Edgar Filing: VITRO DIAGNOSTICS INC

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, 2009

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 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: $6,103.

The aggregate market value of the 12,187,215 shares of voting stock held by non-affiliates of the Company at January 18, 2010, calculated by taking the last sales price of the Company's common stock of $0.30 on January 25, 2010 was $3,656,165.

The number of shares outstanding of the issuer’s common equity as of January 18, 2010 was 17,800,334.

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.

Our common stock is currently traded over the counter and quoted on the OTC Bulletin Board 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 recently launched its initial product line and we are implementing our early stage marketing program. Our financial projections show some additional operating loses prior to turnaround to profitability within the near future.

The predominant focus of operations during the fiscal year ended October 31, 2009, which we refer to in this report as 2009, was to continue and expand prior research involving the establishment and characterization of stem cell lines. These efforts resulted in the commercial launch 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.

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 revolution 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 while at the same time developing specific proprietary technology with application to treatment of diabetes and cancer.

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 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 plurapotent stem cells (iPS) may obviate the need for embryonic stem cells in the future and also eliminate the ethical controversy surrounding use of embryonic stem cells.

During 2009, Vitro introduced into commercial distribution specialized products to support stem cell research and drug development. 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 adult stem cells called mesenchymal stem cells that were derived from human umbilical cord blood. We also provide fluorescent labeled stem cells for various applications in stem cell and cancer 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 of living human cells; each type of cell requires specific components within the media to optimize its growth.) We offer three different kinds of media which provides researchers with various options designed to

support multiple research avenues. One of our stem cell culture medium products is 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. Scientists can provide stem cell therapies through targeted R&D, clinical trials and regulatory studies that may eventually lead to market approval. Vitro now provides needed stem cell and drug development tools to the medical research community. Vitro’s new development tools provide vital components to advance all stem cell research and drug development. 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.

Gaining additional knowledge and understanding of stem cell properties including growth without differentiation (self-renewal), differentiation capacity and steps necessary to induce differentiation will require the tools now being provided by Vitro. Stimulus package funding and lifting of governmental restrictions on embryonic stem cell research has created tremendous opportunity in the stem cell field within the United States. After years of regulatory obstacles, the US can now flex its scientific muscle to compete with research presently active in several other countries currently exploring the wide-ranging therapeutic benefit of stem cell technology. Vitro’s new products can enhance all of this research.

Drug discovery and development will benefit from stem cell technology advances that provide specific human stem cell-derived systems such as cardiac muscle. These new cellular systems will provide more accurate and definitive preclinical toxicity and discovery programs aimed at decreasing drug development costs and increasing reliability of toxicity testing through early detection of potential safety issues.

The recently developed technique of reprogramming adult cells into induced pluripotent stem cells (iPS) should provide the benefits of embryonic stem cells without the sacrifice of embryos. Current methods of iPS generation utilize genetic engineering with foreign DNA sequences to convert certain adult cells to iPS cells, thus adding considerable safety risks. Vitro’s new well-defined human stem cell tools are intended to facilitate a less invasive break-through iPS generation method that will not use foreign DNA, thus eliminating a major safety risk of the current methodology.

We intend to engage in the continuous development of a broad-based stem cell product and technology portfolio. Substantial product expansion and development is planned while at the same time targeting unique therapeutic applications for the Company’s patented technology, especially in the treatment of cancer and diabetes. Our growth strategy may include acquisition of complementary technology and products. We are presently aware of such acquisition targets and these include companies with complimentary product lines to those presently in development by the Company. Also, we see potential for banking of an individual’s personal cells through appropriate cryogenic storage and monitoring technology, e.g., umbilical cord blood derived at birth, etc coupled with developments of processing technology to render such stem cells therapeutic in numerous ways throughout the lifetime of the donating patient. Hence the Company is seeking suitable acquisition targets of cell banking facilities that could expand into franchise operations for global distribution. Such developments could result in a revolution in medicine whereby banked cells can be used for personalized treatment of previously untreated or under treated disorders such as cancer,

cardiovascular disease and stroke, diabetes, Alzheimer’s disease and spinal cord injury and any other disorder characterized by cell death or degradation.

During the two fiscal years ended October 31, 2009 and 2008, the Company incurred $169,538 and $247,276, respectively, for research and development.

Marketing and Distribution. Capture of 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. Vitro has assembled a specialized team of marketing experts to accelerate distribution of the Company’s products within its targeted markets. The Company has an existing consulting contract with a pharmaceutical toxicologist who is familiar with marketing of these specialty medical products. Also, there are other marketing groups that provide professional marketing assistance to the Company, including a group of individuals who assist in direct sales to university researchers located in the Colorado Front Range region. During the first quarter of 2010, the Company entered into a contract with an internet marketing specialist to gain increase internet exposure to the Company and its products. Also, we have attended trade shows, and have sponsored a Keystone symposium on stem cells in February 2010 where company scientists will also present research results concerning development of a novel stem cell line. The Company is also in contact with other firms who now provide related cell culture products and these relations may lead to accelerated sales of the Company’s products.

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 for the past 35 years. The worldwide market for FSH and related products is approximately $1.3 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 from product sales in the near term. There was no new development of the Company's technology related to fertility drugs in 2009. 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.

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. FSH has been used for over 40 years as a drug to treat infertility by inducing follicle development in the ovary.

The Company’s efforts to commercialize this product have not yet yielded a viable commercial product. During 2009 the Company did engage in discussions regarding possible sale of its assets related to manufacture of VITROPIN. The U.S. Food and Drug Administration ("FDA") has not yet approved any of these products for commercial distribution within the United States. The absence of FDA approval of this product may be an obstacle to sale of these assets.

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. The Company has a similar patent application pending in Canada.

During January 2009 & 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.

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 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 (Oct3/4), 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.

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.

The Company has established 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 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™.” 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.

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.

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, Millipore, Stem Cell Technologies and several other firms. Most of these firms have long-standing histories and significant financial resources.

Our products for use in stem cell and cancer research have unique features unlike other marketed products. For example, our stem cell lines exhibit longer continual expansion periods than competitors, up to 75% longer which yields better value to our customers. We may be the only commercial source of fluorescent-labeled stem cells. We provide three different formulations of cell culture media optimized to our human adult stem cells. These formulations afford researchers with more options in experimental design and the potential to extend basic research to clinical trials. Also, in direct comparison with other commercially available media, our low serum formulation was found to provide significantly more cell growth by several customers. The cells generated by growth in our

media also exhibited less cellular stress resulting in higher quality cells to further advance our customer’s research. Our medium also exhibits greater shelf-life than competing products. These features distinguish our low-serum medium from competitors and indicate superior performance. As we develop additional media products, we anticipate comparable competitive advantages since these formulations are based upon the original low-serum formulation. We also have unique methods for the shipment and customs clearance of our stem cells, which is especially important to offshore customers. Our patented cell lines are unique and solely owned by the Company. Recent DNA “finger print” analysis by a third party laboratory shows that the probability of an identical match to one of our cell lines is 1/10¹⁷ or one chance in 100 quadrillion. Thus, the chance of replication of our patented cell lines is extremely remote as is our possible infringement of a patent held by another company. Given that effective therapies can be derived from these cell lines such as cell-mediated treatment of cancer, these products will not infringe on others and will become valuable commodities in stem cell approaches to cancer treatment and management. 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. The 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 Company. The Company's Vice President provides the Company with periodic consultation related to the achievement of its business objectives.

During 2007, the Company entered into a consulting agreement with Superior Toxicology and Wellness, a consulting firm located in Superior Colorado. Superior provides the Company with assistance in business development with an emphasis on marketing and sales of the Company’s stem cell products to the pharmaceutical manufacturing sector.

The Company also utilizes the services of other consultants and advisors to supplement the resources of its employee 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 mid-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.

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
2009
January 31	$0.28	$0.02
April 30	0.30	0.10
July 31	0.44	0.17
October 31	0.42	0.15
2008
January 31	$0.09	$0.09
April 30	0.19	0.19
July 31	0.18	0.18
October 31	0.18	0.06

Penny Stock Rule

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.

Holders of our Common Stock

As of January 18, 2010, the Company had approximately 1,940 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

The following sets forth the information required by Item 701 of Regulation S with respect to the unregistered sales of equity securities by Vitro Diagnostics, Inc., a Nevada corporation (the "Company"), completed on November 2, 2009:

a. On November 2, 2009, the Company agreed to issue 4,546 shares of common stock, $.05 par value (the "Common Stock" or "Shares") in consideration of $1,000 in consultant services.

b. The shares were issued to one person, who qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares to be issued will be "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that it requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. The proceeds received are to be used for working capital.

a. On October 29, 2009, the Company agreed to issue 36,216 shares of common stock, $.05 par value (the "Common Stock" or "Shares") in consideration of $6,700 in services.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

e. Not applicable.

f. The proceeds received are to be used for working capital.

a. On September 25, 2009, the Company agreed to issue 3,334 shares of common stock, $.05 par value (the "Common Stock" or "Shares") in consideration of $1,000 in consultant services.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

e. Not applicable.

f. The proceeds received are to be used for working capital.

a. On February 17, 2009, the Company agreed to issue 300,000 shares of common stock, $.05 par value (the "Common Stock" or "Shares") in consideration of $15,000.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investors with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that it requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. The proceeds received are to be used for working capital.

a. On February 16, 2009, the Company agreed to issue 12,000 shares of common stock, $.05 par value (the "Common Stock" or "Shares") for advisor services.

b. The shares are to be issued to one person, who qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares to be issued will be "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. Not applicable.

a. On February 12, 2009, the Company agreed to issue 250,000 shares of common stock, $.05 par value (the "Common Stock" or "Shares") valued at $0.10 per share for total consideration of $25,000.

b. The shares were issued to one person, who qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares issued were "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in

Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. The proceeds received were used for working capital.

a. On November 12, 2008, the Company sold to one executive officer an aggregate of 226,667 shares of common stock, $.05 par value (the "Common Stock" or "Shares") valued at $0.0375 per share for total consideration of $8,500.

b. The shares were issued to one person who serves as an executive officer and member of the board of directors and who qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares issued were "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. The proceeds received were used for working capital.

a. On July 29, 2008, the Company authorized the conversion of $224,333 in accrued salary and notes payable due to the Company’s President and Chief Executive Officer into an aggregate of 1,238,176 shares of common stock, $.05 par value (the "Common Stock" or "Shares"). The conversion was completed and the shares were issued on February 11, 2009.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. Not applicable.

a. On May 1, 2008, the Company completed the sale of an aggregate of 100,000 shares of common stock, $.05 par value (“Common Stock”) at an average price of $.10 per share pursuant to the exercise of issued and outstanding options. The options had been granted to an executive officer and Director for his services to the Company.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. Not applicable.

10.

a. On May 1, 2008, the Company granted our Chief Executive Officer options to purchase 1,000,000 shares of common stock, $.05 par value (“Common Stock”) at an average price of $.19 per share, subject to vesting. None of the options are vested as of the date of this Report.

b. The options were issued to one person who serves as an executive officer and member of the board of directors and who qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares issued were "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. Not applicable.

11.

a. On April 30, 2008, the Company completed the sale of an aggregate of 1,000,000 shares of common stock, $.05 par value (“Common Stock”) pursuant to the exercise of issued and outstanding Class A warrants and an aggregate of 500,000 shares of Common Stock pursuant to the

exercise of issued and outstanding Class B Warrants. The Company received gross proceeds of $125,000 from the exercise of the warrants.

b. The shares were issued to three persons, each of whom qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares issued were "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investors each qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investors with disclosure of all aspects of our business, including providing the investors with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that each accredited investor obtained all information regarding the Company that they requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. The proceeds received were used for working capital.

12.

a. On March 25, 2008, the Company agreed to issue, an aggregate of 100,000 shares of common stock, $.05 par value (the "Common Stock" or "Shares") valued at $0.09 per share for consultant services.

b. The shares were issued to one person, who qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares issued were "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. Not applicable.

13.

a. On March 25, 2008, the Company agreed to issue, an aggregate of 12,000 shares of common stock, $.05 par value (the "Common Stock" or "Shares") valued at $0.20 per share for consultant services.

b. The shares were issued to one person, who qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares issued were "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. Not applicable.

14.

a. On January 31, 2008, the Company completed the sale of an aggregate of 1,250,000 Units, each Unit valued at $0.10 per Unit for gross proceeds of $125,000.

b. The Units were sold to three persons, each of whom qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares issued were "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investors each qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investors with disclosure of all aspects of our business, including providing the investors with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that each accredited investor obtained all information regarding the Company that they requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. The proceeds received were used for working capital.

15.

a. In October, 2007, the Company completed the sale of an aggregate of 230,769 shares of common stock, $.05 par value (“Common Stock”) at an average price of $0.065 for total consideration of $15,000.

b. The shares were issued to one person who qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act of 1933 as amended (the "Securities Act"). The shares issued were "restricted securities" under the Securities Act.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. The proceeds received were used for working capital.

16.

a. In November, 2006, the Company sold to one executive officer an aggregate of 535,714 shares of common stock, $.05 par value (the "Common Stock" or "Shares") valued at $0.056 per share for total consideration of $30,000.

c. The Company paid no fees or commissions in connection with the issuance of the Shares.

d. The sale of the Securities was undertaken without registration under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act set forth in Sections 4(2) thereunder. The investor qualified as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. In addition, the Securities, which were taken for investment purposes and not for resale, were subject to restrictions on transfer. We did not engage in any public advertising or general solicitation in connection with this transaction, and we provided the investor with disclosure of all aspects of our business, including providing the investor with our reports filed with the Securities and Exchange Commission and other financial, business and corporate information. Based on our investigation, we believed that the accredited investor obtained all information regarding the Company that he requested, received answers to all questions posed and otherwise understood the risks of accepting our Securities for investment purposes.

e. Not applicable.

f. The proceeds received were used for working capital.

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, 2009	Year Ended Oct. 31, 2008
Total revenues	$ 6,103	$ 1,500
Operating expenses	$ 238,957	$ 369,116
Net loss	$ (271,081)	$ (413,420)
Basic and diluted loss per common share	$ (0.02)	$ (0.03)
Shares used in computing basic and diluted loss per share	16,658,163	14,241,791

Balance Sheet Data:	Oct. 31, 2009	Oct. 31, 2008
Working capital deficit	$ (1,492,663)	$ (1,522,659)
Total assets	$ 101,450	$ 105,979
Total liabilities	$ 1,538,904	$ 1,560,758
Stockholders' deficit	$ (1,437,454)	$ (1,454,779)

ITEM 7.

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

Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts are forward-looking statements such as statements relating to future operating results, existing and expected competition, financing and refinancing sources and availability and plans for future development or expansion activities and capital expenditures. Such forward-looking statements involve a number of risks and uncertainties that may significantly affect our liquidity and results in the future and, accordingly, actual results may differ materially from those expressed in any forward-looking statements. Such risks and uncertainties include, but are not limited to, those related to effects of competition, availability of financing for operations and expansion, and general economic conditions. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report.

Introduction

The following discussion and analysis summarizes the financial condition of the Company at fiscal year end October 31, 2009, and compares that to its financial condition at year-end 2008. It also analyzes our results of operation for the year ended October 31, 2009 and compares those results to the year ended October 31, 2008. 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.

The Company raised outside capital from a group of private investors in early 2008 (Exhibit 10.4) and additional funding has been provided since then through equity and debt financing which has resulted in:

The establishment of a new corporate facility especially suited to regulatory-compliant manufacturing of the Company’s human stem cell products for various commercial applications in medical research, pharmaceutical manufacturing, drug discovery and cell therapy. This provided the appropriate infrastructure to produce stem cell products manufactured to stringent specifications when combined with new manufacturing equipment that the Company also acquired. The new facility provides for future manufacturing of products for therapeutic applications. This was an essential development in our transition from research and development to commercial manufacturing of biological products.

Development and commercial launch a novel line of stem cell products targeting global stem cell research and required by other scientists engaged in stem cell research. These products consist of adult stem cells called mesenchymal stem cells, derivative cell lines and cell culture media for proliferation and differentiation of these stem cells.

Further expansion of the intellectual property portfolio of the Company to include an issued US Patent concerning generation and differentiation of adult stem cells, pending patent applications regarding stem cell therapy for cancer and novel induced pluripotent stem cell lines with potential to advance adult stem cell technology to achieve properties of embryonic stem cells from adult cells.

These developments together with limited operating expenses position the Company to gain profitability in the near term and sustain long-term earnings growth through leveraging its products, intellectual property and potential to attract synergistic partners.

Liquidity and Capital Resources

In 2009, the Company continued to experience a working capital deficit and shortage of liquidity while gaining product commercialization and increased opportunities for near term revenue. At fiscal year end October 31, 2009, the Company had a working capital deficit of $1,492,663, consisting of current assets of $18,669 and current liabilities of $1,511,332. The working capital deficit decreased by $29,996 from fiscal year end October 31, 2008. Current assets increased by $9,459 from year-end 2008 to 2009 while total assets decreased $4,529 during that time, both primarily reflecting increased inventory due to generation of product inventories necessary for launch of the Company’s stem cell-based products, and for 2009 an impairment charge for our patent "Immortalized Cell Lines and Methods of Making the Same" as discussed elsewhere in this report. Current liabilities decreased $20,537 from year-end 2008 to 2009 while total liabilities decreased $21,854, each predominantly from the conversion of a note payable to an officer, its accrued interest and other expenses totaling $224,331 to common stock, which was offset by increases in accrued payroll expenses, as well as increases in unsecured notes and accrued interest payable to an officer of the Company. The majority of the working capital deficit is due to accrued salaries and notes due to the president and CEO.

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, 2009 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. Subsequent to fiscal year end 2009, the Company did raise additional working capital to continue marketing and sales of its stem cell-based product line. Given that the Company succeeds in increased revenue generation, this will diminish its needs for outside capital to maintain and expand its operations.

During the fiscal year ended October 31, 2009, the Company's financing activities provided $122,192 to support operations. During that time, the Company's operations used $126,872 of cash compared to $198,007 of cash used during the twelve months ended October 31, 2008. The decrease in cash usage was predominantly due to reduced salary and R & D expenses. The use of cash during 2009 reflects a cash requirement of about $10,600 per month for operations while the cash raised from financing activities was primarily from cash advances provided by its president and proceeds from the sale of common stock. Since most R&D necessary for manufacture of the current line of products has been performed previously, the Company focused its efforts on manufacturing and was able to decrease its cash expenditures for fiscal year 2009.

The Company had lines of credit totaling $92,217 with $3,530 in available credit at fiscal year end 2009. The Company must continue to service debt and the Chairman personally guarantees most of the Company debt.

Sales of products increased from $1,500 in 2008 to $6,103 in 2009, with the launch of its new stem cell-based products. Management anticipates substantially larger increases in revenue during fiscal year 2010 due to the competitive advantages of our products, aggressive product marketing and expansion of the product offering, as described in greater detail in Section 1. We are also in discussion with other companies who have expressed interest in marketing the company’s products and forming strategic alliances for enhancement of mutual business development interests. Management has also conserved working capital by reducing administrative expenses and expenditures related to research activities. This enables the Company to gain profitability quickly and sustain earnings growth as product sales expand. The Company is also pursing other approaches to increase its capital resources such as combination with revenue-generating private entities, sale of assets or other transactions that may be appropriate.

Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company's liquidity and capital resources.

Results of Operations

Year Ended October 31, 2009. During the year ended October 31, 2009, the Company realized a net loss of $271,081, or ($.02) per share, with $6,103 in product revenue. The operating loss in 2009 was $142,339 less than the operating loss of $413,420 in 2008. The decreased operating loss during 2009 as compared to 2008 was primarily due to decreased operating expenses. Research and development expenses decreased by $77,738 and selling, general and administrative expenses decreased by $54,421 in 2009. Product sales increased 4-fold during 2009 as the Company launched its new stem cell-based products. The Company has initiated a multi-faceted product marketing plan including internet marketing, direct sales, use of distributors and attendance at trade shows. The Company has significant prospective sales opportunities that management is pursuing to the full extent possible at the present time. We further plan to license our patent-pending stem cell lines related to iPS generation to customers while directly selling supporting devices and some stem cell lines without licensing agreements. Management projects greater sales of its stem cell-based products during 2010 due to addition of products targeting markets within pharmaceutical manufacturing for applications in new drug discovery and development. Management does not anticipate revenue from its fertility drugs in the immediate future. Commercialization of these products depends on significant funding, further product development including clinical trials, FDA approval, and other conditions prior to commercial sale of any product.

Total operating expenses were $130,159 less in 2009 than in 2008, primarily due to reduction in expenses for research and development and selling, general and administrative expenses.

Research and development expenses (R&D) decreased by $77,738 during fiscal year 2009 compared to fiscal year 2008. This decrease was predominantly due to reduced salary expense and a shift in operational focus from R&D to manufacturing. The Company's prior R&D activities enabled commercial launch of a series of products targeting niche markets in stem cell research and drug development as described in detail elsewhere in this report (Section 1). Management believes that commercial launch of its novel stem cell products and their competitive advantages position the Company to realize accelerated revenue generation, near-term achievement of profitability and growth of earnings through expansion of target markets to include for example stem cell-derived terminally differentiated cell systems for use in drug discovery and development. Management is

also pursuing opportunities for key strategic alliances to leverage its technology and products to approach other market segments within the stem cell industry. There are numerous unfolding therapeutic markets that the Company also intends to pursue initially with regard to therapeutic application of its novel and highly competitive stem cell culture media, but also to treatment of diseases including cancer and diabetes.

Year Ended October 31, 2008. During the year ended October 31, 2008, the Company realized a net loss of $413,420, or ($.03) per share, on $1,500 of revenue.

Operating expenses decreased from fiscal 2007 to fiscal 2008, due to decreased accrued salary expenses. Selling, general and administrative expenses increased by $11,722 in 2008, while research and development expenses decreased by $21,459 in 2008.

Other expenses increased from fiscal 2007 to 2008 primarily due to absence of the re-instatement of a prior liability.

Inflation did not have a material impact on the Company's operations for the period.

Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company's results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission regulation S-K.

Use of Estimates and Assumptions

The preparation of 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 periods. Significant estimates included herein relate to the recoverability of assets, the value of long-lived assets and liabilities, the value of share based compensation transactions, the long-term viability of the business, and future obligations under various tax statutes. Actual results may differ from estimates.

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.

There is a very limited trading market for the Company's common stock, and investors may have difficulty selling their stock, should they desire to do so. There is presently limited liquidity in the public stock of the Company as indicated by relatively low price of the Company's stock and a relatively low volume of trading. This limited liquidity is related in part to the fact that the Company's stock is traded on the OTC Bulletin Board and is considered a "penny stock." Such limited liquidity of the Company's securities may limit the funding abilities of the Company that are related to equity transactions and may adversely affect the ability of shareholders to sell their stock at an acceptable price.

We are dependent on receipt of regulatory approval to commence marketing our fertility drug candidates, and this approval process will be extremely costly and time consuming. Prior to the marketing and sale of the Company's fertility drug products, regulatory approval is essential. While the Company maintains relationships with advisors who provide counsel to the Company regarding its filings for registration by the FDA and other regulatory authorities, there can be no assurance that the Company will receive the requisite approvals to market its products. At the time of this report, no such filings have been made with the FDA or other regulatory authorities. The absence of regulatory approval together with a lack of working capital, essentially blocks the commercialization of the Company's fertility drug 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. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on internal controls for the fiscal year ending on or after December 2007. Such a report must contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting, including a statement as to whether or not our internal controls are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by our management, and our own assessment must eventually be audited by our independent accountants. Presently our personnel

are limited and we lack third party checks and balances in our internal control although the individual responsible for financial control has 20 years employment with and significant ownership of the Company. We have disclosed significant deficiencies and/or material weaknesses in our internal controls. and as a result investors could lose confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on our stock price.

We have concerns regarding the current economic situation. The United States and the global business community is experiencing severe instability in the commercial and investment banking systems which is likely to continue to have far-reaching effects on the economic activity in the country for an indeterminable period. The long-term impact on the United States economy and the Company’s operating activities and ability to raise capital cannot be predicted at this time, but may be substantial.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

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

	2.	Balance Sheets at October 31, 2009 and 2008

	3.	Statements of Operations for the years ended October 31, 2009 and 2008

	4.	Statement of Changes in Shareholders’ Deficit for the years ended October 31, 2009 and 2008

	5.	Statements of Cash Flows for the Years Ended October 31, 2009 and 2008

	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 sheet of Vitro Diagnostics, Inc., as of October 31, 2009, and the related statements of operations, shareholders’ (deficit), and cash flows for the two years ended October 31, 2009 and 2008. 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, 2009, and the results of its operations and cash flows for the two years ended October 31, 2009 and 2008, 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, 2009, 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 3, 2010

F-2


VITRO DIAGNOSTICS, INC. Balance Sheets

		October 31, 2009	October 31, 2008
Assets
Current assets:
	Cash	$ 104		$ 6,768
	Accounts receivable	802		-
	Inventory, at cost	17,763		2,442
	Total current assets	18,669		9,210
Equipment, net of accumulated depreciation of $43,799 and $30,300		54,015		56,125
Patents, net of accumulated amortization of $1,386 and $17,835 (Note A)		26,317		11,482
Deferred costs (Note A)		-		26,713
Other assets		2,449		2,449
	Total assets	$ 101,450		$ 105,979

Liabilities and Shareholders' Deficit
Current liabilities:
	Current maturities on capital lease obligation (Note E)	$ 9,535			$ 7,101
	Accounts payable	58,103			25,444
	Accrued expenses	2,500			8,095
	Due to officer (Note B)	-			5,530
	Note payable and accrued interest payable to officer (Note B)	-			218,803
	Advances and accrued interest payable to officer (Note B)	90,800			5,125
	Accrued payroll expenses (Note B)	1,258,177			1,171,551
	Lines of credit (Note D)	92,217			90,220
	Total current liabilities	1,511,332			1,531,869
Long-term debt (Note E):
	Capital lease obligation, less current maturities	27,572			28,889
	Total liabilities	1,538,904			1,560,758
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;
	17,214,620 and 15,143,681 shares issued and outstanding	17,214			15,144
	Additional paid-in capital	5,203,219			4,921,958
	Services prepaid with common stock	(1,605)			(6,680)
	Accumulated deficit	(6,656,282)			(6,385,201)
	Total shareholders' deficit	(1,437,454)			(1,454,779)
	Total liabilities and shareholders' deficit	$ 101,450		$ 105,979

The accompanying notes are an integral part of these financial statements

F-3


		VITRO DIAGNOSTICS, INC. Statements of Operations
		VITRO DIAGNOSTICS, INC. Statements of Operations

			For the Years Ended
			October 31,
			2009	2008
Product sales			$ 6,103	$ 1,500
	Cost of goods sold		(3,049)	-
		Gross profit	3,054	1,500

Operating costs and expenses:
	Research and development		169,538	247,276
	Selling, general and administrative		69,419	121,840
		Total operating costs and expenses	238,957	369,116
		Loss from operations	(253,903)	(367,616)

Other income (expense):
	Interest expense		(35,178)	(45,804)
		Loss before income taxes	(271,081)	(413,420)

Provision for income taxes (Note C)			-	-

		Net loss	$ (271,081)	$ (413,420)

Basic and diluted net loss per common share			$ (0.02)	$ (0.03)
Shares used in computing basic and diluted
	Net loss per common share		16,658,163	14,241,791

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, 2007			12,681,681	$ 12,682	$ 4,653,020	$ -	$ (5,971,781)	$ (1,306,079)
Common stock units sold pursuant to private
placement, $0.10 per share (Note F)	-	-	1,250,000	1,250	123,750	-	-	125,000
Common stock issued under consulting contract,
$0.09 per share (Note F)	-	-	100,000	100	8,900	-	-	9,000
Common stock issued in exchange for future Scientific
Advisory Board services, $0.20 per share (Note F)	-	-	12,000	12	2,388	(2,400)	-	-
Common stock issued following exercise of Class A
warrants, $0.125 per share (Note F)	-	-	1,000,000	1,000	124,000	-	-	125,000
Common stock options exercised (Note F)	-	-	100,000	100	9,900	(10,000)	-	-
Prepaid services earned (Note F)	-	-	-	-	-	5,720	-	5,720
Net loss for the year ended October 31, 2008	-	-	-	-	-	-	(413,420)	(413,420)
Balance, October 31, 2008	-	-	15,143,681	15,144	4,921,958	(6,680)	(6,385,201)	(1,454,779)
Sale of common stock to officer (Note B)	-	-	226,667	227	8,273			8,500
Sales of common stock to investors (Note B)	-	-	550,000	550	39,450	-	-	40,000
Shares issued to director for future services (Note F)	-	-	12,000	12	1,788	(1,800)	-	-
Conversion of debt and accrued interest to officer (Note B)	-	-	1,238,176	1,237	223,094	-	-	224,331
Conversion of amounts due on account (Note F)	-	-	36,216	36	6,664	-	-	6,700
Prepaid services earned (Note F)	-	-	-	-	-	6,875	-	6,875
Common stock issued under consulting contract,
$0.25 per share (Note G)			7,880	8	1,992			2,000
Net loss for the year ended October 31, 2009	-	-	-	-	-	-	(271,081)	(271,081)
Balance, October 31, 2009	-	$ -	17,214,620	$ 17,214	$ 5,203,219	$ (1,605)	$ (6,656,282)	$ (1,437,454)

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,
		2009	2008

Cash Flows from operating activities:
	Net loss	$ (271,081)	$ (413,420)
	Adjustments to reconcile net loss to net cash used in
	operating activities:
	Depreciation and amortization	17,816	9,861
	Stock-based compensation	6,875	14,720
	Impairment of patent	8,551	-
	Common stock issued for consulting services	2,000	-
	Changes in current assets and current liabilities:
	(Increase) decrease in accounts receivable, inventories,
	prepaid expenses and deposits	(16,123)	9,906
	Increase in accounts payable, accrued expenses
	and payroll taxes payable	125,090	180,926
Net cash used in operating activities		(126,872)	(198,007)

Cash flows from investing activities:
	Purchases of equipment	(995)	(23,269)
	Payments for patents and deferred costs	(989)	(8,178)
Net cash used in investing activities		(1,984)	(31,447)

Cash flows from financing activities:
	Proceeds from advances from officer	80,972	9,961
	Principal payments on notes payable	-	(32,025)
	Draws on lines of credit, net	1,997	(888)
	Principal payments on capital lease	(9,277)	(3,565)
	Proceeds from sale of common stock	48,500	250,000
Net cash provided by financing activities		122,192	223,483

CONTINUED ON FOLLOWING PAGE

The accompanying notes are an integral part of these financial statements

F-6

CONTINUED FROM PREVIOUS PAGE


VITRO DIAGNOSTICS, INC. Statements of Cash Flows
		For The Years Ended
		October 31,
		2009		2008


	Net change in cash		(6,664)		(5,971)
Cash, beginning of year			6,768		12,739
	Cash, end of period		$ 104		$ 6,768

Supplemental disclosure of cash flow information:
	Cash paid during the year for:
	Interest		$ 30,475		$ 44,544
	Income taxes		$ -		$ -
	Non-cash investing and financing activities:
	Conversion of note payable, amounts due to officer and
	accrued interest		$ 224,333		$ -
	Common stock issued to director for future services		$ 1,800		$ -
	Conversion of amounts due on account to common stock		$ 6,700		$ -
	Common stock issued for services		$ -		$ 11,400
	Exercise of stock options in exchange for services		$ -		$ 10,000
	Equipment acquired under capital lease		$ 10,394		$ 25,611

The accompanying notes are an integral part of these financial statements

F-7

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 marketing of purified human antigens (“Diagnostics”) and the development of therapeutic products (“Therapeutics”) and related technologies. The Company’s sales were solely attributable to the sales of purified human antigens.

Following the transfer of its Diagnostics operations in August of 2000, the Company began devoting all efforts to its therapeutic drug development and related technologies. A present target area for the Company’s therapeutic products is the development and commercialization of stem cell technology for use in diabetes and cancer research and treatment. The Company has been granted a patent 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 October 31, 2009, 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.

F-8

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

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. During the years ended October 31, 2008 and 2009, the president and chairman has advanced the Company funds for working capital on an “as needed” basis. During the years ended October 31, 2009 and 2008, the president and chairman advanced the company a total of $90,933 for working capital purposes. There is no assurance that these advances will continue in the future. Also during the year ended October 31, 2009, the Company raised $40,000 in working capital through sales of common stock to private investors, and $8,500 through sales of common stock to its president. Also, as discussed further in the subsequent events section of these Notes, in December 2009, the Company raised $87,500 through a private placement of common stock and warrants.

The Company is presently engaged in discussions with companies that have expressed interest in the commercialization of the Company’s stem cell technology and the Company’s fertility drugs. Management intends to pursue these and other opportunities with the objective of establishing strategic alliances to fund further development and commercialization of its key technologies. Also, the Company has new stem cell products that were launched during fiscal year 2009. Initial revenues from these products have been established and management intends to pursue enhanced revenue generation from this product line and development of other related products to the fullest extent possible given its resources. 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 alternatives such as sale of its assets or merger with other entities.

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, 2009 and 2008 no allowance was recorded and all amounts due from customers were considered collectible.

F-9

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

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, 2009 and 2008, finished goods included $9,204 and $0 of labor and overhead allocations. Inventories consisted of the following:


	October 31, 2009	October 31, 2008
Raw materials	$ 6,987	$ 2,119
Finished goods	10,776	323
	$ 17,763	$ 2,442

Research and development

The Company’s prior operations were predominantly in research and development (“R&D”). These costs were 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 now also expanded its operations to include manufacturing and R&D, we are now reporting 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 are stated at cost and are depreciated over the assets’ estimated useful lives using the straight-line method. Depreciation expense totaled $13,499 and $6,929 for the years ended October 31, 2009 and 2008, 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 $4,317 and $2,932 for the years ended October 31, 2009 and 2008. Estimated aggregate amortization expense for each of the next five years is as follows:

F-10

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements


Year ended October 31,
2010	$	2,771
2011		2,771
2012		2,771
2013		2,771
2014		2,771
Thereafter		12,462
	$	26,317

On May 5, 2009 the United States Patent Office issued patent number 7,527,971 to the Company for its stem cell technology, “Generation and Differentiation of Adult Stem Cell Lines.”

The Company’s patents consisted of the following at October 31, 2009:


Generation and differentiation of adult stem cell lines	$	27,703
This patent is for a proprietary stem cell line with potential application to treatment of diabetes in both animals and humans.
Less accumulated amortization		(1,386)
	$	26,317

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. Recoverability of assets to be held and used is measured by a comparison of the carrying value to future undiscounted cash flows expected to be generated by the asset. 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. At October 31, 2009 the Company determined that one of its patents named “Immortalized cell lines and methods of making the same” was impaired and as such recognized an impairment charge of $8,551 on this patent which is included in research and development costs in the statement of operations for the year ended October 31, 2009. The Company recorded no asset impairment charges during the year ended October 31, 2008. A contingency exists with respect to these matters, the ultimate resolutions of which cannot presently be determined.

F-11

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

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

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.

Advertising Costs

The Company expenses all advertising costs as they are incurred. Advertising costs were $1,527 and $100 for the years ended October 31, 2009 and 2008, respectively.

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 debt 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, 2009 and 2008, 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. Common stock options outstanding at October 31, 2009 and 2008 were not included in the diluted loss per share as all 1,543,500 and 1,605,864 options, respectively, were anti-dilutive. Therefore, basic and diluted losses per share at October 31, 2009 and 2008 were equal.

F-12

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

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

The FASB’s Accounting Standards Codification is effective for all interim and annual financial statements issued after September 15, 2009. The ASC is now the single official source of authoritative, nongovernmental generally accepted accounting principles (GAAP) in the United States. The historical GAAP hierarchy was eliminated and the ASC became the only level of authoritative GAAP, other than guidance issued by the Securities and Exchange Commission. Our accounting policies were not affected by the conversion to ASC. However, we have conformed references to specific accounting standards in these notes to our consolidated financial statements to the appropriate section of ASC.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 Fair Value Measurements and Disclosures (ASC Topic 820) - Measuring Liabilities at Fair Value (ASC Update 2009-05). This update provides amendments to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Among other provisions, this update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the valuation techniques described in ASC Update 2009-05. The Company has adopted ASC Update 2009-05, which has not had an effect on the Company’s financial statements.

In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (ASC Topic 605): Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force. This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. We have not determined the impact, if any, that this update may have on our financial statements.

There were various other accounting standards and interpretations issued during 2009 and 2008, none of which are expected to have a material impact on the Company’s consolidated financial position, operations, or cash flows.

F-13

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

NOTE B: RELATED PARTY TRANSACTIONS

Indebtedness to officer

Over the past four fiscal years, the Company’s president paid $14,236 in expenses on behalf of the Company, of which $8,706 had been repaid. On February 10, 2009 the balance of $5,530 which was included in “Due to officer,” along with the note payable and accrued interest discussed below was converted to common stock.

Notes and advances payable

During the period from August 2002, to October 2007, the president loaned the Company a total of $168,150 through various notes that had also accrued interest in the amount of $35,483. In October 2007, these notes and the accrued interest were consolidated into a single note of $203,633, and accrued interest on the unpaid principle at a rate of 10% per annum. Additional interest of $15,170 had accrued on this note, and the total balance of $218,803 was included in “Note payable and accrued interest payable to officer” in the accompanying financial statements. This note was collateralized by a first lien on the FSH patents owned by the Company, the same collateral that had secured a prior note between the Company and the officer.

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 cancelled effective July 29, 2008. The exchange was completed on February 10, 2009. A total of $224,333, representing the balance of the note payable and accrued interest, plus the outstanding balance of the indebtedness to the officer of $5,530 was exchanged for 1,238,176 shares of the Company’s common stock.

During the year ended October 31, 2008, the officer advanced the Company an additional $4,810 for working capital, and during the year ended October 31, 2009 an additional $80,972 of working capital advances were made by the officer. 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 $5,018 at October 31, 2009. The total advances plus accrued interest totaling $90,800 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 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 employment agreement includes changes in control given exercise of underlying stock options and also includes severance provisions.

The Company accrued the salaries of its officer through April 30, 2008 under an old agreement due to a lack of working capital. Accrued salaries and payroll taxes totaled $1,258,177 and $1,171,551

F-14

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

at October 31, 2009 and 2008, respectively. Dr. Musick’s accrued salaries totaled $1,012,482 and $929,982 as of October 31, 2009 and 2008, respectively. Dr. Musick’s salary is allocated as follows: 70% to research and development and 30% to administration.

In addition, accrued salaries for a previous officer of the Company totaled $200,833 at October 31, 2009 and 2008.

Total accrued payroll taxes on the above salaries totaled $44,862 and $40,736 at October 31, 2009 and 2008, respectively.

Common stock sales

In November 2008, the Company sold 226,667 shares of its common stock to an officer of the Company for $8,500, or $.0375 per share. The transaction was recorded at fair value, which was determined to be 75% of the quoted market price on the day of the approval of sale of stock due to the restricted nature of the shares.

In February 2009, the Company sold 250,000 shares of its common stock to an investor for $25,000, or $.10 per share. Also in February 2009, the Company completed the sale of 300,000 shares of its common stock to one investor for $15,000, or $.05 per share, which was negotiated in January 2009. Proceeds from the sales of common stock were used for general working capital purposes. The transaction was recorded at fair value, which was determined to be 75% of the quoted market price on the day prior to the negotiated sale of stock, due to the restricted nature of the shares.

Office lease

On July 1, 2008, the Company entered into a five-year non-cancelable operating lease for a facility located in Golden, Colorado. The facility has been leased from a company that is owned by the president’s wife.

Future minimum rental payments for the fiscal years ending are as follows:


October 31,

	2010	$ 22,380
	2011	22,380
	2012	22,380
	2013	14,920
		$ 82,060

The total rental expense was $27,347 and $13,370 for the years ended October 31, 2009 and 2008, respectively.

Other

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

F-15

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

NOTE C: INCOME TAXES

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


		October 31,
		2009	2008
Benefit related to U.S. federal statutory graduated rate		-34.00%	-34.00%
Benefit related to State income tax rate, net of federal benefit		-3.06%	-3.06%
Accrued officer salaries		7.76%	14.84%
Net operating loss for which no tax benefit is currently available		29.30%	22.22%
	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,
	2009		2008
Net operating loss and tax credit carryforwards	$	1,445,310	$	1,418,792
Accrued officer salaries		466,280		434,177
Deferred tax asset (before valuation allowance)	$	1,911,591	$	1,852,968

At October 31, 2009, deferred taxes consisted of a net tax asset of $1,911,591, due to operating loss carryforwards and other temporary differences of $7,762,724, which was fully allowed for in the valuation allowance of $1,911,591. 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, 2009 and 2008 totaled $58,623 and $168,317, respectively. Net operating loss carryforwards will expire in various years through 2029.

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-16

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

Should the Company undergo an ownership change as defined in Section 382 of the Internal Revenue Code, the Company’s tax net operating loss carryforwards 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 $533 was unused at October 31, 2009. The interest rate on the credit line was 18.00% at October 31, 2009. The credit line is collateralized by the Company’s checking account. Principal and interest payments are due monthly.

The Company also has five credit cards with a combined credit limit of $56,100, of which $2,997 was unused at October 31, 2009. The interest rates on the credit cards range from 10.24% to 29.99% as of October 31, 2009. In addition, one of the Company’s credit cards was closed by the creditor in May 2009. At October 31, 2009 the account had a balance of $27,146 and carries an annual interest rate of 34.99%.

NOTE E: LONG-TERM DEBT

Note Payable

During August 2003, the Company converted liabilities owed to its attorney into a promissory note. The note carried a 10 percent interest rate and was payable at the rate of $500 per month. As of October 31, 2007, the Company owed $26,874 on the note, which was due and payable upon receipt by the Company of outside capital in excess of $50,000. During the year ended October 31, 2008 the note was paid in full.

Capital Lease Obligations

In July 2007, the Company entered into a capital lease agreement to acquire laboratory equipment. The Company is 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 is 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 is obligated to make monthly payments of $570 through June 2011.

Future maturities of the Company’s capital lease obligations are as follows:

F-17

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements


Year ended October 31,
2010	$	21,391
2011		18,403
2012		9,631
	$	49,425
Less: imputed interest		(12,318)
Present value of net minimum lease payments	$	37,107

The president of the Company has personally guaranteed the lease obligations.

NOTE F: SHAREHOLDERS’ DEFICIT

Preferred Stock

The Company has authorized 5,000,000 shares of $.001 par value preferred stock. These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors.

Common Stock and Warrant Purchase Agreement

On January 31, 2008 (the "Closing Date"), the Company completed a private placement of 1,250,000 shares of its common stock and warrants to purchase 1,000,000 additional shares of common stock to three investors (the "Investor"). The securities were sold as units (the "Units") at a price of $0.10 per Unit, with the Investor purchasing an aggregate of 1,250,000 Units for gross proceeds of $125,000. Each Unit consisted of one (1) share of common stock and eight-tenths (8/10) of one Class A warrant for a total of 1,250,000 shares of common stock and 1,000,000 Class A warrants. The Class A warrants carry an exercise price of $.125 per share. The transaction was not registered under the Securities Act of 1933, as amended, (the “1933 Act”). The sales were made pursuant to a Common Stock and Warrant Purchase Agreement dated January 31, 2008. The Class A warrants grant the Investor the right to purchase one (1) share of common stock and one-half (1/2) Class B warrant at an exercise price of $0.25 per share.

On April 30, 2008, the investors exercised the Class A warrants and received 1,000,000 shares of the Company’s common stock and 500,000 Class B warrants in exchange for a payment of $125,000.

Each Class B warrant granted the Investor the right to purchase one (1) share of common stock and one (1) Class C warrant at an exercise price of $0.25 per share. The Class B warrants were exercisable immediately and for a period of seven months that has been verbally extended to ten months from the Closing Date. The Class B warrants must have been exercised if the Company could demonstrate sales of stem cell-derived beta islets in an amount of at least $30,000 for the three months ended October 31, 2008. The Class B warrants were not exercised and expired on November 30, 2008. Each Class C warrant granted the Investor the right to purchase one (1) share of common

F-18

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

stock at an exercise price of $0.25 per share. The Class C warrants were not exercisable since the Class B warrants expired. The private placement was conducted by the Company's officers and directors and no underwriting discounts, commissions, or finders' fees were paid. The Company agreed to pay a financing fee to the Investor in connection with offering equal to 2% of the aggregate purchase price of the securities to cover the Investor's legal fees arising from the transaction.

Common stock issued for services

Under the terms of a Consulting agreement, the Company agreed to issue 100,000 shares of its common stock upon the receipt of $100,000 or more in capital financing. The Company received financing in excess of $100,000 on January 31, 2008, as discussed above. On March 25, 2008, the Board of Directors approved the issuance of the consultant’s 100,000 shares. The transaction was valued at $9,000, or $.09 per share, based on the fair value of the stock on January 31, 2008, the date the shares were earned.

On March 25, 2008, the Company issued the above consultant 12,000 additional shares of the Company’s common stock as compensation to serve on the Company’s Scientific Advisory Board (“SAB”) for a period of two years. The transaction was valued at $2,400, or $.20 per share, based on the fair value of the stock on the transaction date. The transaction is being expensed over the period of the service. As of October 31, 2009, $1,920 has been expensed, and $480 is included as “Services prepaid with common stock” in the accompanying condensed balance sheet.

On May 1, 2008, the Company’s Board of Directors appointed Erik Van Horn to the Board. The Board agreed to compensate Mr. Van Horn in the amount of $10,000, payable immediately, for one year of service on the Board and that the compensation may be applied to the exercise of outstanding options to purchase 100,000 shares of the Company’s common stock. Mr. Van Horn notified the Board of his intention to utilize the compensation to exercise the stock options. Effective May 1, 2008, the options were exercised and 100,000 shares of the Company’s common stock were issued to Mr. Van Horn. As of October 31, 2009, the total $10,000 of compensation has been expensed.

In February 2009, the Company appointed Dr. Pamela L. Rice to its Scientific Advisory Board. The Company issued to Dr. Rice 12,000 shares of the Company’s common stock as compensation for her commitment to serve on the SAB. The transaction was valued at $1,800, or $.15 per share based on the fair value of the stock on the transaction date. As of October 31, 2009 a total of $675 had been expensed, and $1,125 is included as “Services paid with common stock” in the accompanying condensed balance sheet.

On October 29, 2009, the Company agreed to convert certain amounts due to a consultant who provides various professional accounting services. As a result of the agreement, $6,700 of amounts due the consultant was converted to 36,216 shares of common stock at a price of $0.185 per share, which approximated the market value of the stock on the date of the transaction.

F-19

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

Stock options granted to officer

On May 1, 2008, the Company granted a stock option to its president to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $.19 per share. On the grant date, the traded market value of the stock was $.19 per share. The options vest upon the achievement of certain contingencies. None of the contingencies have been met, and as a result, no stock-based compensation was recorded for the options for the years ended October 31, 2009 or 2008. The fair value of the options will be recorded as stock-based compensation upon achievement of these contingencies. The weighted average exercise price and weighted average fair value of these options on the grant date were $.19 and $.19, respectively.

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


Risk-free interest rate	3.68%
Dividend yield	0.00%
Volatility factor	228.72%
Weighted average expected life	6.5 years

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.

F-20

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

The following schedule summarizes the changes in the Company’s stock options:


		Number of Shares	Exercise Price Per Share	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price Per Share
Balance at October 31, 2007		705,864	$0.08 to $0.81	5.98 years	$ 0.19
	Options granted	1,000,000	$0.19	9.75 years	$ 0.19
	Options exercised	(100,000)	$0.10		$ 0.10
	Options expired	-
Balance at October 31, 2008		1,605,864		8.29 years	$ 0.20
	Options granted	-
	Options exercised	-
	Options expired	(62,364)			$ 0.63
Balance at October 31, 2009		1,543,500		7.60 years	$ 0.18
Exercisable at October 31, 2008		605,864	$0.08 to $0.81	5.88 years	$ 0.21
Exercisable at October 31, 2009		543,500	$0.08 to $0.81	4.55 years	$ 0.16

NOTE G: CONSULTING AGREEMENTS

On August 20, 2007, the Company entered into a Consulting Agreement with Mr. Joe Nieusma of Superior Toxicology & Wellness (“Superior”). This agreement has been extended without modification through August 20, 2010. Under the terms of the 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

F-21

VITRO DIAGNOSTICS, INC.

Notes to Unaudited Financial Statements

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.

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. The agreement may be terminated at any time by either party with thirty days written notice. As of October 31, 2009 no services have been performed and no compensation has been paid under the agreement.

On July 27, 2009 the Company entered into a consulting agreement with SK Helsel & Associates LLC to provide certain public relations and media services. The agreement provides compensation in the total amount of $2,500 per press release, to be paid with a combination of common stock and cash. The agreement also provides for other related hourly based consulting services to be provided on an as-needed basis as requested by Vitro. As of October 31, 2009 a total of $3,719 in cash and 7,880 shared of the Company’s common stock at an average price of $0.25 per share had been paid the consultant under the term of the agreement.

NOTE H: SUBSEQUENT EVENTS

The Company has evaluated subsequent events through February 8, 2010, the date which the financial statements were available to be issued.

On December 21, 2009 the Company agreed to convert to common stock certain amounts due an attorney who provides various legal services to the Company. As a result, $15,000 of amounts due the attorney was converted to 85,714 shares of common stock at a price of $0.175 per share, which approximated the market value of the stock on the date of the transaction. 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 are 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-22

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

On January 16, 2007, the Board of Directors of the Company engaged Schumacher and Associates, Inc. as its principal accountant and independent auditor for the fiscal year ended October 31, 2006 and simultaneously accepted the resignation of Miller and McCollom, Certified Public Accountants, its former accountant.

The audit reports of the Company on its financial statements for the two fiscal years ended October 31, 2004 and 2005 did not contain any adverse opinion or disclaimer of opinion. The reports for the two years ended October 31, 2005 contained a paragraph that raised doubt about the Company's ability to continue as a going concern; otherwise, the reports were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the Company's fiscal year ended October 31, 2005 and the subsequent interim period up to January 16, 2007, there were no disagreements with Miller and McCollom, whether or not resolved, on any matter of accounting principle or practice, financial statement disclosure, auditing scope or procedure which, if not resolved to Miller and McCollom's satisfaction, would have caused Miller and McCollom to make reference to the subject matter of such disagreement in connection with its report on the Company's financial statements for such periods. Miller and McCollom did not audit the Company's financial statements for the fiscal year ended October 31, 2004.

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 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, 2009. 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, 2009, 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 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, 2009, 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

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.	63	Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Secretary
Erik D. Van Horn	41	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 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.

The Company has not established a code of ethics for its principal executive officers due to the cost of such procedure, but may consider adopting such code in the future as its resources permit.

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 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, except that James R. Musick, an executive officer and director failed to file one report covering one transaction in a timely fashion.

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	2009	$82,500⁽²⁾	$82,500
President, Chief Executive	2008	$190,000⁽¹⁾	$190,000
Officer, Chief Operating Officer, Chief Financial Officer	2007	279,167⁽²⁾	279,167


Eric Van Horn, Vice President	2009	-0-	-0-
	2008	-0-	-0-
	2007	-0-	-0-

(1)

Of this amount, $156,667 was accrued.

(2)

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.

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

options to purchase 100,000 shares of the Company’s common stock. Mr. Van Horn notified the Board of his intention to utilize the compensation to exercise the stock options. Effective May 1, 2008, the options were exercised and 100,000 shares of the Company’s common stock were issued to Mr. Van Horn.

The other Director has not been paid any additional compensation for services. However, 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, 2009:

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

$0.08

2/10/2016

James R. Musick

300,000

$0.17

4/01/2015

James R. Musick

1,000,000

$0.19

4/30/2018

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.

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.

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	543,500	$0.15	0
Equity compensation plans not approved by security holders	162,364	$0.30	0
TOTAL	705,864	$0.18	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 25, 2009, 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 18, 2010, the Company had outstanding 17,800,334 shares of common stock, the only class of voting stock outstanding.

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	29.17%

Erik Van Horn 4621 Technology Drive, Golden, Colorado 80403	300,000	1.69%

Officers and Directors as a group^{(1) (2)}(2 individuals)	5,550,755	30.84%

Other Shareholders

Roger D. Hurst⁽³⁾8100 Southpark Way, Unit B-1 Littleton, CO 80120	1,122,096	6.55%

The James R. Musick Trust 12635 E. Montview Blvd. Aurora, Colorado 80010	2,665,257	15.6%

Lloyd Hansen 2646 S.W. Mapp Rd, Ste. #304 Palm City, FL 34990	980,000	5.7%

___________________

⁽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.

⁽³⁾

Includes 10,386 shares owned by Compion, a company in which Mr. Hurst is the sole shareholder

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.

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 have 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:


	2009	2008
Audit Fees	$9,450	$10,350
Audit-Related Fees	-	-
Tax Fees	-	-
All Other Fees	-	-

Total	$9,450	$10,350

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.

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
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.

___________________

⁽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

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 12^th day of February, 2010.

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 person 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 12, 2010

_/s/ Erik D. VanHorn______ Erik D. VanHorn	Vice President and Director	February 12, 2010