FORM 10-QSB

0001294606-13-000159.txt : 20130618 0001294606-13-000159.hdr.sgml : 20130618 20130618172948 ACCESSION NUMBER: 0001294606-13-000159 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20130430 FILED AS OF DATE: 20130618 DATE AS OF CHANGE: 20130618 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17378 FILM NUMBER: 13920329 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-Q 1 f10q0413v8.htm VITRO DIAGNOSTICS, INC. - QUARTERLY REPORT FOR THE PERIOD ENDED APRIL 30, 2013 FORM 10-QSB

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

FORM 10-Q

[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2013

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

For the transition period from to

Commission file number 1-17378

VITRO DIAGNOSTICS, INC.

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


Nevada	84-1012042
(State or other jurisdiction	I.R.S. Employer
of incorporation or organization)	Identification number

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

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

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

Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ] No [ ]

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

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

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

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

As of June 11, 2013, the Registrant had 19,803,403 shares of its Common Stock outstanding.

PART 1. FINANCIAL INFORMATION

Item 1.

Financial Statements

The financial statements included herein have been prepared by Vitro Diagnostics, Inc. (the Company), pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such SEC rules and regulations. In the opinion of management of the Company the accompanying statements contain all adjustments necessary to present fairly the financial position of the Company as of April 30, 2013 and October 31, 2012, and its results of operations for the three and six month periods ended April 30, 2013 and 2012, its statement of changes of shareholders’ deficit for the period November 1, 2011 through April 30, 2013, and its cash flows for the six month periods ended April 30, 2013 and 2012. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto filed as a part of the Company's annual report on Form 10-K.


VITRO DIAGNOSTICS, INC. Balance Sheets
		April 30, 2013	October 31, 2012
		(unaudited)
Assets
Current assets:
	Cash	$ 482	$ 5,286
	Accounts receivable	1,138	4,688
	Inventory, at cost	26,868	26,678
	Total current assets	28,488	36,652

Equipment, net of accumulated depreciation of $102,312 and $94,991		15,544	17,026
Patents, net of accumulated amortization of $12,401 and $10,802 (Note A)		19,574	20,583
Deferred costs (Note A)		10,291	9,471
Other assets		1,449	1,449
	Total assets	$ 75,346	$ 85,181
Liabilities and Shareholders' Deficit
Current liabilities:
	Lines of credit (Note D)	$ 37,482	$ 37,091
	Accounts payable	52,586	38,024
	Accounts payable - related parties (Note B)	16,867	30,533
	Advances and accrued interest payable to officer (Note B)	632,694	544,058
	Accrued payroll expenses (Note B)	1,196,508	1,190,208
	Total liabilities	1,936,137	1,839,914
Commitments and contingencies (Notes A, B, C, D, E, F, G, and H)
Shareholders' deficit (Note E):
Preferred stock, $.001 par value; 5,000,000 shares authorized; -0- shares issued and outstanding		-	-
		-	-
Common stock, $.001 par value; 50,000,000 shares authorized; 19,553,403 and 19,308,912 shares issued and outstanding		19,553	19,309
		19,553	19,309
	Additional paid-in capital	5,398,265	5,382,509
	Services prepaid with common stock	(5,208)	(1,458)
	Accumulated deficit	(7,273,401)	(7,155,093)
	Total shareholders' deficit	(1,860,791)	(1,754,733)

	Total liabilities and shareholders' deficit	$ 75,346	$ 85,181

See accompanying notes to these unaudited financial statements


VITRO DIAGNOSTICS, INC. Statements of Operations (unaudited)
			For the Three Months Ended
			April 30,
			2013	2012
Product sales			$ 5,364	$ 3,587
	Cost of goods sold		(3,440)	(1,933)
		Gross profit	1,924	1,654

Operating costs and expenses:
	Research and development		42,562	42,695
	Selling, general and administrative		24,198	22,278
		Total operating costs and expenses	66,760	64,973
		Loss from operations	(64,836)	(63,319)

Other income (expense):
	Interest expense		(14,762)	(11,951)
	Fair value of stock purchase warrants			-
	License fee income			-
	Forgiveness of debt		-	-

		Income (loss) before income taxes	(79,598)	(75,270)

Provision for income taxes (Note C)			-	-

		Net income (loss)	$ (79,598)	$ (75,270)

Net loss per common share, basic and diluted			$ (0.00)	$ (0.00)

Shares used in computing net loss per common share:
	Basic and diluted		19,514,882	18,871,217

See accompanying notes to these unaudited financial statements


VITRO DIAGNOSTICS, INC. Statements of Operations (unaudited)
			For the Six Months Ended
			April 30,
			2013	2012
Product sales			$ 20,142	$ 7,769
	Cost of goods sold		(7,258)	(4,137)
		Gross profit	12,884	3,632

Operating costs and expenses:
	Research and development		69,705	72,278
	Selling, general and administrative		32,910	46,493
		Total operating costs and expenses	102,615	118,771
		Loss from operations	(89,731)	(115,139)

Other income (expense):
	Interest expense		(28,577)	(22,557)
	Fair value of stock purchase warrants			-
	License fee income			-
	Forgiveness of debt		-	-

		Income (loss) before income taxes	(118,308)	(137,696)

Provision for income taxes (Note C)			-	-

		Net income (loss)	$ (118,308)	$ (137,696)

Net loss per common share, basic and diluted			$ (0.01)	$ (0.01)

Shares used in computing net loss per common share:
	Basic and diluted		19,409,609	18,699,161

See accompanying notes to these unaudited financial statements


VITRO DIAGNOSTICS, INC.
Statement of Changes in Shareholders' Deficit


						Services
					Additional	Prepaid with
	Preferred Stock		Common Stock		Paid-in	Common	Accumulated
	Shares	Amount	Shares	Par Value	Capital	Stock	Deficit	Total
Balance, October 31, 2011	-	$ -	18,528,995	$18,529	$5,346,604	$ (3,958)	$ (6,927,436)	$ (1,566,261)
Prepaid services earned (Note E)	-	-	-	-	-	12,500	-	12,500
Common stock issued to director for future services (Note E)	-	-	222,222	222	9,778	(10,000)	-	-
Common stock issued for consulting services (Note E)	-	-	120,000	120	4,680	-	-	4,800
Conversion of accounts payable (Note E)	-	-	437,695	438	21,447	-	-	21,885
Net loss for the year October 31, 2012	-	-	-	-	-	-	(227,657)	(227,657)
Balance, October 31, 2012	-	-	19,308,912	$ 19,309	$5,382,509	$ (1,458)	$ (7,155,093)	$ (1,754,733)
Prepaid services earned (Note E)	-	-	-	-	-	6,250	-	6,250
Common stock issued to director for future services (Note E)	-	-	169,491	169	9,831	(10,000)	-	-
Common stock issued for consulting services (Note F)	-	-	75,000	75	5,925	-	-	6,000
Net loss for the six months ended April 30, 2013	-	-	-	-	-	-	(118,308)	(118,308)
Balance, April 30, 2013 (unaudited)	-	-	19,553,403	$ 19,553	$5,398,625	$ (5,208)	$ (7,273,401)	$ (1,860,791)

See accompanying notes to these unaudited financial statements


VITRO DIAGNOSTICS, INC.
Statements of Cash Flows
(unaudited)
		For The Six Months Ended
		April 30,
		2013	2012
Cash Flows from operating activities:
	Net loss	$ (118,308)	$ (137,696)
Adjustments to reconcile net loss to net cash used in operating activities:

	Depreciation and amortization	8,920	10,434
	Stock-based compensation	6,250	6,250
	Common stock issued for consulting services	6,000	4,800
	Changes in current assets and current liabilities:
Decrease (increase) in accounts receivable, inventories, prepaid expenses and deposits		3,360	(1,643)
		3,360	(1,643)
	Increase in accounts payable and accrued expenses	32,300	24,586
Net cash used in operating activities		(61,478)	(93,269)

Cash flows from investing activities:
	Purchases of equipment	(5,839)	(1,295)
	Payments for patents and deferred costs	(1,410)	-
Net cash used in investing activities		(7,249)	(1,295)

Cash flows from financing activities:
	Proceeds from advances from officer	63,532	98,000
	(Payments) draws on lines of credit, net	391	1,313
	Principal payments on capital lease	-	(6,674)
Net cash provided by financing activities		63,923	92,639

	Net change in cash	(4,804)	(1,925)
Cash, beginning of year		5,286	3,023
	Cash, end of period	$ 482	$ 1,098

Supplemental disclosure of cash flow information:
	Cash paid during the year for:
	Interest	$ 3,473	$ 4,218
	Income taxes	$ -	$ -
	Non-cash investing and financing activities:
	Common stock issued to directors for services	$ 10,000	$ 10,000
	Common stock issued for consulting services	$ 6,000	$ 4,800

See accompanying notes to these unaudited financial statements

VITRO DIAGNOSTICS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

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

Nature of Organization

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

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

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

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

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 April 30, 2013, that raise substantial doubt about its ability to continue as a going concern. In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financial requirements, raise additional capital, and generate revenues and profits from operations.

The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has financed its operations primarily through cash advances from the Company’s president, as well as through various private placements of equity securities. Since the year ended October 31, 2011, the president has advanced the Company a total of $207,332 for working capital on an “as needed” basis, including $63,532 during the six months ended April 30, 2013. There is no assurance that these advances will continue in the future.

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

Summary of Significant Accounting Policies

Use of estimates

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

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 April 30, 2013 and October 31, 2012, no allowances were recorded and all amounts due from customers were considered collectible.

Inventory

Inventories, consisting of raw materials and finished goods, are stated at the lower of cost (using the specific identification method) or market. Finished goods inventories include certain allocations of labor and overhead. At April 30, 2013 and October 31, 2012, finished goods included approximately $8,800 and $9,800 of labor and overhead allocations, respectively. Inventories consisted of the following:


	April 30, 2013	October 31, 2012
Raw materials	$ 12,458	$ 12,074
Finished goods	14,410	14,604
	$ 26,868	$ 26,678

Shipping and freight costs

All freight costs associated with the receiving of goods and materials are expensed during the period in which it is received. For the six months ended April 30, 2013 and 2012, $1,507 and $1,817 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 six months ended April 30, 2013 and 2012, $524 and $548, respectively, 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 $7,321 and $8,865 for the six months ended April 30, 2013 and 2012, respectively.

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

Patents, deferred costs and amortization

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

The Company amortizes patents over a period of ten years. Amortization expense totaled $1,599 and $1,569 for the six months ended April 30, 2013 and 2012, respectively. Estimated future amortization expense for each of the next five fiscal years is as follows:


Year ended October 31,
2013	$	1,599
2014		3,198
2015		3,198
2016		3,198
2017		3,198
Thereafter		5,183
	$	19,574

At April 30, 2013 the Company had one patent as follows:


Generation and differentiation of adult stem cell lines	$	31,975
This patent is for a proprietary stem cell line with potential application to treatment of diabetes in both animals and humans.
Less accumulated amortization		(12,401)
	$	19,574

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 $8,742 and $8,000 at April 30, 2013 and October 31, 2012, respectively, and are included as deferred patent costs in the accompanying balance sheets.

The Company has also incurred costs relating to the filing of a new United States patent application entitled “Methods to Culture Mesenchymal Stem Cells and Related Materials” and the development of new technology related to this patent application. These costs totaled $1,549 and $1,471 at April 30, 2013 and October 31, 2012, respectively, and are included as deferred patent costs in the accompanying balance sheets.

Impairment and Disposal of Long-Lived Assets

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

The Company periodically reviews the carrying amount of it long-lived assets for possible impairment. The Company recorded no asset impairment charges during either of the six months ended April 30, 2013 or 2012. A contingency exists with respect to these matters, the ultimate resolution of which cannot presently be determined.

Income taxes

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

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 six months ended April 30, 2013, 70% of the Company’s sales were made to customers of a company controlled by a director who was elected to the Company’s Board of Directors on February 20, 2013. Of the remaining 30% representing non-related party sales, no significant concentrations existed. For the six months ended April 30, 2012, 68% 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 $1,026 and $3,077 for the six months ended April 30, 2013 and 2012, respectively.

Consulting Expenses

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

Fair value of financial instruments

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

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and cash equivalents, and trade accounts receivable. As of April 30, 2013 and October 31, 2012, the Company had no amounts of cash or cash equivalents in financial institutions in excess of amounts insured by agencies of the U.S. Government.

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 six months ended April 30, 2013, common stock equivalents of 300,000 representing outstanding options, were not included in the diluted per share calculation as all potentially dilutive securities were anti-dilutive due to the net loss in the period. For the three months ended April 30, 2012, common stock equivalents of 322,500 representing outstanding options, were not included in the diluted per share calculation as all potentially dilutive securities were anti-dilutive due to the net loss in the period.

Stock-based compensation

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

Recent accounting standards

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

NOTE B: RELATED PARTY TRANSACTIONS

Advances and accrued interest payable to officer

Through April 30, 2013, the Company’s President had advanced the Company a total of $526,514 used for working capital including $63,532 during the six months ended April 30, 2013. The advances are uncollateralized, due on demand and accrue interest on the unpaid principal at a rate of 10% per annum. Accrued interest payable on the advances totaled $106,180 and $81,076 at April 30, 2013 and October 31, 2012, respectively. The total advances plus accrued interest totaling $632,694 and $544,058 at April 30, 2013 and October 31, 2012, respectively, are included as “Advances and accrued interest payable to officer” in the accompanying financial statements.

Employment agreements and accrued compensation

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

annual base salary of $12,000 per year, effective February 1, 2011 and continuing for three years. The Agreement also provides for incentive compensation based on the achievement of minimum annual product sales and an option to purchase one million shares of the Company’s common stock that includes contingent vesting requirements. The employment agreement includes changes in control accelerating vesting for exercise of underlying stock options and also includes severance provisions. As of April 30, 2013, 100,000 of these common stock options were vested, and are exercisable at $.19 per share and expire in July 2018. These options are further discussed in Note E under the “Stock options granted to officer” caption.

The Company has accrued the salaries of its President due to a lack of working capital. Total accrued salaries and payroll taxes were $1,196,508 and $1,190,208 at April 30, 2013 and October 31, 2012. His accrued salaries totaled $1,149,422 and $1,143,422 as of April 30, 2013 and October 31, 2012, respectively. His salary is allocated as follows: 70% to research and development and 30% to administration.

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

Total accrued payroll taxes on the above salaries totaled $46,253 and $45,953 at April 30, 2013 and October 31, 2012, respectively.

Office lease

On July 1, 2008, the Company entered into a five-year non-cancelable operating lease for a facility located in Golden, Colorado, which 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 $3,730.

The total rental expense was $12,984 and $13,372 for the six months ended April 30, 2013 and 2012, respectively. At April 30, 2013 and October 31, 2012, $13,372 and $26,902 were unpaid and are included in accounts payable related parties in the accompanying balance sheets.

Other

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

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.

NOTE D: LINES OF CREDIT

The Company has a $12,500 line of credit of which $195 was unused at April 30, 2013. The interest rate on the credit line was 21.90% at April 30, 2013. The credit line is collateralized by the Company’s checking account. Principal and interest payments are due monthly.

At April 30, 2013 the Company also had three credit cards with a combined credit limit of $26,700, of which $1,522 was unused. The interest rates on the credit cards range from 10.24% to 29.4%, with a weighted average rate of 15.39% at April 30, 2013. All other credit cards previously used by the Company have been paid off and closed.

NOTE E: SHAREHOLDERS’ DEFICIT

Preferred Stock

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

Stock options granted to officer

On May 1, 2008, the Company granted a non-qualified stock option to its President to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.19 per share, and expire in 2018. On the grant date, the traded market value of the stock was $0.19 per share. The options vest upon the achievement of certain contingencies. As a result of the patent license agreements in March 2011, a contingency was met resulting in the vesting of 100,000 of these options. None of the other contingencies have been met as of April 30, 2013, and as of that date $170,100 of unamortized stock compensation expense remains for the unvested portion of these options. The weighted average exercise price and weighted average fair value of these options on the grant date were $0.19 and $0.189, 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

Common Stock Issued for Services

On February 21, 2013, the Company’s Board of Directors ratified the issuance of 169,491 shares of the Company’s common stock to Mr. Pete Shuster, Director, as compensation for services for fiscal year ending October 31, 2013. The transaction was valued at $10,000 or $0.059 per share, which was the weighted average closing price of the Company’s common stock for the last twenty days preceding the date of the transaction. A total of $5,000 of stock compensation expenses has been charged to operations for the six months ended April 30, 2013, and is reflected in “services prepaid with common stock” in the accompanying balance sheet.

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 April 30, 2013 a total of 543,500 options had been issued under the Plan, of which 43,500 have expired. The 200,000 options outstanding and vested under the Plan have a weighted average exercise price of $0.08 per share, and a weighted average remaining contractual life of 2.78 years at April 30, 2013. Three hundred thousand (300,000) outstanding options not yet vested have an exercise price of $0.17 per share, and expire in April 2015. For the six months ended April 30, 2013 and 2012, 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, 2011		1,527,000	$0.08 to $0.45	5.66 years	$0.17
	Options granted	-
	Options exercised	-
	Options expired	27,000	$0.12 to $0.31	-	$0.13
Balance at October 31, 2012		1,500,000	$0.08 to $0.19	4.75 years	$0.17
	Options granted	-
	Options exercised	-
	Options expired	-
Balance at April 30, 2013		1,500,000	$0.08 to $0.19	4.25 years	$0.17
Exercisable at October 31, 2012		300,000	$0.08 to $0.19	4.10 years	$0.12
Exercisable at April 30, 2013		300,000	$0.08 to $0.19	3.61 years	$0.12

NOTE F: CONSULTING AGREEMENTS

On February 7, 2012, the Company’s board of directors ratified the terms of a consulting agreement dated January 24, 2012 with a marketing firm to provide certain public and investor relations services. The agreement 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 was entitled to additional compensation for completion of Phases II & III. During the six months ended April 30, 2013 it was determined that all phases of the project were complete, and as such the Company issued the consultant 75,000 shares of the Company’s common stock, valued at $6,000. For the six months ended April 30, 2012 a total of $15,800 was charged to operations consisting of cash payments totaling $11,000 and the common stock issued for completion of Phases I and II.

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 April 30, 2013 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:

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

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

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

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

NOTE G: JOINT PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION AGREEMENTS

On 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.

NOTE H: PATENT LICENSE AGREEMENT

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

The licensee was previously an executive officer of the Company, and the Company had carried a $200,833 liability for unpaid compensation. The terms of the license agreement required payment of

a non-refundable license fee of $10,000, which was paid by a reduction of the unpaid compensation liability. In addition, the license agreement also required the licensee to forgive an additional $190,000 of the unpaid compensation liability. In addition to the license fee and the forgiveness of the unpaid compensation liability, there shall be royalty payments of 3% and 4% of the gross sales of all licensed products sold by or on behalf of Licensee during the first and second years, respectively. Such royalty payment shall be 4.5% of the gross sales of all licensed products during the third year of product sales and shall remain at that level throughout the remaining term of the agreement. As of April 30, 2013, no sales have been made under this agreement.

NOTE I: SUBSEQUENT EVENTS

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

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

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Introduction

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

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

Liquidity and Capital Resources

At April 30, 2013, the Company had a working capital deficit of $1,907,649, consisting of current assets of $28,488 and current liabilities of $1,936,137. This represents a decrease in working capital of $104,387 from fiscal year end October 31, 2012. The decrease in working capital was mainly due to $96,223 in increased current liabilities due to operating expenses in excess of revenue from product sales.

Current assets decreased by $8,164 and current liabilities increased by $96,223 due to decreased cash & accounts receivable, while liabilities increased due to operating expenses in excess of revenues. The Company reported a $1,860,791 deficit in shareholders’ equity at April 30, 2013, which was $106,058 more than the deficit reported at October 31, 2012. The majority of the working capital deficit is due to accrued salaries and notes due to the president and CEO.

During the six months ended April 30, 2013, the Company’s financing activities provided $63,923 in cash to support our operating activities. During that time, the Company’s operations used $61,478 in

cash compared to $93,269 of cash used by operations during the six months ended April 30, 2012. The Company reported an overall decrease in cash for the first six months of 2013 of $4,804 that was $2,879 more than the decease in cash for the first six months of 2012. The decrease in cash usage during the first half of 2013 was primarily due to increased revenue from product sales resulting in a decrease in net loss. Cash raised from financing activities was derived through loans from the Company’s president and CEO. Cash usage reflects a minimum cash requirement of about $10,250 per month for operations.

The Company had lines of credit outstanding totaling $37,482 with $1,717 available in credit at April 30, 2013. The Company must continue to service this debt and the president and CEO personally guarantees most of the Company debt. Management is actively pursuing measures to reduce corporate debt while at the same time implementing various measures to increase revenues, as described elsewhere in this report.

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

Results of Operations

During the three months ended April 30, 2013, the Company realized a net loss of $79,598 or $0.00 per share on $5,364 in product revenue. The net loss was $4,328 more than the net loss for the three months ended April 30, 2012. The increase in net loss in the second quarter of 2013 compared to the same quarter in 2012 was primarily due to increased operating expenses. Total operating expenses were $1,967 more in the second quarter 2013 than the comparable period in 2012. Research and

development expenses decreased by $133 and selling, general and administrative expenses increased by $1,920.

During the six months ended April 30, 2013, the Company realized net loss of ($118,308) or $0.01 per share on $20,142 in revenue. The net loss in the first half of 2013 was $19,388 less than the loss reported during the six-month period ended April 30, 2012. The decrease in net loss was due to primarily to $16,156 in decreased expenses in 2013 compared to the first half of 2012.

Current activities of the Company have shifted to manufacturing and sales of its stem cell based product line, while R&D efforts are directed towards development of new products to add to the commercial products presently available. During the first half of 2013, the Company added several new products, especially differentiated cells derived from stem cells. These products 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 than those presently offered by the Company. 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 drug discovery and 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. During the first quarter of 2013, we engaged in pre-clinical testing of our MSCs intended for clinical applications. Our intellectual property related to generation of these cell lines is the subject of a pending USPTO patent application.

Research and development expenses (R&D) were $69,705 during the first half of 2013, which was a decrease of $2,573 over the comparable period in 2012. While the R&D necessary for launch of its initial products is complete, the Company continues enhancement and improvement of its existing products together with the development of new products to add to its product line. Our strategy for growth of revenues includes both increased market penetration together with expanding product offerings targeting additional markets within the stem cell industry. Key expansion areas in 2013 are products for use in drug, discovery and development, especially stem cell-derived cellular systems, assays and media as well as therapeutic products targeting select markets in veterinary medicine.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures:

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

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

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

Changes in Internal Control over Financial Reporting:

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

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings