000 of the unpaid compensation liability. &#160;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. &#160;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. &#160;As of October 31, 2012, no sales have been made under this agreement.<a id="_GoBack" name="_GoBack"></a> </p><br/> 200833 10000 190000 0.03 0.04 0.045 <p style="line-height:12pt; margin:0px; font-size:11.5pt"> <b>NOTE J:</b> <b>SUBSEQUENT EVENTS</b> </p><br/><p style="margin:0px; font-size:11.5pt"> The Company has evaluated subsequent events through the date that the financial statements were available to be issued. </p><br/> EX-101.SCH 5 vodg-20121031.xsd XBRL SCHEMA DOCUMENT 001 - 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NOTE F: SHAREHOLDERS' DEFICIT (Detail) - The following schedule summarizes the changes in the Company’s stock options including non-qualified (USD $)
9 Months Ended 12 Months Ended
Jul. 31, 2012
Oct. 31, 2012
Oct. 31, 2011
Oct. 31, 2010
Balance at (in Shares) 1,500,000   1,527,000 1,543,500
Options expired $ 0.13   $ 0.44  
Exercisable at   $ 0.12 $ 0.12  
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NOTE C: INCOME TAXES (Detail) (USD $)
12 Months Ended
Oct. 31, 2012
Oct. 31, 2011
Deferred Tax Assets, Net $ 2,019,342  
Operating Loss Carryforwards 8,293,049  
Valuation Allowance, Amount 2,019,342  
Valuation Allowance, Deferred Tax Asset, Change in Amount $ 53,038 $ 56,866
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NOTE C: INCOME TAXES
12 Months Ended
Oct. 31, 2012
Income Tax Disclosure [Text Block]

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.


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.


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NOTE E: CAPITAL LEASE OBLIGATIONS (Detail) (USD $)
61 Months Ended
Aug. 02, 2012
May 31, 2012
Jun. 30, 2011
Jul. 01, 2007
Capital Leases, Future Minimum Payments Due   $ 830 $ 570 $ 25
Capital Lease Obligations Incurred $ 382      
XML 16 R28.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE D: LINES OF CREDIT (Detail) (USD $)
12 Months Ended
Oct. 31, 2012
Oct. 31, 2011
Proceeds from (Repayments of) Lines of Credit (in Dollars) $ 3,257 $ (56,998)
LineOfCreditAvailableBalance (in Dollars) 534  
Line of Credit Facility, Interest Rate at Period End 21.90%  
LineOfCreditInterestRateMinimum 10.24%  
LineOfCreditInterestRateMaximum 29.40%  
LineOfCreditInterestRateWeightedAverage 25.93%  
CombinedCreditLimit
   
Proceeds from (Repayments of) Lines of Credit (in Dollars) 26,700  
CombinedLineOfCreditAvailableBalance
   
LineOfCreditAvailableBalance (in Dollars) $ 1,575  
XML 17 R30.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE F: SHAREHOLDERS' DEFICIT (Detail) (USD $)
0 Months Ended 3 Months Ended 12 Months Ended 18 Months Ended
Feb. 07, 2012
May 08, 2011
Apr. 27, 2011
Mar. 29, 2011
Dec. 29, 2009
Oct. 31, 2012
Feb. 07, 2012
Oct. 31, 2012
Dec. 29, 2010
Oct. 31, 2012
May 10, 2012
Oct. 31, 2011
May 18, 2011
May 01, 2008
Common Stock, Shares Authorized (in Shares)           50,000,000   50,000,000   50,000,000   50,000,000    
Common Stock, Par or Stated Value Per Share (in Dollars per share)           $ 0.001   $ 0.001   $ 0.001   $ 0.001    
Stock Issued During Period, Value, New Issues         $ 500,000                  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number (in Shares)       100,000 500,000 200,000   200,000 500,000 200,000       0.19
Adjustments to Additional Paid in Capital, Share-based Compensation and Exercise of Stock Options         87,500 3,542 4,800 170,100 75,000 10,000        
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Exercisable Options, Weighted Average Remaining Contractual Term           3.28   3.28 12 3.28        
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price (in Dollars per share) $ 4 $ 10 $ 101 $ 0.19   $ 0.17 $ 4 $ 0.17 $ 0.175 $ 0.17 $ 1      
Common Stock, Shares, Issued (in Shares) 120,000   99,010     19,308,912 120,000 19,308,912   19,308,912   18,528,995 50,000  
Stock Issued During Period, Value, Share-based Compensation, Net of Forfeitures 4,800 5,000 10,000 18,900                    
Common Stock, Value, Issued           19,309   19,309   19,309 437,695 18,529    
LegalFeesProvided                     21,885      
ShareValuePerShareOnClosingDate (in Dollars per share)                     $ 0.05      
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number (in Shares)           (300,000)   (300,000)   (300,000)       1,000,000
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest           189,000   189,000   189,000        
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period               543,500            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures and Expirations in Period (in Shares)               43,500            
ErikVanHorn
                           
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price (in Dollars per share) $ 45           $ 45              
Common Stock, Shares, Issued (in Shares) 222,222           222,222              
Stock Issued During Period, Value, Share-based Compensation, Net of Forfeitures $ 10,000                          
FormerPresident
                           
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number (in Shares)       100,000                    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price (in Dollars per share)           $ 0.189   $ 0.189   $ 0.189        
Total
                           
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price (in Dollars per share)           $ 1,000,000   $ 1,000,000   $ 1,000,000        
Total
                           
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price (in Dollars per share)           $ 0.08   $ 0.08   $ 0.08        
XML 18 R31.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE F: SHAREHOLDERS' DEFICIT (Detail) - The following assumptions were utilized to determine the estimated fair value of the warrants upon i
12 Months Ended
Oct. 31, 2012
Expected volatility 228.72%
Risk free interest rate 0.47%
Expected dividend rate 0.00%
XML 19 R8.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE B: RELATED PARTY TRANSACTIONS
12 Months Ended
Oct. 31, 2012
Related Party Transactions Disclosure [Text Block]

NOTE B: RELATED PARTY TRANSACTIONS


Advances and accrued interest payable to officer


Through October 31, 2012, the Company’s President had advanced the Company a total of $462,982 used for working capital including $143,800 during the year ended October 31, 2012.  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 $81,076 and $40,627 at October 31, 2012 and 2011, respectively.  The total advances plus accrued interest totaling $544,058 and $359,809 at October 31, 2012 and 2011, 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 a new 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 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 a result of the patent licenses agreement on March 29, 2011, a contingency was met and as a result, 100,000 common stock options became vested.  These options are exercisable at $.19 per share and expire in July 2018.  As a result, $18,900 of stock based compensation was recorded at March 29, 2011.  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 $1,190,208 and $1,177,618 at October 31, 2012 and 2011, respectively.  His accrued salaries totaled $1,143,422 and $1,131,432 as of October 31, 2012 and 2011, respectively.  His salary is allocated as follows: 70% to research and development and 30% to administration.


On March 30, 2011 the Company licensed two of its existing patents to a former executive officer.  The transaction included license fees totaling $10,000, and a forgiveness of previously accrued payroll amounts due the former officer of $190,000.  This transaction is further discussed in Note I.  His accrued salaries totaled $833 at both October 31, 2012 and October 31, 2011.


Total accrued payroll taxes on the above salaries totaled $45,953 and $45,353 at October 31, 2012 and 2011, 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 expires in June 2013.  The facility has been leased from a company that is owned by the President’s wife.  Future minimum rental payments for the remaining term of the lease are $14,920.


The total rental expense was $26,902 and $26,747 for the years ended October 31, 2012 and 2011, respectively.  At October 31, 2012 and 2011, $26,902 and $30,344 were unpaid and are included in accounts payable related parties in the accompanying balance sheets.


Sales and account receivable


During the fourth quarter of 2012, the Company sold various distributed inventory material products to the President’s wife since the Company gained competitive pricing on these items through group purchasing discounts.  The total amount of the sales was $5,694, of which $3,316 had been paid at October 31, 2012.  The remaining $2,378 due on the transactions is included in accounts receivable.


Other


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


XML 20 R32.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE F: SHAREHOLDERS' DEFICIT (Detail) - The fair value of the options was determined to be $189,000, and was estimated at the date of grant
12 Months Ended
Oct. 31, 2012
Risk-free interest rate 0.47%
Dividend yield 0.00%
Volatility factor 228.72%
XML 21 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
Vitro Diagnostics, Inc. - Balance Sheets (USD $)
Oct. 31, 2012
Oct. 31, 2011
Current assets:    
Cash $ 5,286 $ 3,023
Accounts receivable 4,688 3,594
Inventory, at cost 26,678 17,173
Total current assets 36,652 23,790
Equipment, net of accumulated depreciation of $94,991 and $78,043 17,026 31,819
Patents, net of accumulated amortization of $10,802 and $7,664 (Note A) 20,583 23,721
Deferred costs (Note A) 9,471 5,595
Other assets 1,449 1,449
Total assets 85,181 86,374
Current liabilities:    
Lines of credit (Note D) 37,091 33,834
Current maturities on capital lease obligations (Note E)   8,134
Accounts payable 38,024 39,993
Accounts payable - related parties 30,533 30,344
Accrued expenses   2,903
Advances and accrued interest payable to officer (Note B) 544,058 359,809
Accrued payroll expenses (Note B) 1,190,208 1,177,618
Total liabilities 1,839,914 1,652,635
Preferred stock, $.001 par value; 5,000,000 shares authorized; 0 0
Common stock, $.001 par value; 50,000,000 shares authorized; 19,309 18,529
19,308,912 and 18,528,995 shares issued and outstanding    
Additional paid-in capital 5,382,509 5,346,604
Services prepaid with common stock (1,458) (3,958)
Accumulated deficit (7,155,093) (6,927,436)
Total shareholders' deficit (1,754,733) (1,566,261)
Total liabilities and shareholders' deficit $ 85,181 $ 86,374
XML 22 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
Vitro Diagnostics, Inc. - Statements of Cash Flows (USD $)
12 Months Ended
Oct. 31, 2012
Oct. 31, 2011
Cash Flows from operating activities:    
Net income (loss) $ (227,657) $ (14,022)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 20,086 20,612
Stock-based compensation 12,500 33,501
Common stock issued for consulting services 4,800  
Fair value of stock purchase warrants   (29,300)
(Increase) decrease in accounts receivable, inventories, prepaid expenses and deposits (10,599) 996
Increase (decrease) in accounts payable and accrued expenses 70,241 (127,637)
Net cash used in operating activities (130,629) (115,850)
Cash flows from investing activities:    
Purchases of equipment (2,155) (1,359)
Payments for patents and deferred costs (3,876) (4,833)
Net cash used in investing activities (6,031) (6,192)
Cash flows from financing activities:    
Proceeds from advances from officer 143,800 179,500
(Payments) draws on lines of credit, net 3,257 (56,998)
Principal payments on capital lease (8,134) (14,750)
Net cash provided by financing activities 138,923 107,752
Net change in cash 2,263 (14,290)
Cash, beginning of year 3,023 17,313
Cash paid during the year for:    
Interest 8,063 16,275
Income taxes 0 0
Non-cash investing and financing activities:    
Common stock issued to directors for services 10,000 15,000
Common stock issued for consulting services 4,800  
Common stock issued upon conversion of accounts payable 21,885  
Cash, end of period $ 5,286 $ 3,023
XML 23 R35.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE H: JOINT PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION AGREEMENTS (Detail) (USD $)
5 Months Ended
Oct. 31, 2010
Contracts Revenue $ 5,000
XML 24 R22.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE A: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail) - The Company amortizes its patents over a period of ten years. (USD $)
10 Months Ended 12 Months Ended
Oct. 31, 2017
Oct. 31, 2016
Oct. 31, 2015
Oct. 31, 2014
Oct. 31, 2013
Oct. 31, 2012
Year Ended October 31, $ 3,139 $ 3,139 $ 3,139 $ 3,139 $ 3,139 $ 3,139
$ 20,583          
XML 25 R36.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE I: PATENT LICENSE AGREEMENT (Detail) (USD $)
12 Months Ended 19 Months Ended
Oct. 31, 2012
Oct. 31, 2012
Oct. 31, 2011
Mar. 30, 2011
Deferred Compensation Liability, Current (in Dollars) $ 1,190,208 $ 1,190,208 $ 1,177,618 $ 200,833
Direct Taxes and Licenses Costs (in Dollars) 10,000 10,000    
Debt Instrument, Decrease, Forgiveness (in Dollars) $ 190,000 $ 190,000    
RoyaltyPaymentPercentageMinimum 3.00% 3.00%    
RoyaltyPaymentPercentageMaximum 4.00% 4.00%    
RoyaltiesPercentagePaidInTheThirdYear
       
RoyaltyPaymentPercentageMaximum 4.50% 4.50%    
XML 26 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE B: RELATED PARTY TRANSACTIONS (Detail) (USD $)
2 Months Ended 3 Months Ended 12 Months Ended 19 Months Ended 24 Months Ended 36 Months Ended
Mar. 29, 2011
Oct. 31, 2012
Oct. 31, 2012
Oct. 31, 2011
Apr. 30, 2011
Apr. 30, 2010
Apr. 30, 2009
Oct. 31, 2012
Oct. 31, 2012
Feb. 01, 2014
Oct. 31, 2018
Jul. 31, 2012
Mar. 30, 2011
Feb. 01, 2011
Dec. 29, 2010
Dec. 29, 2009
May 01, 2008
Related Party Transaction, Expenses from Transactions with Related Party     $ 143,800           $ 462,982                
RelatedPartyTransactionInterestRateForLoan     10.00%                            
Due to Related Parties   81,076 81,076 40,627       81,076 81,076                
Advances to Affiliate   544,058 544,058 359,809       544,058 544,058                
Officers' Compensation         90,000 85,000 80,000     12,000              
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Exercisable Options (in Shares)                           1,000,000      
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Exercisable, Number (in Shares) 100,000 200,000 200,000         200,000 200,000           500,000 500,000 0.19
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price (in Dollars per share)                     $ 19            
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition 18,900                                
Deferred Compensation Liability, Current (in Dollars)   1,190,208 1,190,208 1,177,618       1,190,208 1,190,208       200,833        
AccruedSalary       1,131,432               1,143,422          
SalaryAllocationPercentageToResearchAndDevelopment                       70.00%          
SalaryAllocationPercentageToAdministration                       30.00%          
Direct Taxes and Licenses Costs (in Dollars)     10,000         10,000                  
Debt Instrument, Decrease, Forgiveness (in Dollars)     190,000         190,000                  
Accrued Payroll Taxes   45,953 45,953 45,353       45,953 45,953                
Operating Leases, Future Minimum Payments Due, Future Minimum Sublease Rentals   14,920 14,920         14,920 14,920                
Operating Leases, Rent Expense     26,902 26,747                          
AccruedRentExpense   26,902 26,902 30,344       26,902 26,902                
Sales Revenue, Goods, Net   5,694 28,079 22,999                          
Other Revenue, Net   3,316                              
Accounts Receivable, Net, Current   2,378 2,378         2,378 2,378                
FormerExecutiveOfficer
                                 
AccruedSalary   $ 833 $ 833         $ 833 $ 833                
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XML 29 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE A: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Oct. 31, 2012
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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.  Additional details regarding the Company’s business and intellectual property is presented elsewhere in this report (See Part I, Business Narative.)


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 October 31, 2012, 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, 2010, the president has advanced the Company a total of $323,300 for working capital on an “as needed” basis, including $143,800 during the year ended October 31, 2012.  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 Companys 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 Company’s operations. In such an event, management intends to pursue various strategic alternatives.


In March 2011, the Company formed a license agreement with a third party for its patented technology related to treatment of infertility.  The terms of this agreement included a license fee and royalties on any future sales derived from the patent license by the licensee.  The transaction resulted in a significant reduction of the Company’s accrued payroll obligation to a former employee.  See Note I for further discussion regarding this transaction.


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.


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 October 31, 2012 and October 31, 2011, 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 October 31, 2012 and 2011, finished goods included approximately $9,800 and $5,600, respectively, of labor and overhead allocations.  Inventories consisted of the following:


 

October 31, 2012

 

October 31, 2011

Raw materials

 $  12,074

 

 $       9,320

Finished goods

14,604

 

          7,853

 

 $  26,678

 

 $     17,173


Shipping and freight costs


All freight costs associated with the receiving of goods and materials is expensed during the period in which it is received.  For the years ended October 31, 2012 and 2011, $3,815 and $1,937 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 years ended October 31, 2012 and 2011, $1,521 and $1,310 are included in product sales in the accompanying statements of operations.


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 has also expanded its operations to 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 $16,948 and $17,473 for the years ended October 31, 2012 and 2011, 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 its patents over a period of ten years.  Amortization expense totaled $3,139 for each of the years ended October 31, 2012 and 2011, respectively.  Estimated future amortization expense for each of the next five fiscal years is as follows:


Year ended October 31,

 

 

2013

$

3,139 

2014

 

3,139 

2015

 

3,139 

2016

 

3,139 

2017

 

      3,139

Thereafter

 

 4,888  

 

$

 20,583 


The Company’s patents consisted of the following at October 31, 2012:


Generation and differentiation of adult stem cell lines

 $

31,385 

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

 

 

    Less accumulated amortization

 

(10,802)

 

 $

20,583


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 $8,000 and $5,595 at October 31, 2012 and 2011, 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 $1,471 and $-0- at October 31, 2012 and 2011, 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 year ended October 31, 2012.  For the year ended October 31, 2011 the Company recorded an impairment charge of $135 relating to the write off of costs for an abandoned provisional filing.  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.


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 years ended October 31, 2012 and 2011, 53% and 61% of the Company’s non-related party sales, respectively, were made to the Company’s top two customers.


Advertising Costs


The Company expenses all advertising costs as they are incurred.  Advertising costs were $6,871 and $6,557 for the years ended October 31, 2012 and 2011, 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 October 31, 2012 and 2011, 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.


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 year ended October 31, 2012, 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 year ended October 31, 2011, common stock equivalents of 327,000 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.


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 2012 and 2011, none of which are expected to have a material impact on the Company’s consolidated financial position, operations, or cash flows.


XML 30 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
Vitro Diagnostics, Inc. - Balance Sheets (Parentheticals) (USD $)
Oct. 31, 2012
Oct. 31, 2011
Equipment, net of accumulated depreciation of $94,991 and $78,043 (in Dollars) (in Dollars) (in Dollars) $ 94,991 $ 78,043
Patents, net of accumulated amortization of $10,018 and $7,664 (Note A) (in Dollars) (in Dollars) (in Dollars) $ 10,018 $ 7,664
Preferred stock, par value (in Dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, $.001 par value (in Dollars per share) (in Dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 19,308,912 18,528,995
Common stock, shares outstanding 19,308,912 18,528,995
XML 31 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE A: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
12 Months Ended
Oct. 31, 2012
Schedule of Inventory, Current [Table Text Block]

 

October 31, 2012

 

October 31, 2011

Raw materials

 $  12,074

 

 $       9,320

Finished goods

14,604

 

          7,853

 

 $  26,678

 

 $     17,173

Schedule of Finite-Lived Intangible Assets by Major Class [Table Text Block]

Year ended October 31,

 

 

2013

$

3,139 

2014

 

3,139 

2015

 

3,139 

2016

 

3,139 

2017

 

      3,139

Thereafter

 

 4,888  

 

$

 20,583 

XML 32 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document And Entity Information (USD $)
12 Months Ended
Oct. 31, 2012
Jan. 05, 2013
Apr. 30, 2012
Document and Entity Information [Abstract]      
Entity Registrant Name VITRO DIAGNOSTICS INC,    
Document Type 10-K    
Current Fiscal Year End Date --10-31    
Entity Common Stock, Shares Outstanding   19,308,912  
Entity Public Float     $ 13,394,372
Amendment Flag false    
Entity Central Index Key 0000793171    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Smaller Reporting Company    
Entity Well-known Seasoned Issuer No    
Document Period End Date Oct. 31, 2012    
Document Fiscal Year Focus 2012    
Document Fiscal Period Focus FY    
XML 33 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE C: INCOME TAXES (Tables)
9 Months Ended 12 Months Ended
Jul. 31, 2012
Oct. 31, 2012
Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

 

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%

 
Summary of Deferred Tax Liability Not Recognized [Table Text Block]  

 

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 

XML 34 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
Vitro Diagnostics, Inc. - Statements of Operations (USD $)
12 Months Ended
Oct. 31, 2012
Oct. 31, 2011
Product sales $ 28,079 $ 22,999
Other income (expense):    
Fair value of stock purchase warrants   (29,300)
Net income (loss) (227,657) (14,022)
NineMonthsEnded
   
Cost of goods sold (13,139) (9,454)
Gross profit 14,940 13,545
Operating costs and expenses:    
Research and development 126,180 138,038
Selling, general and administrative 67,905 77,978
Total operating costs and expenses 194,085 216,016
Loss from operations (179,145) (202,471)
Other income (expense):    
Interest expense (48,512) (40,851)
Fair value of stock purchase warrants   29,300
License fee income   10,000
Forgiveness of debt   190,000
Income (loss) before income taxes (227,657) (14,022)
Provision for income taxes (Note C) 0 0
Net income (loss) $ (227,657) $ (14,022)
Net income (loss) per common share, basic and diluted (in Dollars per share) $ (0.01) $ 0.00
Shares used in computing net loss per common share:    
Basic and diluted (in Shares) 18,993,351 18,543,652
XML 35 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE F: SHAREHOLDERS' DEFICIT
12 Months Ended
Oct. 31, 2012
Stockholders' Equity Note Disclosure [Text Block]

NOTE F: 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 October 31, 2012.  These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors.


Sale of Common Stock and Warrants


On December 29, 2009 the Company sold an aggregate of 500,000 shares of common stock together with an aggregate of 500,000 warrants for $87,500 to three investors.  The warrants were exercisable for a period of twelve months from the date of issuance to purchase an additional 500,000 shares of common stock at an exercise price of $0.175 per share.


The Company applied the provisions of ASC Topic 815, “Derivatives and Hedging” and related standards for the accounting of the valuation of the common stock warrants issued as part of the private placement of common stock completed on December 29, 2009. Accordingly, the Company recorded a warrant liability upon the issuance of its common stock, equal to the estimated fair market value of the various features of the warrants.  The initial warrant liability of $75,000 represented a non-cash adjustment to the carrying value of the related financial instruments.  The warrants were exercisable upon issuance, and expired unexercised on December 29, 2010.  The liability was adjusted quarterly to the estimated fair market value based upon then current market conditions, and any change in the estimated fair market value was charged to the Company’s operating results.


The following assumptions were utilized to determine the estimated fair value of the warrants upon issue:


Expected volatility

 

142%

Contractual term

 

1 year

Risk free interest rate

 

0.47%

Expected dividend rate

 

0%

 

 

 


Common stock issued for services


On February 7, 2012, the Company’s board of directors ratified the issue of 222,222 shares of the Company’s common stock to Mr. Erik Van Horn, Director as compensation earned to date, and to be earned during his service in fiscal year ending October 31, 2012.  The transaction was valued at $10,000, or $.045 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.  Since the shares represent services performed for the year ended October 31, 2012, the total of $10,000 was expensed for the year ended October 31, 2012, and is reflected in “Services paid with common stock” in the accompanying balance sheets.


Also on February 7, 2012, the Company’s board of directors ratified the terms of a consulting agreement dated January 24, 2012 with a marketing entity which included the issuance of 120,000 shares of the Company’s common stock as partial payment for certain services being provided by the consultant.  The shares were valued at a total of $4,800, or $.04 per share, the closing price of the Company’s common stock on January 24, 2012.  The initial services relating to this issuance were considered to be substantially completed, and as such the total of $4,800 was charged to operations for the year months ended October 31, 2012.  This agreement is discussed further below in Note G.


On May 18, 2011, the Company appointed Mr. Duane Knight, CPA, to its Scientific Advisory Board (“SAB”).  Concurrently, the Company issued 50,000 shares of the Company’s common stock to him as compensation to be earned during his two years of service on the SAB.  The transaction was valued at $5,000, or $.10 per share, which approximated the market value of the stock on the date of the transaction.  As of October 31, 2012, $3,542, including $2,500 during the year ended October 31,


2012 had been expensed, and is reflected in “Services paid with common stock” in the accompanying balance sheets.


On April 27, 2011, the Company issued 99,010 shares of the Company’s common stock to Mr. Erik Van Horn, Director as compensation to be earned during his service in 2011.  The transaction was valued at $10,000, or $.101 per share, which approximated the market value of the stock on the date of the transaction.  As of October 31, 2012, the entire $10,000 had been expensed, and is reflected in “Services paid with common stock” in the accompanying balance sheets.


Conversion of accounts payable


On May 10, 2012 the Company issued 437,695 shares of its $.001 par value common stock to an individual in satisfaction of $21,885 of legal services previously provided.  The shares were valued at $0.05 per share, the closing price of the Company’s common stock on that date.


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 of March 29, 2011 as discussed in Note I, a contingency was met resulting in the vesting of 100,000 of these options.  As such, the Company recorded $18,900 in stock based compensation on March 29, 2011.  None of the other contingencies have been met as of October 31, 2012, 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 $0.189, 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


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 October 31, 2012 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 an exercise price of $0.08 per share, a weighted average exercise price of $0.08 per share, and a weighted average remaining contractual life of 3.28 years at October 31, 2012.  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 years ended October 31, 2012 and 2011, no compensation expense was recognized for options under the Plan. No additional options may be issued under the Plan.


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, 2010

 1,543,500

 

$.08 to $.81

7.60 years

$.17

 

Options granted

 

 -   

 

 

 

 

 

 

 

Options exercised

 

 -   

 

 

 

 

 

 

 

Options expired

 

 16,500   

 

  $.42 to $.81

-

 

$.44

Balance at October 31, 2011

 1,527,000

 

$.08 to $.45

5.66 years

$.17

 

Options granted

 

 -   

 

 

 

 

 

 

 

Options exercised

 

 -   

 

 

 

 

 

 

 

Options expired

 

 27,000

 

$.12 to $.31

 -   

 

$.13

Balance at October 31, 2012

 1,500,000

 

$0.08 to $0.19

4.75 years

$.17

Exercisable at October 31, 2011

 327,000

 

$.08 to $.31

4.72 years

$.12

Exercisable at October 31, 2012

 300,000

 

$.08 to $.19

4.10 years

$.12


XML 36 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE E: CAPITAL LEASE OBLIGATIONS
12 Months Ended
Oct. 31, 2012
Debt and Capital Leases Disclosures [Text Block]

NOTE E: CAPITAL LEASE OBLIGATIONS


In July 2007, the Company entered into a capital lease agreement to acquire laboratory equipment.  The Company was obligated to make 3 monthly payments of $25 and monthly payments of $382 through August 2012.


In June 2008, the Company entered into a capital lease agreement, also for the acquisition of laboratory equipment.  The Company was obligated to make monthly payments of $830 through May 2012.


In July 2009, the Company entered into a capital lease agreement, also for the acquisition of laboratory equipment.  The Company was obligated to make monthly payments of $570 through June 2011.


As of October 31, 2012, all the Company’s capital lease obligations had been fully paid.


XML 37 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE A: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail) - The Company’s patents consisted of the following at October 31, 2012: (USD $)
12 Months Ended
Oct. 31, 2012
Oct. 31, 2011
Generation and differentiation of adult stem cell lines $ 31,385  
Less accumulated amortization 10,018 7,664
$ 20,583  
XML 38 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE F: SHAREHOLDERS' DEFICIT (Tables)
12 Months Ended
Oct. 31, 2012
Schedule of Assumptions Used [Table Text Block]

Expected volatility

 

142%

Contractual term

 

1 year

Risk free interest rate

 

0.47%

Expected dividend rate

 

0%

 

 

 

Fair Value, Measurement Inputs, Disclosure [Table Text Block]

Risk-free interest rate

3.68%

Dividend yield

0.00%

Volatility factor

228.72%

Weighted average expected life

6.5 years

Schedule of Share-based Compensation, Stock Options and Stock Appreciation Rights Award Activity [Table Text Block]

 

 

 

 Number of Shares

Exercise Price Per Share

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price Per Share

Balance at October 31, 2010

 1,543,500

 

$.08 to $.81

7.60 years

$.17

 

Options granted

 

 -   

 

 

 

 

 

 

 

Options exercised

 

 -   

 

 

 

 

 

 

 

Options expired

 

 16,500   

 

  $.42 to $.81

-

 

$.44

Balance at October 31, 2011

 1,527,000

 

$.08 to $.45

5.66 years

$.17

 

Options granted

 

 -   

 

 

 

 

 

 

 

Options exercised

 

 -   

 

 

 

 

 

 

 

Options expired

 

 27,000

 

$.12 to $.31

 -   

 

$.13

Balance at October 31, 2012

 1,500,000

 

$0.08 to $0.19

4.75 years

$.17

Exercisable at October 31, 2011

 327,000

 

$.08 to $.31

4.72 years

$.12

Exercisable at October 31, 2012

 300,000

 

$.08 to $.19

4.10 years

$.12

XML 39 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE I: PATENT LICENSE AGREEMENT
12 Months Ended
Oct. 31, 2012
Goodwill and Intangible Assets Disclosure [Text Block]

NOTE I: 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 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 October 31, 2012, no sales have been made under this agreement.


XML 40 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE G: CONSULTING AGREEMENTS
12 Months Ended
Oct. 31, 2012
Commitments and Contingencies Disclosure [Text Block]

NOTE G: 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 has 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 will be entitled to additional compensation for completion of Phases II & III of approximately $12,000 payable in cash or a combination of cash and common stock to be determined by the Company upon completion.  For the year ended October 31, 2012 a total of $18,800 was charged to operations consisting of cash payments totaling $14,000 and the common stock issued.


On May 13, 2011 the Company entered into a consulting agreement with a former member of the Company’s Scientific Advisory Board.  The agreement provides for the consultant’s assistance in molecular biology and related areas needed for commercialization of the Company’s stem cell product lines, as requested by management, at a compensation rate of $50 per hour.  For the year ended October 31, 2011, the consultant had billed the Company a total of $500 in connection with this agreement.  No amounts have been billed by the consultant for the year ended October 31, 2012.


On June 3, 2009 the Company entered into a business development consulting agreement with Seraphim Life Sciences Consulting LLC, to provide services primarily designed to identify and bring to Vitro potential industrial partners that could benefit from Vitro’s technologies.  The agreement entitles the consultant to performance based compensation in the amount of 8% of all consideration received by the Company resulting from the consultant’s services.  The agreement also provides for compensation at hourly rates for services not considered project specific as may be requested by Vitro.  Either party may terminate the agreement at any time with thirty days written notice.  As of October 31, 2012 no services have been performed and no compensation has been paid under the agreement.


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 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.


XML 41 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE H: JOINT PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION AGREEMENTS
12 Months Ended
Oct. 31, 2012
Product Liability Contingency, Uncertainties from Joint and Several Liability

NOTE H: JOINT PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION AGREEMENTS


On May 29, 2010 the Company executed an Agreement with Mokshagundam Biotechnologies for the development of a medium formulation for growth of marine invertebrates as a potential food source.  Initially, a basal medium formulation consisting of macro nutritional substances is to be developed and this will be supplemented with growth factors commonly used in stem cell media formulations.  The Agreement provides for the Company to provide a pilot batch of medium for testing consisting of macro-nutritional support plus a mixture of common growth factors necessary for in-vitro support of self-renewal in stem cells of higher organisms.  This medium was delivered to Mokshagundam during fiscal year 2010.  The Agreement provided for a payment of $5,000 to the Company upon execution of the Agreement as an advance for the product development, and was received during the third quarter of fiscal year ended October 31, 2010. This agreement is presently inactive.


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


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


XML 42 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE J: SUBSEQUENT EVENTS
12 Months Ended
Oct. 31, 2012
Subsequent Events [Text Block]

NOTE J: SUBSEQUENT EVENTS


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


XML 43 R34.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE G: CONSULTING AGREEMENTS (Detail) (USD $)
0 Months Ended 12 Months Ended
Mar. 27, 2008
Oct. 31, 2012
Jul. 31, 2012
Feb. 07, 2012
Oct. 31, 2011
Jun. 03, 2009
ConsultingFees   $ 18,800   $ 5,000 $ 500  
SharesIssuedForConsultingFee (in Shares)       120,000    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value       4,800    
AccruedConsultingFeesPayable       12,000    
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Total Fair Value   14,000        
ConsultingFeeHourlyRate   50       50
ConsultingFeePercentage           8.00%
ConsultingFeeHourlyCap           240
Recorded Unconditional Purchase Obligation Due within One Year   100,000        
Common stock issued for consulting services, Shares (in Shares) 100,000          
Payments for Advance to Affiliate $ 100,000          
Long-term Purchase Commitment, Specified Form of Payment 100,000          
GrossSalesCommissionPercentage     15.00%      
XML 44 R21.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE A: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail) - Inventories, consisting of raw materials and finished goods (USD $)
Oct. 31, 2012
Oct. 31, 2011
Raw materials $ 12,074 $ 9,320
Finished goods 9,800 5,600
$ 26,678 $ 17,173
XML 45 R26.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE C: INCOME TAXES (Detail) - A reconciliation of the U.S. statutory federal income tax rate to the effective rate is as follows f
12 Months Ended
Oct. 31, 2012
Oct. 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%
XML 46 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
Vitro Diagnostics, Inc. - Statement of Changes in Shareholders' Deficit (USD $)
Preferred Stock [Member]
USD ($)
Common Stock [Member]
ParValue
USD ($)
Additional Paid-in Capital [Member]
USD ($)
Services Prepaid with Common Stock
USD ($)
Retained Earnings, Appropriated [Member]
USD ($)
Total
USD ($)
Balance, (in Shares) at Oct. 31, 2010             1,543,500
Prepaid services earned (Note F)       $ 14,601   $ 14,601  
Common stock issued to director for future services (Note F) (in Shares) 99,010 99,000,000 9,901 (10,000)      
Common stock issued to director for future services (Note F) (in Shares) 99,010 99,000,000 9,901 (10,000)      
Vesting of officer stock options (Note F)     18,900     18,900  
Common stock issued to SAB member for future services (Note F) 50,000   4,950 (5,000)      
Common stock issued to SAB member for future services (Note F) (in Shares)   50,000,000         327,000
Net Loss         (14,022) (14,022) (14,022)
Balance, at Oct. 31, 2011 18,528,995   5,346,604 (3,958) (6,927,436) (1,566,261) (1,566,261)
Balance, (in Shares) at Oct. 31, 2011   18,529,000,000         1,527,000
Prepaid services earned (Note F)       12,500   12,500  
Common stock issued to director for future services (Note F) (in Shares) 222,222 222,000,000 9,778 (10,000)      
Common stock issued to director for future services (Note F) (in Shares) 222,222 222,000,000 9,778 (10,000)      
Common stock issued for consulting services (Note G) 120,000   4,680     4,800 4,800
Common stock issued for consulting services (Note G) (in Shares)   120,000,000          
Conversion of accounts payable (Note F) 437,695   21,447     21,885  
Conversion of accounts payable (Note F) (in Shares)   438,000,000          
Common stock issued to SAB member for future services (Note F) (in Shares)             300,000
Net Loss         (227,657) (227,657) (227,657)
Balance, at Oct. 31, 2012 $ 19,308,912   $ 5,382,509 $ (1,458) $ (7,155,093) $ (1,754,733) $ (1,754,733)
Balance, (in Shares) at Oct. 31, 2012   19,309,000,000          
XML 47 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE D: LINES OF CREDIT
12 Months Ended
Oct. 31, 2012
Debt Disclosure [Text Block]

NOTE D: LINES OF CREDIT


The Company has a $12,500 line of credit of which $534 was unused at October 31, 2012.  The interest rate on the credit line was 21.90% at October 31, 2012.  The credit line is collateralized by the Company’s checking account.  Principal and interest payments are due monthly.


At October 31, 2012 the Company also had three credit cards with a combined credit limit of $26,700, of which $1,575 was unused.  The interest rates on the credit cards range from 10.24% to 29.4%, with a weighted average rate of 25.93% at October 31, 2012.  All other credit cards previously used by the Company have been paid off and closed.


XML 48 R27.htm IDEA: XBRL DOCUMENT v2.4.0.6
NOTE C: INCOME TAXES (Detail) - The primary components of temporary differences that give rise to the Company’s net deferred tax ass (USD $)
Oct. 31, 2012
Oct. 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
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NOTE A: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail) (USD $)
10 Months Ended 12 Months Ended 36 Months Ended 60 Months Ended
Oct. 31, 2017
Oct. 31, 2016
Oct. 31, 2015
Oct. 31, 2014
Oct. 31, 2013
Oct. 31, 2012
Oct. 31, 2011
Oct. 31, 2015
Oct. 31, 2017
Proceeds from Related Party Debt           $ 323,300      
Inventory, Finished Goods           9,800 5,600    
Shipping, Handling and Transportation Costs           3,815 1,937    
Cost of Other Manufactured Products           1,521 1,310    
Property, Plant and Equipment, Useful Life, Minimum               3  
Property, Plant and Equipment, Useful Life, Maximum                 7
Depreciation           16,948 17,473    
Amortization of Intangible Assets 3,139 3,139 3,139 3,139 3,139 3,139      
DeferredPatentCosts           8,000 5,595    
Finite-Lived Patents, Gross           1,471 0    
Asset Impairment Charges             135    
ConcentrationOfRevenuePercentage           61.00%      
Advertising Expense           $ 6,871 $ 6,557    
Common stock issued to SAB member for future services, Shares (in Shares)           300,000 327,000