CONFORMED COPY
FORM 10-K SB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) 15, ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1996
OR
( ) 15, TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-17378
VITRO DIAGNOSTIC, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Nevada 84-1012042
______________________________ _________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8100 Southpark Way, Bldg B-1 , Littleton, Colorado 80120
_________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(303) 794-2000
________________________________________________________________
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for at least the past 90
days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K 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 SB or any amendment to this form 10-K SB.
Yes X No
--- ---
The issuer's revenues for its most recent fiscal year were $790,335.
The aggregate market value of the voting stock held by non-affiliates
(1,550,087) computed by taking the average of the bid and the ask ($0.10 as
quoted on January 20, 1997) was $155,009.
The number of shares outstanding of each of the issuer's classes of
common equity as of January 20, 1997, was 6,286,816.
Document incorporated by reference : None
This report consists of 26 pages, including one page constituting the
cover page.
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
a). Business. The Company was incorporated under the name Imperial
Management, Inc. ("Imperial") on March 31, 1986 under the laws of the
State of Nevada. On December 8, 1986, the Corporation merged with
Labtek, Inc., a Colorado corporation, and the name of the
corporation was changed to Vitro Diagnostics, Inc. Until July 1989,
the Company operated as a clinical reference lab and repackaged
immunodiagnostic kits.
In July of 1989, management of the Company was replaced by a new
management team which assumed control over all Company operations.
The new management team has endeavored since said date to implement a
strategic plan designed to transform Vitro Diagnostics, Inc. into a
biotechnology company with a diverse product line. The Company
manufactures specialty diagnostic reagents, viz. purified human
antigens. The Company sells its purified human antigens primarily to
manufacturers of immunodiagnostic test kits. The short-term
objectives are to develop, produce, and market additional related
products to complement and expand its original line of diagnostic
antigens.
b) Business of Issuer. The Company's revenues and operating profits or
losses and identifiable assets have been attributable to manufacture
of purified human antigens.
Description of Company's Products and Services
PURIFIED ANTIGENS
In connection with management's objectives to transform the Company into
a diversified biotechnology company, purified human antigens was selected
as the initial business to be pursued by the Company. Manufacture of
these products required that the Company develop expertise in
purification of clinically significant proteins, which expertise was
available to the Company through its scientific staff and recent
technological advances. The Company is presently only one of a few
manufacturers in the world that specialize in the purification of human
pituitary hormones.
The Company chose pituitary hormones and tumor marker as its initial
products for development. The pituitary hormones include Growth
Hormone, Prolactin, LH, FSH, and TSH. The tumor marker antigens include
CEA, AFP, hCG, beta hCG and alpha hCG. These hormones and tumor markers
are sold to diagnostic kit manufacturers, immunochemical distributors and
brokers and to university researchers. Company personnel have over ten
years experience in the extraction and purification of these antigens.
Human tissues are used as the raw materials for the purified antigens.
Pituitary hormones are obtained from human pituitary glands, human
chorionic gonadotropin originates from urine collected during pregnancy
and CEA is derived from human liver tissue containing adenomas secondary
to primary colon cancer. The Company has an adequate supply of raw
materials. Sufficient liver tissue is presently owned by the Company.
These tissues are stored in a condition that is believed to maintain CEA
as stable indefinitely. Pregnancy urine is readily available
commercially. Human pituitary glands are more difficult to obtain but
several sources are available to the Company. The tissues are extracted
with specialized chemicals and the extracts are subject to purification
by modern liquid chromatography. Sequential purification steps are
usually required to produce highly purified materials. The Company
presently protects its purification technology as proprietary and trade
secret information.
Purified human antigens are subject to minimal FDA regulations as
such products are considered Class I diagnostic devices. The Class I
classification is usually given to components of finished diagnostic
devices. The FDA requirements for sale of Class I devices are that the
Company register with the FDA and list all of the Class I devices that
it markets. The Company is in full compliance with these FDA
requirements. The actual manufacturer of the diagnostic device receives
more rigorous FDA regulation since the device itself is more integrally
related to potential health problems. While the Company is not required
to do so, it presently operates according to FDA guidelines for
manufacture of diagnostic devices. Such practices are helpful to the
Company's customers and allows for vendor audits of the production
operation as needed. All proposed new diagnostic antigens are Class I
devices with the exception of PSA (See "New Product Development"),
which is a Class II device. FDA approval of PSA would require filing of
Form 510K with the U.S. Government.
A brief description of some of these products follows:
Growth Hormone - Growth hormone is produced in the pituitary gland and
regulates growth of most human tissues.
Prolactin - This compound is a hormone produced by the pituitary gland
and stimulates lactation. Prolactin levels in blood are measured during
treatment for infertility and for monitoring the effectiveness of
chemotherapy for brain tumors.
LH - Luteinizing hormone is produced in the pituitary gland and causes
the female sex organs to produce the hormones progesterone and estrogen.
Abnormal values of LH will result in abnormal progesterone and estrogen
levels. LH levels are measured to aid in diagnosing the source of certain
infertility problems and to ascertain the existence of a pituitary tumor.
FSH - Follicle stimulating hormone is also a pituitary compound which
stimulates the growth of ovarian eggs in the beginning of the menstrual
cycle. Urine or blood levels of FSH are measured to determine the cause
of infertility.
TSH - Thyroid stimulating hormone is measured as part of assessing
overall thyroid function and metabolism. It is also becoming
increasingly important in diagnosing the underlying cause of certain
infertility problems.
CA 125 - This product is a tumor marker, as is CEA. However,
CA 125 is relatively specific to ovarian cancers, whereas CEA is known
to be produced by tumors of the colon, liver, breast and other
tissues. The CA 125 diagnostic test has received FDA approval. FDA
approval opens the United States diagnostic market for the product.
CA 19-9 - This is another tumor marker structurally similar to CA 125
and CA 15-3, but selective for pancreatic and other gastrointestinal
tumors. It, like CA 15-3, is not yet FDA approved, but has a history of
use and acceptance, at least in foreign markets.
CEA - Carcinoembryonic antigen is produced by cancerous tumors
especially of the colon or liver. Measurement of blood CEA levels is
valuable in the management of cancer. CEA is elaborated by certain
tumor cells and was one of the first so-called tumor markers, although
it is not specific for a particular type of cancer.
Recombinant CEA - This is CEA that is produced by use of recombinant
DNA techniques. The product is apparently identical to natural CEA, but
its production is not subject to the limitations of raw material
availability as is natural CEA.
hCG - Human chorionic gonadotropin is produced by particular cells of
the placenta. Elevated levels are used to determine pregnancy. It has
biological action on the ovaries and can cause ovulation.
Beta hCG - The beta subunit of hCG is one of two dissimilar protein
chains that together compose hCG. It is similar to CEA in that it is a
tumor marker. However, it is usually secreted by tumors arising from
certain cells in the placenta. These types of cancer can occur following
a miscarriage.
Beta hLH- The beta subunit of luteinizing hormone is one of two dissimilar
protein charins that together compose hLH. The beta subunit of LH
contains the biochemical specificity of LH. The beta subunit of LH is
used in antibody production to minimize contamination of antibodies to
closely related hormones.
Alpha hCG - The alpha subunit of hCG is a relative of beta hCG (above).
together with the beta subunit they comprise hCG. It is considered a
tumor marker, although it is less strongly documented clinically than
is beta-hCG.
AFP - Alpha-fetoprotein is a protein produced by the fetal liver.
Expression of this protein is normally suppressed in adults. It is
considered a marker for testicular cancer. Maternal serum levels
are also elevated when neural tube deficit occurs.
PURITY GRADES:
The Company's products are provided to its customers at three grades of
purity, which are used for different applications. The least pure grade
(50% purity) is standard or control grade which is usually used in the
manufacture of standards or controls for immunoassay. These components
are used in obtaining quantitative results in a clinical test and to
determine if the test is performing properly. Iodination grade (or
antigen grade) materials are at least 98% pure and are used for
labeling with I-125. Affinity-pure materials are >99% purity and
contain very low levels of contaminants. This grade of product is
suitable for applications requiring most stringent purity such as
antibody production and use in the purification of purified antibodies.
The Company operates its present antigen purification operation in
accordance with all relevant regulations.
MARKETS AND DISTRIBUTION FOR PURIFIED ANTIGENS
The market for the pituitary hormones arose out of the field of
endocrinology and understanding of the physiological regulatory
function of the pituitary gland. These functions include control of
body growth, reproduction and regulation of metabolism. Physiological
hormones are transported to the target organ where the hormone binds to
a receptor with high affinity and specificity for that hormone only. For
example, the hormone LH is secreted from the pituitary gland and binds
to receptors on cells in the ovary. This binding to the LH receptor
initiates a complex series of biological events which lead to ovulation,
a critical step in the reproductive process. The fundamental discoveries
of pituitary hormone structure and function were followed by the
development of the radioimmunoassay ("RIA") in the late 1960s. This
development was important to medicine because the RIA allowed
measurement of the blood levels of a variety of clinically important
substances. The developers of RIA were awarded the Nobel Prize in the
early 1970s.
The market for the purified tumor markers arose from fundamental medical
research in cancer. Tumor markers are substances produced in tumor cells
through expression of proteins not usually produced in non-malignant
cells. These proteins are released into the blood stream where they
can be measured by immunodiagnostic tests. As the cancerous process
affects the amount of a specific marker in the blood stream, tumor marker
diagnostic tests are very valuable tools in the diagnosis and prognosis
of cancer. For example, prostate-specific antigen ("PSA") is highly
effective in the diagnosis of prostate cancer. Periodic measurement of
PSA allows the physician to determine if a patient is in relapse or
remission.
The immunodiagnostic segment of diagnostic medicine was spawned by the
development of the RIA. Immunodiagnostics are test procedures which are
based on antigen-antibody interactions. This includes a broad range of
tests for hormones, tumor markers, therapeutic drugs, infectious agents
and blood-borne substances characteristic of autoimmune or coronary
artery disease. The line of products presently manufactured by the
Company deals with the testing for hormones and tumor markers. The
purified antigens are considered raw materials of the testing industry
and are used primarily by manufacturers of diagnostic tests.
The scope of the market available for purified human antigens includes
manufacturers of diagnostic kits, manufacturers of standards and
controls, antibody producers and researchers. Market analysts,
such as IMS America, track immunodiagnostic markets and those kit
manufacturers who share that market. However, the dollar size of the
test kit market does not directly relate to the purified antigen
component of that market. Based upon management's involvement with
this market for over 10 years, management estimates the international
market to be extensive.
MARKETING AND SALES STRATEGY
The Company has had its purified antigens on the market since
November, 1990. During the first year, the Company undertook
considerable product research and development. Sales from November
1990 to August 1991 were largely derived from prolactin, growth hormone
and hCG. By August 1991, the Company was able to provide at least
limited quantities of TSH, LH, FSH and CEA, in addition to prolactin,
growth hormone and hCG. Since then, the production procedures, used to
purify products, have undergone refinement and quality control procedures
have been improved. The Company has also added hCG-beta, hCG-alpha, and
AFP to its product line.
The Company presently has 21 products on the market, which include
various purity grades of 10 individual purified antigens. Sales of the
Company's purified antigens have steadily increased since market
introduction. Total product sales were $48,507, $191,851, $311,041,
$553,748 and $376,746 for fiscal years 1991, 1992, 1993, 1994 and 1995
respectively. Product sales for fiscal year 1996 were $790,335. The
Company now sells to 150 clients including several domestic diagnostic
kit manufacturers.
The primary objective of the Company's present sales program is to
increase product sales and to increase the number of key end-user
accounts. These are usually large domestic companies that manufacture
diagnostic products and control a substantial portion of the
immunodiagnostic market. For example, this market is typically dominated
by Abbott Labs and Chiron Diagnostics. An additional six to eight
companies control the majority of the market. In certain cases, the
Company has chosen to pursue these accounts through brokers. Others will
be directly approached using the following procedure, although there may
be some variation depending on the company and its staff. Initially, the
proper contacts must be made and there are usually several contacts
within each company. The contact people are mailed a packet of sales
literature and follow-up is made by phone. If there is further
interest, a visit is made by Company personnel to the customer's
facility. Subsequently, an audit of the Company's facility may be
necessary, since the customers are especially interested in adherence
to manufacturing guidelines established by the FDA. Finally, the
customer will request samples of material for evaluation. This product
inspection usually takes at least six months. If all goes satisfactorily,
sales will begin and other products may be evaluated.
Another important component of the Company's sales strategy is to
maintain and increase product distribution through brokers and
distributors. The Company presently intends to continue sales through
brokers, and especially through a group of key brokers. This group is
perceived as having potential to increase product sales and/or to
approach certain accounts which may be difficult to sell to directly.
In certain cases in this industry, which is relatively small, consumers
prefer to deal with brokerage firms with whom they have had a long
standing relation. Most firms specializing in brokerage have a full time
sales staff available. Such direct sales efforts can assist the Company
while it focuses its present resources on production and new product
development. Brokers are also advantageous as a distribution route to
foreign markets.
Foreign accounts are of interest to the Company, although this is not the
primary focus of its present sales efforts. Foreign antigen buying is
focused in Canada, Europe and Japan. The Company also has contacts with
French, English and German firms. The approach to foreign accounts will
include use of brokers and distributors, as well as direct sales efforts.
The Company currently has a list of active and prospective customers that
includes approximately 366 individual companies in the United States
and 207 abroad.
EXPANSION OF PRODUCTION
In order to increase the market share of the Company's existing line of
purified antigens maintenance of adequate product inventory is essential.
Most of the Company's production methods have been refined into highly
efficient methods. The basic method to increase the Company's
inventories of pituitary hormones is to increase the number of glands
processed in a given production run. The amount of product produced is
dependent on the hormone content of the raw materials and the overall
efficiency of the purification process. Since the present overall yield
is similar for all products, variations in final product levels reflect
variation in hormone levels within pituitary glands.
Management is exploring alternatives to human tissues as raw materials.
The techniques used purify tissue antigens can be applied to materials
derived from cell lines that are maintained in a viable state by cell
culture technology. In this process, cells which are genetically
identical, are grown to high densities in a culture media. Culture media
is a complex solution specifically designed to support cell growth.
Subsequently, the cell culture enters a production phase whereby
specific products of the cell can be collected in large amounts at
relatively high purity. All of the products presently manufactured
by the Company from human tissues may also be derived from cell
cultures. The primary advantage of cell culture derived products is cost
effectiveness. This arises from the reduced cost of the starting
materials. After a cell line is established, it can be maintained
frozen, essentially indefinitely. Furthermore, the purity of the
products derived from cell culture is typically 10 to 90%, whereas the
pituitary hormones present in pituitary extracts is usually less than
0.1% pure. Cell culture derived products can be sufficiently purified
with fewer process steps than can the hormones present in a pituitary
extract. Fewer processing steps translates to faster output, greater
overall product yields and hence, lower production costs.
At the present time, management is exploring various options to produce
cell lines which are known to produce and secrete human CEA, FSH, LH
and prolactin. Once a viable cell line is located, the Company will then
engage in methods of development of the cell culture process and
purification procedures. Management believes that the market is ready
to accept cell line-derived products, but market resistance to a new
cell line-derived product does exist. There is no assurance that the
Company can produce any cell line-derived product that is marketable.
New Product Development
The Company is in the development stages of expanding its line of
purified antigens that are targeted for the immunodiagnostic markets.
The technology used in developing these products is substantially
similar to that used to develop and produce the present product line.
Such products include:
CA 15-3 - This product is also a tumor maker. It is related to CA 125
in structure, but is localized to breast tumors. It is a fairly specific
marker for breast cancer and is valuable in diagnosis and monitoring of
breast cancer patients. However, the test for CA 15-3 is not yet FDA
approved, so the United States market is somewhat limited. This marker,
known for about 15 years, is widely accepted in foreign markets.
PSA - Prostate-Specific antigen is also a tumor marker, but specific to
prostate cancer. The diagnostic test for PSA is FDA-approved and an
extensive market exists both in the United States and abroad. A United
States patent exists covering PSA (US #4,446,122) and the procedures
used in its purification. The Company anticipates entering into a
licensing agreement and payment of royalties once PSA is ready for
distribution. The Company has recently begun development of purified
CA 19-9, CA 125, and CA 15-3. No development has yet occurred on PSA.
Therapeutic Products - The Company is presently focused on protein
purification technology which is used to produce antigens from extracts
of human tissues. The technological expansion of the Company includes
plans to add facilities and expertise in the areas of cell culture and
recombinant DNA. Cell culture methods are used to grow large
quantities of a particular cell type and to allow for collection of
products of the culture for use as raw materials in the production of
purified proteins. Recombinant DNA is a modern method of
biotechnology whereby, genetic information directing the synthesis
of specific proteins can be inserted into cells grown in culture.
A cell culture facility has been recently been added to the Company's
operation. Recombinant DNA technology is also presently being added to
the company.
Once these technologies are available to the Company, the Company
intends to develop cell lines which produce some of the present products
that are least abundant in the presently utilized raw materials.
Subsequently, the Company intends to develop therapeutic products using
cell culture and recombinant DNA technologies.
The basic strategy in developing such products is initial research and
development to create genetically engineered cell lines which produce
viable products as determined by laboratory test procedures. Once a
satisfactory product can be demonstrated by laboratory testing, the
Company will file for US and foreign patent protection designed to ensure
maximum protection of the Company's technology. Testing of the new drug
would then follow with detailed studies of effectiveness, formulation and
safety. Given successful results, the Company would then commercialize
these products. At present the Company is targeting products for use in
treatment of infertility in animals, and cancer and aging in humans.
The addition of all new products will depend on availability of
capital. There is no guarantee that any of these products will be
developed or marketed.
Competition
The market need for purified pituitary hormones has been primarily
filled by Dr. Albert Parlow, a professor at UCLA, and an authority in
pituitary hormone endocrinology. Dr. Parlow has been the main supplier to
the United States and foreign market for past 20 years. Dr. Parlow has
had access to the entire domestic supply of human pituitary glands
through 5-year contracts administered by the U.S. Department of Health
and Human Services. The contracts are set up to provide researchers at
the National Institutes of Health (NIH) with purified pituitary
hormones for research purposes. Animal hormones are also purified by
this government contract. Dr. Parlow has also supplied the NIH with
Antisera to both human and animal pituitary hormones. Dr. Parlow sells
his material to brokers and directly to end-users. He does not operate
a business per se, but is known as a reliable supplier of high quality
pituitary hormones.
The only other known major domestic competitor is Genzyme
Diagnostics of Cambridge, Massachusetts. Genzyme is a large
biotechnology company, with strong expertise in the manufacture of
recombinant protein products. Genzyme has had recombinant TSH on the
market for about five years. Genzyme acquired Integrated Genetics of
Framingham, Massachusetts. Integrated Genetics holds several patents for
recombinant proteins of clinical significance, including human LH, FSH
and hCG. Management believes that Genzyme intends to pursue
production of recombinant LH, FSH and prolactin. Together with
recombinant TSH, the major pituitary hormones will be available in their
recombinant form. Genzyme has severl oher major product lines,
including a variety of enzymes, biotherapeutic drugs and a line of
diagnostic kits for measurement of cytokines. Other competitors are
known in Europe, including UCB Bioproducts located in Belgium. UCB
produces high quality materials, with prices somewhat higher than
products produced in the United States. Finally, there are a few
researchers who occasionally produce small amounts of material;
however, the Company does not consider these producers serious
competition.
Based on reports from its customers, management believes that its
purified antigens are equivalent or superior in quality to the same
products provided by its competitors. At the same time, the cost of
the Company's products is significantly less than that of other
suppliers. One reason the company's product is less expensive is
efficiency of production. While the basis for the competitor's
prices is unknown to management, the Company has continually improved
its manufacturing efficiency. The resulting decrease in costs of
production have been passed on to the Company's customers in the form
of lower prices.
MAJOR CUSTOMERS
During the most recent fiscal year ended October 31, 1996, sales made to
any one customer in an aggregate amount equal to 10% or more of the
Company's consolidated revenues included Dade International (27%)
and Bio Rad (12%).
PATENTS AND TRADEMARK
The Company presently does not hold any patents or trademarks,
however, based on successful continuing research and development in
future products, of which there is no assurance, it is anticipated that
the Company will file patent and/or trademark applications in the
future with respect to one or more of its products.
EMPLOYEES
The Company presently has nine full time. Full time employees include
Roger D. Hurst, the Company's President, and James R. Musick, Ph. D., Secretary.
FACILITIES
The Company presently occupies 5700 square feet at 8100 Southpark
Way, Littleton, CO 80120. Such facilities house the Company's
administrative headquarters, research and development laboratories and
manufacturing facilities. The lease on the premises terminated on
December 31, 1996. The Company has paid a substantial portion of its rent
through the issuance of Common Shares to its landlord, a principal
shareholder of the Company. There is no assurance such arrangement will
continue. Management's future plans for expansion of the Company may
include taking additional lease space at its current facility or relocating to a
larger facility.
MISCELLANEOUS
The Company's business is not subject to re-negotiation of profits or
termination of contracts or subcontracts at the election of the federal
government.
Research and development expenditures amounted to $68,817 for the
year ended October 31, 1994, $113,373 for the year ended October 31, 1995
and $65,077 for the year ended October 31, 1996. These research and
development activities relate to the development of purified antigen
products.
The nature of Company's business does not subject it to compliance
with federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, which would have a material
effect upon the capital expenditures, earnings or competitive position of the
Company.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative headquarters, research and development
laboratories and manufacturing facilities are in a 5,700 square foot, one-
story brick building located at 8100 Southpark Way, Building B-1,
Littleton, CO 80120. The facilities lease expired on December 31, 1996
Although these facilities are leased from Lloyd Fields, a principal shareholder,
the monthly rates and maintenance fees are equivalent to rates that could be
obtained from unaffiliated third parties. The Company has outgrown its present
facility and is actively looking for a building to expand into.
ITEM 3. LEGAL PROCEEDINGS
There are currently no legal matters or other regulatory procedures
pending which involve the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
During the fiscal year ended October 31, 1996, there were no matters
submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) Market Information
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
(as adjusted for a one forward stock split in March, 1988 and a one for one
forward stock split in April, 1989 and a one for two hundred reverse split in
April, 1991). The Company's common stock is traded over the counter and
quoted on the OTC Bulletin Board. The following information has been
obtained by the Company with reference to such source.
Price Ranges (closing bid)
Bid
Quarter Ended High Low
January 31, 1995 $.25 $.18
April 30, 1995 $.25 $.12
July 31, 1995 $.30 $.12
October 31, 1995 $.30 $.12
January 31, 1996 $.25 $.18
April 30, 1996 $.25 $.12
July 31, 1996 $.30 $.06
October 31, 1996 $.14 $.06
Because of recent changes in the rules and regulations governing the
trading of small issuers securities, the Company's securities are presently
classified as "Penny Stocks", which classification places significant
restrictions upon broker-dealers desiring to make a market in such
securities. It has been difficult for management to interest any broker -
dealers in the Company's securities and it is anticipated that these
difficulties will continue until the Company is able to obtain a listing on
NASDAQ at which time market makers may trade the Company's securities
without complying with such stringent requirements. The existence of
market quotations should not be considered evidence of the "established
public trading market". The public trading market is presently extremely
limited as to number of market markers in the Company's stock and the
number of states within which the Company's stock is permitted to be
traded.
The over-the-counter market quotations above reflect inter- dealer
prices, without retail mark - up, mark-down or commission and may not
necessarily represent actual transactions. The Company's C Warrants,
expired on December 31, 1994.
(b) Holders
As of October 31, 1996 the Company had approximately 2,000
shareholders of record, not including approximately 1,800 persons who
hold their shares in "street name".
(c) Dividends
On March 20, 1989, the Company's Board of Directors approved the
issuance of a total of 550,528 (after adjustment for the 1 for 200 reverse
split) warrants to the Company's shareholders as of April 15, 1989, as a
stock dividend. This class C Warrant expired on December 31, 1994.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's Operating Expenses for fiscal 1996 were $365,637, the
Cost of Sales was $269,972 and Interest Expense was $26,900. These
expenses total $662,509 or $55,209 per month. Gross Revenues for 1996
was $790,335 or $65,861 per month. This equates to a $10,652 gain per
month. On October 31, 1996 the Company had $22,346 in Cash and
$106,210 in Accounts Receivable - Trade for a total of $128,556.
Capital is required for the new product development described in
"Description of Business (Item 1). This capital will come from operating
profits or outside investment. Assets will not be sold to finance expansion.
New Product development will be limited by the availability of capital for
expansion.
Comparison of 12 Month Periods October 1996 to October 1995
The Company's net revenue increased from 1995. The net gain for 1996
of $128,726 is an increase of $566,421 from 1995. This gain in 1996 was
due to increased product sales. Working capital at October 31, 1996
amounted to $135,918 which was a $141,952 increase from the ($6,034) in
working capital at October 31, 1995. An increase in Accounts Receivable
and inventories were responsible for the change in working capital. These
changes to working capital were a direct result of increased product sales.
The Company's revenues from product sales (purified antigens) for the
year ended October 31, 1996 were $790,335 or 110% more than the $376,746
in product sales for the year ended October 31, 1995. Total milligram quantities
of all products sold in 1996 equaled 2,704 as compared to 1,432 milligrams in
1995. This equates to a 89% increase from 1995.
There are general expenses for any company that remain fairly constant,
no matter what the revenues, i.e. rent, utilities, administrative staff.
Management believes that the current administrative staff is sufficient to
handle revenues up to $2 million per year.
In order for the Company to increase production capabilities on
existing product lines, it added various pieces of equipment in 1996.
Leasing was chosen as a cost effective way to finance this capital
equipment expansion. The total value of the equipment leased totaled
approximately $150,000.
The Company is presently seeking financial assistance. If no or
minimal capital is raised, the Company will continue operations at its
current levels. Without added capital, the Company will have difficulty in
expanding its operations. The Company anticipates greater profits in the
near future through increased sales and decreased production costs.
The effects of inflation have not had a material impact on the
Company's operation, nor is it expected to in the immediate future.
Although the Company is unaware of any major seasonal aspect that
would have a material effect on the financial condition or results of
operation, the first quarter of each fiscal year is always a financial concern.
It is not uncommon for companies to shut down their operation or operate
on a skeletal crew during the Christmas/New Year holiday. Therefore in
effect, the first quarter really has only two months for generating revenue.
ITEM 7. FINANCIAL STATEMENTS
See "Index to Financial Statements and Financial Statement Schedules"
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective October 9, 1996, L. K. Denton and Co., P.C. resigned as the
Registrant's independent accountants. Effective October 9, 1996, the
Registrant hired Larry O'Donnell, CPA, P.C., 2851 South Parker Road,
Suite 1040, Aurora, Colorado 80014, (303-745-4545), as their new
accounting firm.
There were no adverse opinions, disclaimer of opinions, or
modification of opinion as to uncertainty, audit scopes or accounting
principles issued by such accountant for either of the two most recent years.
The change of accountants was approved by the Registrant's board of
directors.
During the two most recent fiscal years there were no disagreements
with the former accountant on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
During the two most recent fiscal years the auditors had not advised the
Registrant that the internal controls necessary to develop reliable financial
statements did not exist. Nor have the auditors advised the Registrant that
information had come to their attention that led them to no longer be able to
rely on management's representations, or that had made them unwilling to
be associated with the financial statements.
No information came to the auditor's attention that they would have
concluded materially impacts the fairness or reliability of any previous
financial statement.
The Registrant did not consult with the new auditor for any reason
during the last two fiscal years.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS;
Compliance with Section 1 of the Exchange Act
a) Identification of Directors and Executive Officers. The name,
position with Company and age of each director and the period
during which each current director has served are as follows:
Directors and Executive Officers
The following table sets forth certain information regarding the officers
and directors of the Company as of January 20, 1997.
Name Age Position
Roger D. Hurst 46 President
Chief Executive Officer
Chief Financial Officer
Chief Accounting Officer
Director
James R. Musick 50 Secretary/Treasurer
Chief Operating Officer
Director
Erik D. Van Horn 30 Director
Each member of the Board of Directors has been elected to serve until
the next annual meeting of shareholders and until his successor has been
duly elected and qualified, or until his resignation or removal. Officers are
appointed to serve at the discretion of the Board of Directors. There is no
family relationship between any member of the Board of Directors.
The executive officers of Company are elected annually at the first
meeting of the Company's Board of Directors held after each annual
meeting of shareholders. Each executive officer of the Company will hold
office until his or her successor is duly elected and qualified or until his or
her death or resignation or until he or she shall be removed in the manner
provided by the Company's Bylaws. There was no arrangement or
understanding between any executive officer and any other person pursuant
to which any executive officer was selected as such.
Roger D. Hurst has been President and Director of the Company since
February 15, 198. On June 26, 1989 he assumed the Chief Executive
Officer, Chief Financial Officer and the Chief Accounting Officer
responsibilities for the Company. Mr. Hurst received a Bachelors Degree in
Education from Nebraska Wesleyan University in 1972. Mr. Hurst devotes
100% of his time to the affairs of the Company.
James R. Musick, Ph.D. was appointed as Secretary, Chief Operating
Officer and Director of the Company on September 1, 1989. From
December, 1987 to the present Dr. Musick has been President of Health
Sciences Consultants, a medical consulting firm located in Denver,
Colorado. Dr. Musick is a member of the Society of the Sigma Xi and he is
referenced in American Men and Women in Science and Who's Who in the
West. Dr. Musick has written and had numerous scientific papers
published. Dr. Musick received a Bachelor of Arts in Biological Sciences
degree in 1968 and a doctorate in Biological Sciences in 1975 from
Northwestern University, Evanston, Illinois. Dr. Musick devotes his full
time to managing all technical areas of the Company. Erik D. Van Horn has
been a Director of the Company since March 1993 and presently serves as
Production Manager. He received his Bachelor of Science in Chemical
Engineering from the University of Colorado in 1990 and had developed a
significant expertise in protein separation and engineering of production
processes and in the cell culture of various plant and animal cell lines.
Remuneration and Employment Agreements
The Company's two executive officers were paid a total of $81,600 during
fiscal year ending October 31, 1996 and $96,000 during the fiscal year 1995.
Such payments are pursuant to resolution of the Board of Directors. The
Company has not entered into employment contracts with either Mr. Hurst or
Dr. Musick as of the date of this document.
Effective May 15, 1992, the Company entered into agreements not to
compete with Messrs. Hurst and Musick, respectively, pursuant to which
each has agreed that during his employment with the Company and for a
period of two years thereafter, that he will not directly or indirectly, (i)
consult with or assist any competitor in competing with the Company in
any of the Company's then businesses; (ii) own an interest greater than 5%
in any competitor, (iii) take any action intended to divert business from the
Company to any competitor, or (iv) serve as an officer, director or
employee of any competitor. Further, under the terms of such agreements
not to compete, the Company has use its best efforts to enter into an
employment agreement with Messrs agreed to agreements have yet to be
negotiated.
On May 15, 1992, stock options were approved for issuance by the
Board of Directors in favor of Mr. Roger Hurst and Dr. James Musick and
Mr. Erik Van Horn. Messrs. Hurst and Musick were each granted the right
to purchase 400,000 shares of the Company's Common Stock and Mr. Van
Horn 200,000 shares of the Company's Common Stock at an exercise price
equal to the market value at May 15, 1992.
No officer of the Company is entitled to receive any additional
compensation for his services to the Company, including his services as a
director. The Company may compensate non - employee Directors in the
future.
Cash or Deferred Arrangement Simplified Employee Pension
(CODA-SEP)
Effective March 9, 1994, the Company adopted a Paine Webber
(currently Prudential) CODA - SEP Plan. The CODA-SEP is the 401(k)
alternative for smaller businesses. Employee contributions are made to
each employee's IRA. Employees can elect to contribute pre-tax dollars
amounting to 15% of their annual salary up to $9,000 (this amount is
indexed annually for inflation). The Company may also contribute to the
plan on behalf of each employee. Combined Company and employee
contributions cannot exceed 15% of salary up to $30,000 per employee. No
contributions by the Company have been made to this plan.
Stock Option Plan
Effective December 2, 1992, the Company adopted the Vitro
Diagnostics, Inc. 1992 Stock Option Plan (the "Plan") for the benefit of
officers, directors and other personnel providing substantial assistance to
the Company. An aggregate of 3,000,000 Common Shares has been
reserved for issuance under the Plan. To date, options to purchase an
aggregate of 100,000 shares have been issued and exercised under the Plan.
The Plan is administered by a Compensation Committee as designated
by the Board of Directors of the Company. The Compensation Committee
presently consists of Mr. Hurst and Dr. Musick. The Plan provides for the
issuance of stock options for the benefit of employees, non-employee
directors, consultants of the Company and others who render significant
service. In determining the services rendered by consultants and other non-
employee and non-directors of the Company, the plan provides that the
Compensation Committee shall consider the value of services rendered by
such individuals, the value of comparable services in the community and
the value of the benefits received by the Company.
According to the 1992 Stock Option Plan, the determination of those
eligible to receive Stock Options, and the amount, price, type and timing of
each Stock Option and the terms and conditions of the respective Stock
Option agreements shall rest in the sole discretion of the committee, subject
to the provisions of the Plan. Also, all Stock Options granted under the
plan must be granted within ten years from the date the plan was adopted
and no option granted will be exercisable after the expiration of the plan.
The Committee can provide than an option be exercisable during the ten
year period or during a shorter time period. The Board may also suspend or
terminate the plan as a whole or in part or amend it at any time in such
respects as the Board may deem appropriate and in the best interest of the
Company.
ITEM 10. EXECUTIVE COMPENSATION
(a) Cash Compensation.
The following table shows all cash compensation paid by Company
during the fiscal year ended October 31, 1996, to each of the five most
highly compensated executive officers whose total cash compensation
exceeded $60,000 (there were no such persons).
<TABLE>
<S> <C> <C> <C> <C> <C>
Other Restricted
Name and Principal Annual Stock
Position Year Salary Bonus Compensation Awards
Roger Hurst 1996 $40,800 $0 $0 $0
CEO, CFO 1995 $48,000 $0 $0 $0
President 1994 $48,000 $0 $0 $0
Jim Musick, Ph.D. 1996 $40,800 $0 $0 $0
Secretary, COO 1995 $48,000 $0 $0 $0
1994 $48,000 $0 $0 $0
</TABLE>
In May, 1992, the Board of Directors of the Company granted
options to Mr. Hurst and Dr. Musick to acquire 400,000 Common
Shares at an exercise price of $.19 per share. In May, 1996, the Board of
Directors of the Company granted options to Dr. Musick to acquire 200,000
Common Shares at an exercise price of $.16 per share.
The Company pays health insurance premiums for its full time
employees, of which Mr. Hurst and Dr. Musick are included. There is no
deferred compensation payable any executive officer.
As set forth in the following table, no options were exercised by any
executive officer of the Company during the fiscal year ended October 31,
1996 or 1995. The value of unexercised options held by these persons is as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of Value of
Unexercised Options Unexercised
Options
Shares Values at October 31, 1996 at October 31,
1996
NAME Acquired Realized Exercisable Unexercisable Exercisable
Unexercisable
Roger Hurst 0 0 400,000 0 $76,000 0
Jim Musick 0 0 600,000 0 $108,000 0
Erik VanHorn 0 0 300,000 0 $54,000 0
</TABLE>
Employment Agreements
Effective May 15, 1992, the Company entered into agreements not to
compete with Messrs. Hurst and Musick, respectively, pursuant to which
each has agreed during his employment with the Company and for a period
of two years thereafter, that he will not directly or indirectly; (i) consult
with or assist any competitor in competing with the Company in any of the
Company's then businesses; (ii) own an interest greater than 5% in any
competitor; (iii) take any action intended to divert business from the
Company to any competitor; or (iv) serve as an officer, director or
employee of any competitor Further, under the terms of such agreements
not to compete, the Company has agreed to use its best efforts to enter in
an employment agreement with Messrs. Hurst and Musick, which
agreements have yet to be negotiated.
No officer of the Company is entitled to receive any additional
compensation for his services to the Company, including his services as a
director. The Company may compensate non-employee Directors in the
future.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
(a) (b) Security Ownership of Certain Beneficial Owners.
The following table sets forth information with respect to the
ownership of the Company's Common Stock, $.001 par value, of all
Officers and Directors, individually, all Officers and Directors as a group,
and all beneficial owners of more than five percent (5%) of the Company's
Common Stock. The following shareholders have sole voting and
investment power with respect to shares, unless it is indicated otherwise.
Based upon 6,286,816 outstanding shares as of October 31, 1996.
Name and Address of Beneficial
Owner Number of shares %
Roger D. Hurst (1) (2) 611,729 9.7
8100 Southpark Way
Bldg. B, Suite 1
Littleton, CO 80120
James R. Musick (1) (2) 600,000 9.5
8100 Southpark Way
Bldg. B, Suite 1
Littleton, CO 80120
Lloyd Fields 3,525,000 56.1
425 Castle Place
Beverly Hills, CA 90210
Officers and Directors 1,211,729 19.3
as a Group (2 persons)
(1) Officer and Director
Does not include 600,000 shares of common stock issuable upon
exercise of an option by Messrs Hurst and Musick. Exercise
price for 400,000 shares is $.19 which was the market price on
May 19, 1992, the date of grant. Exercise price for 200,000
shares is $.16, which was the market price on May 7, 1996, the
date of grant.
(c) Change in Control. Company knows of no arrangement which may
at a subsequent date result in a change in control of the Company.
However, on May 15, 1992, the Company entered into an
Agreement with Mr. Lloyd Fields, a principal shareholder, regarding
proxy solicitation to amend the Company's Articles of Incorporation.
In connection with Mr. Fields' forgiveness of rent owed the Company
on its leased offices in exchange for the issuance of Common Shares, and
his further investment if $150,000 in the Company for additional Common
Shares, Mr. Fields and the Company agreed that management would cause
the Company to solicit proxies from shareholders on or before December
31, 1992, to amend the Company's Articles of Incorporation. As of October
31, 1994, this proxy solicitation has not been finalized.
The Agreement provides, and Messrs. Hurst and Musick have agreed,
that management will vote its shares with Mr. Fields to amend the
Company's Articles of Incorporation to require the consent of the holders
of at least 70% of the outstanding shares of common stock to the issuance
of Securities (as defined below) of Vitro except with respect to the
following transactions:
i) The issuance of Securities involving less than 0.1% of the outstanding
common shares of Vitro outstanding at the close of the previous
fiscal year in any single transaction or involving less than twice such
number in the aggregate in any fiscal year;
ii) Issuance of Securities to creditors in exchange for debt or rent
forgiveness at a rate approved by the Board of Directors;
iii) Issuance of Securities of Vitro in exchange for a reduction of
obligations owed to trade creditors at a rate approved by;
iv) Issuance of Securities pursuant to a public offering of securities;
v) Issuance of Securities pursuant to a private placement for which a
registered broker - dealer is engaged to act as placement agent;
vi) Issuance of Securities in exchange for the securities or assets of any
unaffiliated entity;
vii) Issuance of Securities when the delay in securing stockholder
approval would seriously jeopardize the financial viability or prospects of
Vitro; and
viii) A qualified employee stock option plan in which officers and directors
of the Company are not eligible to participate.
Further, the Agreement provides that the Company will not issue any
securities in contravention to the above exceptions prior to undertaking a
proxy solicitation for the above described purposes.
Upon consultation with counsel to the Company, management has been
advised that the subject proxy solicitation agreement may not be
enforceable under Colorado law. Accordingly, no action has been
Taken by the Company to solicit proxies for such purposes.
Management intends to refrain from any actions with respect to the
Agreement until a determination can be made under Colorado statutory and
case law as to various legal issues.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
(a) Transactions With Management and Others.
In March, 1991, January, 1992, May, 1992, August, 1993, May, 1994,
April, 1995, and May, 1996 the Company issued 266,500, 107,500, 113,500,
119,143, 49,096, 132,000 and 250,000 Common Shares, respectively, to Mr.
Lloyd Fields, a principal shareholder of the Company to pay rent and project
operating costs of the Company for its office space during the period October 1,
1990 through December 31, 1996. Such Common Shares have been valued in
the aggregate at $297,053. In April, 1992, October, 1992, March, 1993, August,
1993 and May, 1994, Mr. Fields purchased 1,000,000, 667,000, 33,000, 50,857,
and 300,000 Common Shares of the Company for aggregate consideration
$351,297 (See "Principal and Selling Shareholders" and Business - Facilities.")
The Company maintained a lessor/lessee relationship with Mr. Lloyd
Fields under a lease agreement which terminated December, 1996.
Management believes that the terms of this arrangement were fair,
reasonable and no less favorable than could be obtained from unaffiliated
third parties. (See "Business - Facilities.")
In May, 1992, the Board of Directors of the Company, including
Messrs. Hurst and Musick, granted options to Mr. Hurst and Dr. Musick to
acquire 400,000 Common Shares of the Company each at an exercise price
of $.19 per share. The Board of Directors also approved the issuance of an
option to Mr. Erik Van Horn, a key employee and director of the Company,
entitling him to purchase 200,000 Common Shares at an exercise price of
$.19 per share. (See "Management.")
On May 7, 1996, stock options were approved for issuance by the
Board of Directors in favor of Dr. James Musick and Mr. Erik Van Horn.
Dr. Musick was granted the right to purchase 200,000 shares of the Company's
Common Stock and Mr. Van Horn 100,000 shares of the Company's Common
Stock at an exercise price equal to the market value at May 7, 1996.
On January 12, 1993, the Company issued 240,000 "restricted
Common Shares to Home Corp., an unaffiliated third party, in exchange for
the forgiveness of indebtedness aggregating $92,000.
(b) Certain Business Relationships. There are no material business
relationships between management or management's family and the
Company.
(c) Indebtedness of Management. None.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements:
Balance sheets, October 31, 1996 (Audited)
Statements of Operations for the years ended October 31, 1996
(Audited), and 1995 (Audited)
Statement of Stockholder's Equity for the years October 31, 1996
(Audited) and 1995 (Audited)
Statements of Cash Flows for the years ended October 31, 1996
(Audited) and 1995 (Audited)
Notes to Financial Statements for the years ended October 31, 1996
(Audited) and 1995 (Audited)
(b) Reports on Form 8 - KA.
On October 22, 1996 an 8 - KA was filed to report changes in Registrants
Certifying Accountants.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
[ X ] 8-KA REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file Number 0-17378
VITRO DIAGNOSTICS, INC.
(Name of Small business Issuer in its Charter)
Colorado 84-1012042
(State or Other Jurisdiction of (IRS Employer #)
Incorporation or Organization)
8100 Southpark Way, B-1
Littleton, CO 80120
(Address of Principal Executive Offices)
Issuers telephone Number, Including Area Code:
(303) 794-2000
Item 4. Changes in Registrants Certifying Accountants
Effective October 9, 1996, L.K. Denton and Co., P.C. resigned as the
Registrants independent accountants. Effective October 9, 1996, the
Registrant hired Larry O'Donnell, CPA, P.C., 2851 South Parker Road,
Suite 1040, Aurora, Colorado 80014, (303-745-4545) as their new accounting firm.
There were no adverse opinions, disclaimer of opinions, or modification of
opinion as to uncertainty, audit scopes or accounting principles issued by
such accountant for either of the two most recent years.
The change of accountants was approved by the Registrants board of directors.
During the two most recent fiscal years there were no disagreements with the
former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
During the two most recent fiscal years the auditors had not advised the
Registrant that the internal controls necessary to develop reliable financial
statements did not exist. Nor have the auditors advised the Registrant that
information had come to their attention that led them to no longer be able to
rely on managements representations, or that had made them unwilling to be
associated with the financial statements.
No information came to the auditors attention that they would have concluded
materially impacts the fairness or reliability of any previous financial
statement.
The Registrant did not consult with the new auditor for any reason during the
last two fiscal years.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VITRO DIAGNOSTICS, INC.
Dated: October 22, 1996 (Signature)
By:
________________________________
Roger Hurst
President and
Chief
Financial Officer
Exhibit 16
Letterhead from
L.K. Denton & Co., P.C.
Certified Public Accountants
7430 East Caley Avenue
Suite 330
Englewood
Colorado
80111
(303) 694-3556
October 22, 1996
Securities and Exchange Commission
450 - 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We have been furnished with a copy of the response to Item 4 of Form 8-KA for
the event that occurred on October 9, 1996, to be filed by our former client,
Vitro Diagnostics, Inc. We agree with the statements made in response to
that item insofar as they relate to our firm.
Very truly yours,
(Signature)
L Karl Denton
FIANANCIAL STATEMENTS
Larry O'Donnell, CPA, P.C.
2851 South Parker Road Telephone 745-4545
Suite 1040
Aurora, CO 80014
Board of Directors
Vitro Diagnostics, Inc.
Littleton, Colorado
Independent Auditor's Report
I have audited the accompanying balance sheet of Vitro Diagnostics,
Inc. as of October 31, 1996 and the related statements of operations,
stockholder's equity and cash flows for the years ended October 31, 1996
and 1995. These financial statements are the responsibility of the Company's.
My responsibility is to express an opinion on these financial statements based
on my audit
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing their accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Vitro Diagnostics,
Inc. as of October 31, 1996 and the results of its operations and its cash
flows for the years ended October 31, 1996 and 1995 in conformity with
generally accepted accounting principles.
/s/Larry O'Donnell
December 20, 1996
VITRO DIAGNOSTICS, INC
Balance Sheet October 31, 1996 (Audited)
Assets
Current Assets:
Cash $22,346
Accounts Receivable-Trade, 106,210
Inventories 183,326
Prepaid Expenses 78,545
Total Current Assets 390,427
Property, Plant and Equipment :
Office Furniture and Equipment 17,688
Laboratory and EDP Equipment 165,757
Leasehold Improvements 11,885
Sub Total 195,330
Less Accumulated Depreciation 162,714
Total Property, Plant and Equipment 32,616
Other Assets:
Inventory Non -Current 51,471
Deposits 7,598
Total Other Assets 59,069
Total Assets $482,112
VITRO DIAGNOSTICS, INC
Balance Sheet October 31, 1996 (Audited)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable - Trade $107,469
Accounts Payable - Officer 8,227
Accrued Salaries and Wages 6,014
Payroll Taxes Payable 9,877
Accrued Expenses 2,447
Short-Term Notes Payable 106,345
Notes Payable - Bank 14,130
Total Current Liabilities 254,509
Stockholders' Equity
Common Stock; 500,000,000 Shares of
$.001 Par Value Authorized;
6,036,816 Issued and Outstanding 280,868
Paid-in Capital in Excess
of Par Value 3,204,961
Accumulated Deficit (3,258,226)
Total Stockholders' Equity 227,603
Total Liabilities and
Stockholders' Equity $482,112
The accompanying notes are an integral part of these financial statements
VITRO DIAGNOSTICS, INC
Statement of Operations October 31, 1996 and 1995 (Audited)
1996 1995
Revenue
Product Sales 790,335 376,746
Gross Revenue 790,335 376,746
Cost of Sales
Product 269,972 199,257
Total Cost of Sales 269,972 199,257
Gross Profit 520,363 177,489
Operating Expenses
Selling, General and Adm 283,442 499,376
Research and Development 65,077 113,373
Depreciation and Amortization 17,118 20,572
Total Operating Expenses 365,637 633,321
Income (Loss) From Operations 154,726 (455,832)
Other Income (Expense)
Interest Income $414
Interest Expense (26,900) (8,447)
Gain on Sale of Assets 26,000
Miscellaneous Income 900
Total Other Income (Expenses) (26,000) 17,967
Net Income (Loss) For the Year $128,726 ($437,865)
Net Income (Loss) Per
Share of Common Stock $0.02 ($0.07)
Weighted Average Number
of Shares Outstanding
During the Year 6,161,816 5,851,528
VITRO DIAGNOSTICS, INC
Statement of Stockholders' Equity
For the Years Ended October 31, 1996 and 1995 (Audited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Capital in
Number Excess Accumulated
of Shares Par Value of Par Deficit Total
Balance 10/31/94 5,666,240 280,248 3,023,037 (2,949,087) 354,198
01/95 for Cash 5,176 5 2,539 2,544
4/95 for Consulting
Services 108,000 108 51,892 52,000
4/95 for Cash 400 200 200
5/95 for Cash
and Rent 132,000 132 52,668 52,800
10/95 for Cash 125,000 125 24,875 25,000
Net Loss for Year Ended
10/31/ 95 (437,865) (437,865)
Balance 10/31/95 $6,036,816 $280,618 $3,155,211 $(3,386,952) 48,877
5/96 for Cash
and rent 250,000 250 49,750 50,000
Net income for the year ended 10/31/96 128,726 128,726
Balance 10/31/96 $6,286,816 $280,868 $3,204,961 $(3,258,226) $227,603
</TABLE>
The accompanying notes are an integral part of these financial statements.
VITRO DIAGNOSTICS, INC
Statement of Cash Flows For the Years Ended October 31, 1996
(Audited) and 1995 (Audited)
1996 1995
Cash Flows from
Operating Activities:
Net Income (Loss) $128,726 $(437,865)
Adjustments to Reconcile
Net Income (Loss) to
Net Cash Provided by
Operating Activities:
Depreciation and
Amortization 17,118 20,572
Write Down of
Patents 728
Expenses Incurred for Stock 49,389 102,424
Changes in Assets and Liabilities:
(Increase) Decrease in
Accounts Receivable (46,43) 47,922
Increase (Decrease) in
Accounts Payable 1,656 75,512
(Increase) Decrease in
Inventories (114,100) 5,511
(Increase) Decrease in
Prepaid Expenses (18,400) 592
Increase (Decrease) in
Accrued Expenses 5,737 277
Increase (Decrease) in
Payroll Taxes Payable 1,434 1,868
(Increase) Decrease in
Deposits 292 (3,611)
Net Cash Provided (Used) by __________ ___________
Operating Activities 25,418 (186,070)
1996 1995
Cash Flows from
Investing Activities:
Capital Expenditures (2,443) (10,292)
Receivable/Payable Officer (150) 13,167
______ ______
Net Cash Provided (Used)
by Investing Activities 2,573 2,875)
______ ______
Cash Flows from
Financing Activities:
Increase (Decrease) in
Notes Payable, Bank (15,870) 30,000
Increase (Decrease) in Short
Term Notes Payable 5,702 76,905
Deferred Offering Costs 38,798
Proceeds from Issue of
Common Stock 611 30,120
______ ______
Net Cash Provided (Used) by
Financing Activities (9,557) 175,823
_______ ______
Net Increase (Decrease) in Cash 13,268 (7,372)
Cash at Beginning of Year 9,078 16,450
______ ______
Cash at End of Year $22,346 $9,078
=========== ===========
Supplemental disclosures of cash flow information
1996 1995
Cash paid during the year for:
Interest $ 26,900 $ 8,170
Income taxes $ - $ -
Supplemental disclosure of noncash financing activities
Common stock issued for
rent and services $ 49,389 $102,556
The accompanying notes are an integral part of these financial statements.
Vitro Diagnostics, Inc.
Notes to the Financial Statements
October 31, 1995 (Audited)
Note #1: Accounting Policies
The Company is engaged in the development, manufacturing and
marketing of purified antigens. These products are sold domestically and
internationally: the first product was introduced November, 1990.
The Company had two major customers in 1996. One accounted for
27% of sales and another accounted for 12% of sales.
Accounts Receivable - The Company considers accounts receivable to
be fully collectible; accordingly, no allowance for doubtful accounts was
established. If accounts become uncollectible, they will be charged to
operations when that determination is made.
Depreciation and Amortization - Equipment is stated at lower of cost or
estimated market value and is being depreciated on the straight-line basis
over estimated useful lives of 3 to 10 years. Intangible assets are amortized
on the straight line method per the following: patents, and trademarks 204
months. At October 31, 1995, management determined that patents and
trademarks had no future value and they were written off.
Inventories - They are valued at the lower of cost or market using the
first-in first-out method.
Inventories consist of:
10-31-96
------------
Finished Goods $58,333
Goods in Process 171,243
Raw Materials 5,221
----------
$234,797
==========
Goods in process inventory which is not expected to be completed and
sold in the next fiscal year is classified as non current.
During the years ended October 31, 1995 and October 31, 1994 the
Company incurred costs in connection with a proposed stock offering.
Form SB-2 for 6,550,528 shares at $.50 per share was declared effective on
October 7, 1994 by the SEC. The offering proved to be unsuccessful
during the year ended October 31, 1995, and the costs were charged to
offering expenses.
Cash includes demand deposits at banks.
During the past two years the Company has not had employees who
were compensated for absences.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect 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.
NOTE #2: Common Stock and Stock Transactions
The net earnings (loss) per share is based upon the weighted average
number of shares outstanding during the year. Common stock warrants are not
included in the calculation of earnings (loss) per share
On May 15, 1992, the Board of Directors of the Company issued stock
options, which are to be exercised at the market value on May 15, 1992, to
Roger Hurst, Jim Musick and Erik VanHorn. The options are for a period
of 10 years. Mr. Hurst and Dr. Musick were each granted the right to
acquire 400,000 "restricted" common shares of the Company. Mr.
VanHorn was granted the right to acquire 200,000 "restricted" common
shares of the Company. No options have been exercised.
On May 7, 1996, stock options were approved for issuance by the
Board of Directors in favor of Dr. James Musick and Mr. Erik Van Horn.
Dr. Musick was granted the right to purchase 200,000 shares of the Company's
Common Stock and Mr. Van Horn 100,000 shares of the Company's Common
Stock at an exercise price equal to the market value at May 7, 1996.
Note #3: LEASE OBLIGATION
The Company has extended its lease at 8100 Southpark Way until
December 31, 1996. Monthly lease payments will continue to be $4,116.
At the present time extended lease terms have not been negotiated. Rent
expense recorded under the lease is $49,561 and $50,424 for the years ended
October 31, 1996 and 1995 respectively.
The Company leases its office/warehouse space from a major
shareholder of the Company. The lease payments were made by issuing
stock for the rents due.
NOTE #4: Schedule of Short Term Notes Payable
The Company has notes payable to individuals which are unsecured
and due on demand as follows:
Issue Interest
Date Rate Balance
---------- ------------ -----------
Unrelated Party
1/10/90 20.00% $11,971
6/12/90 14.453% 20,265
6/30/95 15.00% 24,096
Related Party:
Corporate COO 6/29/95 15.00% 12,657
Corporate COO 8/4/95 25.00% 5,450
Corporate CEO 10/31/95 21.00 31,906
Total $106,345
Interest expense to related parties was $10,928 and $5,320 for
the years ended October 31, 1996 and 1995, respectively.
The Company has a note payable to a bank which allows for a maximum
borrowing of $30,000 at 2% plus the banks prime rate (resulting in a rate of
10.25% at October 31, 1996). The note is secured by accounts receivable
and is due February 1, 1997.
NOTE #5: Income Taxes
Income Taxes - Deferred income taxes arise from the temporary
differences between financial statement and income tax recognition of net
operating losses. A deferred tax asset arising from the net operating loss
carryover of approximately $550,000 has been offset by a valuation
allowance.
During the year ended October 31, 1996, the Company utilized a portion
of its net operating loss carryover recognizing a benefit of approximately
$50,000 which reduced the entire amount of its income tax expense.
At October 31, 1996, the Company has unused Federal net
operating loss carry forwards which expire as follows:
Carry Over Expires Original Amount Loss
From F/Y In F/Y Loss Utilized Carryover
----------- ---------- ---------- ---------- ------------
1988 2003 $333,034 $140,504 $192,530
1989 2004 783,474 783,474
1990 2005 480,296 480,296
1991 2006 21,321 21,321
1995 2010 386,846 386,846
-------
$1,864,467
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
January 20, 1997.
Vitro Diagnostics, Inc.
(Company)
By: /s/ Roger Hurst
Roger Hurst, President,
Chief Executive Officer
Chief Financial Officer
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Company in the capacities indicated on January 20, 1997.
Principal Executive, Financial and Accounting Officer
and Director: /s/ Roger Hurst
Roger Hurst
Directors:
/s/ Roger Hurst
Roger Hurst
/s/ James Musick
James Musick
/s/ Erik VanHorn
Erik VanHorn
January 20, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Vitro Diagnostics, Inc.
Form 10-KSB for the year ending October 31, 1996
SEC file no. 0-17378
Dear Sir or Madam:
Transmitted herewith through the EDGAR system is Form 10-KSB for
he fiscal year ended October 31, 1996 for Vitro Diagnostics, Inc. Should
you have any questions or comments concerning this matter please contact
the undersigned at the 303-794-2000.
Sincerely,
Roger Hurst
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at October 31, 1996 (Audited) and the
Statement of Income for the Year Ended October 31, 1996 (Audited). It is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Oct-31-1996
<PERIOD-END> Oct-31-1996
<CASH> 22,346
<SECURITIES> 0
<RECEIVABLES> 106,210
<ALLOWANCES> 0
<INVENTORY> 183,326
<CURRENT-ASSETS> 390,427
<PP&E> 195,330
<DEPRECIATION> 162,714
<TOTAL-ASSETS> 482,112
<CURRENT-LIABILITIES> 254,509
<BONDS> 0
<COMMON> 280,868
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 482,112
<SALES> 790,335
<TOTAL-REVENUES> 790,335
<CGS> 269,972
<TOTAL-COSTS> 365,637
<OTHER-EXPENSES> 26,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 128,726
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,726
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
