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, 1998
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 $1,232,244.
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 ($0.64 as
quoted on February 3, 1999) was $992,056.
The number of shares outstanding of each of the issuer's classes of
common equity as of February 9, 1999 was 6,413,702.
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 DIAGNOSTIC ANTIGENS
Purified human antigens for diagnostic applications were selected
as the initial business to be pursued by the Company. Manufacture of
these products required expertise in the 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, LH beta, LH alpha, FSH, FSH beta, FSH alpha,
TSH, TSH alpha, and TSH beta. The tumor marker antigens include CEA,
rCEA, AFP, PSA, CA 19-9, CA 125, hCG, beta hCG and alpha hCG. These
hormones and tumor markers are sold to diagnostic kit manufacturers,
immunochemical distributors, brokers and to university researchers.
Company personnel have over twenty 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 most
raw materials. Liver tissue is presently in short supply, therefore most
of the CEA sales are derived from the Company's recombinant CEA
inventory. 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.
Urofollitropin - This is FSH derived from the urine of postmenopausal
women. This FSH is substantially similar to FSH purified from human
pituitary glands although there are minor chemical differences.
Urofollitropin is used in research to develop fertility drugs and in
basic endocrinology research.
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 chains 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.
Beta hTSH- The beta subunit of thyroid-stimulating hormone is one of
two dissimilar protein chains that together compose hTSH. The beta
subunit of TSH contains the biochemical specificity of TSH. The beta
subunit of TSH is used in antibody production to minimize contamination
of antibodies to closely related hormones.
Beta hFSH- The beta subunit of follicle-stimulating hormone is one of
two dissimilar protein chains that together compose hFSH. The beta
subunit of FSH contains the biochemical specificity of FSH. The beta
subunit of FSH 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.
Alpha hLH - The alpha subunit of hLH is a relative of beta hLH (above).
together with the beta subunit they comprise hLH. The alpha chain of
hLH is nearly identical to the alpha chain of hCG.
Alpha hTSH - The alpha subunit of hTSH is a relative of beta hTSH
(above) together with the beta subunit they comprise hTSH. The alpha
chain of hTSH is nearly identical to the alpha chain of hCG.
Alpha hFSH - The alpha subunit of hFSH is a relative of beta hFSH
(above). ogether with the beta subunit they comprise hFSH. The alpha
chain of hFSH is nearly identical to the alpha chain of 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 two 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. 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. Earlier sales were derived from only a few of the present product
line. New products were slowly added to attain the present line of diagnostic
antigens. The Company maintains an active program of new product development.
The Company presently has 14 different protein products on the market.
Together with different purity grades and subunits, 36 catalog items are
included in the present product line. Total product sales were $376,746,
$790,335, $650,846 and $1,232,244 for fiscal years 1995, 1996,1997 and 1998
respectively. The Company now sells to 65 clients including several domestic
diagnostic kit manufacturers.
A primary objective of the Company's present sales program is to
increase product sales to key end-user accounts. These are usually large
domestic companies that manufacture diagnostic products and control a
substantial portion of the immuno-diagnostic 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 are 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.
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.
NEW PRODUCT DEVELOPMENT
The existing line of diagnostic antigens is supported by large-scale and
efficient production methods. The Company has developed cell lines to provide
raw materials for production. This reduces dependence on supply of human
tissues as a raw material for production. The methods used to purify tissue
antigens may then 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 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 in the culture
media at relatively high purity. All of the products presently
manufactured by the Company from human tissues may also be derived from
cell cultures. One of several advantages 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, the Company sells recombinant CEA that is derived
from cell culture methods as described above. This product was introduced to
diagnostic markets in late 1996 and while sales were slow initially, this
product currently is well-received and recombinant CEA sales showed
substantial growth in 1998. Recombinant CEA sales were $2385 in fiscal year
1997 and were $41,672 in fiscal year 1998. The Company now has active
development projects oriented towards the production of recombinant PSA and
cell-derived human pituitary hormones, including, FSH, LH, TSH, growth hormone
and prolactin. Cell lines that elaborate animal pituitary hormones such as
bovine growth hormone are also under development.
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 other cell
line-derived product that is marketable.
Another advantage of cell culture-derived products is that these may be used
in therapeutic applications. Some of the present diagnostic antigens that the
Company manufactures are also used to treat infertility, growth hormone
deficiency and may hold promise as cancer therapeutic agents. The Company
plans on exploration of the potential therapeutic applications of its
products. These efforts are focussed on FSH, LH, growth hormone, CEA and
PSA. In addition to cell culture technologies, the Company has recruited
staff members with expertise in molecular biology to support its new product
development objectives. Hence, the Company now has in-house expertise in
modern genetic engineering methods that will be used in the development of new
cell lines that elaborate products of diagnostic and therapeutic value.
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 and growth hormone
deficiency in humans. Fertility drugs for animals area also of interest. 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 for diagnostic
applications 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 several other 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.
MAJOR CUSTOMERS
During the most recent fiscal year ended October 31, 1998, sales made to any
one customer in an aggregate amount equal to 10% or more of the Company's
consolidated revenues included Eli Lilly and Company (35%), Jerome Diagnostics
(16%) and BioRad Laboratories (15%).
PATENTS AND TRADEMARK
The Company presently does not hold any patents. The Company has one
patent application pending with the United States Patent and Trademark Office
concerning a method for the purification of FSH. This same application is
pending in various foreign countries through a PCT filing. The Company holds
a trademark on its logo and the phrase "Naturally Pure Antigens."
EMPLOYEES
The Company presently has nine full time employees. 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 has been extended through December 31,
2001. Management's future plans for expansion of the Company will require
relocation to a larger facility.
RISK FACTORS
The product development activities outlined herein depend on available capital
for completion. This capital is presently being provided by operating profits
and there can be no assurance that profitability will be maintained. The
Company has applied for research grant funding to support its product
development activities. No grant funds have yet been awarded and there is no
assurance of the awarding of any grant money. Once developed there is no
assurance of market acceptance of the products the Company develops. The
success of the Company's operation depends on key personnel and there is no
assurance that these personnel will continue to provide their services to the
Company. The Company has no employment contracts with key personnel. The
Company is open to competitive forces in the market place since it has no
presently issued patents protecting its technology (See Patents and
Trademarks). Because of the highly competitive nature of the Company's
business, there can be no assurance of continued sales of the Company's
products. The Company has a continuing need for Research and Development
activities in order to remain competitive in the market. Requirements for
existing product updates and development of new products are strategic
requirements of every biotechnology firm. Inability to continue R&D
activities due to shortage of capital could adversely impact the success of
the Company.
Y2K ISSUES
The Company has a plan in place to assess the risk of "Y2K" problems in the
operation of its business. This includes an examination of all
computer-controlled processing and analytical equipment, the power supply to
the facility, telephone, banking services and water supply to the facility.
The present operating plan calls for completion of the Y2K assessment by June,
1999. Should problem areas be noted, corrective action will be taken to
minimize the disruption of the Company's operation.
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 $65,077 for the year ended
October 31, 1996, $81,579 for the year ended October 31, 1997 and $52,209 for
the year ended October 31, 1998. 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 expires on December 31, 2001.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, 1998, 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, 1997 $.14 $.06
April 30, 1997 $.07 $.04
July 31, 1997 $.07 $.04
October 31, 1997 $.07 $.04
January 31, 1998 $.07 $.04
April 30, 1998 $.07 $.04
July 31, 1998 $.52 $.07
October 31, 1998 $.35 $.14
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, 1998 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 1998 were $362,135, the
Cost of Sales was $462,819 and Interest Expense was $24,280. These
expenses total $849,234 or $70,770 per month. Gross Revenues for 1998
were $1,232,244 or $102,687 per month. This equates to a $31,917 gain per
month. On October 31, 1998 the Company had $0 in Cash and
$128,365 in Accounts Receivable - Trade for a total of $128,365.
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 1998 to October 1997
The Company's net revenue increased from 1997. The net gain for 1998
of $374,487 is an increase of $518,932 from 1997. This gain in 1998 was
due to increased product sales, especially urofollitropin. Working capital at
October 31, 1998 amounted to $352,549 which was a $340,604 increase from the
$11,945 in working capital at October 31, 1997. An increase in inventories and
a decrease in Accounts Payable 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, 1998 were $1,232,244 or 89% more than the $650,846
in product sales for the year ended October 31, 1997. Total milligram
quantities of all products sold in 1998 equaled 5,700 compared to 1,730
milligrams in 1997. This equates to a 329% increase from 1997.
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 $5 million per year.
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. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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 February 10, 1999.
Name Age Position
Roger D. Hurst 48 President
Chief Executive Officer
Chief Financial Officer
Chief Accounting Officer
Director
James R. Musick 52 Secretary/Treasurer
Chief Operating Officer
Director
Erik D. Van Horn 33 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, 1988. 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 $107,840
during fiscal year ending October 31, 1998 and $43,200 during the fiscal
year 1997. 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.
On May 15, 1992, May 7, 1996, April 8, 1997 and May 1, 1998 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. Mr. Hurst
has been granted the right to purchase 600,000 shares, Dr. James Musick
800,000 shares and Mr. Van Horn 500,000 shares of the Company's Common Stock
at an exercise price equal to the market value at the time the options were
granted.
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 2,620,000 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, 1998, 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 1998 $53,920 $0 $0 $0
CEO, CFO 1997 $21,600 $0 $0 $0
President 1996 $40,800 $0 $0 $0
Jim Musick, Ph.D. 1998 $53,920 $0 $0 $0
Secretary, COO 1997 $21,600 $0 $0 $0
1996 $40,800 $0 $0 $0
</TABLE>
On May 15, 1992, May 7, 1996, April 8, 1997 and May 1, 1998 stock
options were approved for issuance by the Board of Directors in favor of
Mr. Roger Hurst and Dr. James Musick. Mr. Hurst has been granted the
right to purchase 600,000 shares and Dr. James Musick 800,000 shares
of the Company's Common Stock at an exercise price equal to the market
value at the time the options were granted
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,
1998 or 1997. The value of unexercised options held by these persons is as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of Value of
Unexercised Options Unexercised Options
at October 31, 1998 at October 31, 1998
Shares Values -------------------------- -------------------------
NAME Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------- -------- -------- ----------- ------------- ----------- -------------
Roger Hurst 0 0 600,000 0 $ 46,000 0
Jim Musick 0 0 800,000 0 $ 78,000 0
Erik VanHorn 0 0 500,000 0 $ 48,000 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 6,413,702 outstanding shares as of October 31, 1998.
Name and Address of Beneficial
Owner Number of shares %
Roger D. Hurst (1) (2) 611,729 9.5
8100 Southpark Way
Bldg. B, Suite 1
Littleton, CO 80120
James R. Musick (1) (2) 600,000 9.4
8100 Southpark Way
Bldg. B, Suite 1
Littleton, CO 80120
Officers and Directors 1,211,729 18.9
as a Group (2 persons)
(1) Officer and Director
Does not include 1,400,000 shares of common stock issuable upon
exercise of an option by Messrs Hurst and Musick.
(c) Change in Control.
On December 29, 1998, the Company was notified that World Wide
Capital Company arranged for a group of investors to purchase the entire
position of the Company's major shareholder, Lloyd Fields. The transaction
totaled 3.65 million shares of stock or 56.9% of the total outstanding shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions With Management and Others.
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 $.07 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
$.07 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.
On April 8, 1997, stock options of 100,000 shares each were approved for
issuance by the Board of Directors in favor of Dr. James Musick, Roger Hurst
and Erik Van Horn.
On May 1, 1998, stock options of 100,000 shares each were approved for
issuance by the Board of Directors in favor of Dr. James Musick, Roger Hurst
and Erik Van Horn.
On October 28, 1997, the Company issued 8,000 "restricted" common
Shares to Dr. Patrick Sluss, an unaffiliated third party, in exchange for the
forgiveness of indebtedness aggregating $500.
(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, 1998 (Audited)
Statements of Operations for the years ended October 31, 1998
(Audited), and 1997 (Audited)
Statement of Stockholder's Equity for the years October 31, 1998
(Audited) and 1997 (Audited)
Statements of Cash Flows for the years ended October 31, 1998
(Audited) and 1997 (Audited)
Notes to Financial Statements for the years ended October 31, 1998
(Audited) and 1997 (Audited)
FINANCIAL STATEMENTS
Larry O'Donnell, CPA, P.C.
Telephone (303)745-4545
2280 South Xanadu Way, Suite 370
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, 1998 and the related statements of operations,
stockholder's equity and cash flows for the years ended October 31, 1998
and 1997. 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, 1998 and the results of its operations and
its cash flows for the years ended October 31, 1998 and 1997 in conformity
with generally accepted accounting principles.
/s/Larry O'Donnell
February 4, 1999
<PAGE>
VITRO DIAGNOSTICS, INC
Balance Sheet October 31, 1998 (Audited)
Assets
Current Assets:
Cash $ 0
Accounts Receivable-Trade, 128,366
Inventories 417,343
Prepaid Expenses 63,543
Deposits 15,000
---------
Total Current Assets 624,252
Property, Plant and Equipment :
Office Furniture and Equipment 14,793
Laboratory and EDP Equipment 138,477
Leasehold Improvements 12,636
---------
Sub Total 165,906
Less Accumulated Depreciation (139,020)
---------
Total Property, Plant and Equipment 26,886
Other Assets:
Inventory Non -Current 51,471
Patents 54,725
Deposits 7,336
---------
Total Other Assets 113,532
---------
Total Assets $ 764,670
=========
<PAGE>
VITRO DIAGNOSTICS, INC
Balance Sheet October 31, 1998 (Audited)
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable - Trade $ 85,039
Bank Overdraft 4,248
Accrued Salaries and Wages 950
Payroll Taxes Payable 9,310
Accrued Expenses 2,447
Short-Term Notes Payable 154,708
---------
Total Current Liabilities 256,702
Stockholders' Equity
Common Stock; 500,000,000 Shares of
$.001 Par Value Authorized;
6,413,702 Issued and Outstanding 281,001
Paid-in Capital in Excess
of Par Value 3,255,328
Accumulated Deficit (3,028,361)
---------
Total Stockholders' Equity 507,968
---------
Total Liabilities and
Stockholders' Equity $ 764,670
=========
The accompanying notes are an integral part of these financial statements
<PAGE>
VITRO DIAGNOSTICS, INC
Statement of Operations
For The Years Ended October 31, 1998 and 1997 (Audited)
1998 1997
---------- ---------
Revenue
Product Sales $1,232,244 $ 650,846
Cost of Sales 462,819 259,336
------- -------
Gross Profit 769,425 391,510
Operating Expenses
Selling, General and Admin 295,029 417,814
Research and Development 52,209 81,579
Depreciation 14,897 15,245
------- -------
Total Operating Expenses 362,135 514,638
------- -------
Income (Loss) From Operations 407,290 (123,128)
Other Income (Expense)
Interest Expense (24,280) (24,517)
Penalties Expense (9,147) (1,220)
Miscellaneous Income 624 4,420
------- -------
Total Other Income (Expenses) (32,803) (21,317)
------- -------
Net Income (Loss) For the Year $ 374,487 $(144,445)
========== =========
Net Income (Loss) Per
Share of Common Stock
Primary $ 0.06 $ ($0.02)
========== =========
Fully diluted $ 0.05 ($0.02)
========== =========
Weighted Average Number
of Shares Outstanding
During the Year
Primary 6,419,816 6,413,702
========= =========
Fully Diluted 7,819,816 6,413,702
========= =========
<PAGE>
VITRO DIAGNOSTICS, INC
Statement of Stockholders' Equity
For the Years Ended October 31, 1998 and 1997 (Audited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Capital in
Number Excess Accumulated
of Shares Par Value of Par Deficit Total
Balance 10/31/96 6,286,816 $ 280,868 $ 3,204,961 $ (3,258,403) $227,426
5/97 for services
and rent 133,000 133 50,367 50,500
Net loss for the
year ended 10/31/97 (144,445) (144,445)
--------- -------- ---------- ----------- --------
Balance 10/31/97 6,419,816 $ 281,001 $ 3,255,328 $ (3,402,848) $133,481
Net income for the
year ended 10/31/98 374,487 374,487
--------- -------- ---------- ----------- --------
Balance 10/31/98 6,419,816 $ 281,001 $ 3,225,328 $(3,028,301) $507,968
========= ======== =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
VITRO DIAGNOSTICS, INC
Statements of Cash Flows
For the Years Ended October 31, 1998 and 1997 (Audited)
1998 1997
Cash Flows from
Operating Activities:
Net Income (Loss) $ 374,487 $ (144,445)
Adjustments to Reconcile
Net Income (Loss) to
Net Cash Provided by
Operating Activities:
Depreciation 14,897 15,245
Expenses Incurred for Stock 50,500
Changes in Assets and Liabilities:
(Increase) Decrease in
Accounts Receivable (22,689) 533
Inventories (179,651) (54,366)
Prepaid Expenses 3,895 11,107
Deposits (15,934) 1,196
Increase (Decrease) in
Accounts Payable (84,728) 54,071
Accrued Expenses 450 (5,514)
Payroll Taxes Payable (26,338) 25,771
-------- --------
Net Cash Provided (Used) by
Operating Activities 64,389 (46,079)
Cash Flows from
Investing Activities:
Capital Expenditures (13,793) (10,619)
Patents (54,725)
-------- --------
Net Cash Provided (Used)
by Investing Activities (68,518) (10,619)
Cash Flows from
Financing Activities:
Payments on
Notes Payable, Bank (14,130)
Proceeds from Short
Term Notes Payable 7,635 40,728
-------- --------
Net Cash Provided (Used) by
Financing Activities 7,635 26,598
-------- --------
Net Increase (Decrease) in Cash 3,506 (30,100)
Cash (Bank Overdraft)
at Beginning of Year (7,754) 22,346
-------- --------
Cash (Bank Overdraft)
at End of Year $(4,248) $ (7,754)
======= ========
Supplemental disclosures of cash flow information
1998 1997
Cash paid during the year for:
Interest $ 24,289 $ 24,517
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
<PAGE>
Vitro Diagnostics, Inc.
Notes to the Financial Statements
October 31, 1998 (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.
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.
Inventories - They are valued at the lower of cost or market using the
first-in first-out method.
Inventories consist of:
10-31-98
------------
Finished Goods $ 263,193
Goods in Process 115,432
Raw Materials 38,718
--------
$ 417,343
========
Goods in process inventory which is not expected to be completed and
sold in the next fiscal year is classified as non current.
Cash equivalents - Cash includes demand deposits at banks.
Patents - Patents are recorded at the cost of acquiring the patent.
Amortization will begin when the patents are granted. If the patents are
granted, the cost will be charged to operations in the year the patents are
denied.
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 Van Horn. 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.
Van Horn 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.
On April 8, 1997, stock options of 100,000 shares were approved for issuance
by the Board of Directors in favor of Dr. James Musick, Roger Hurst and Erik
Van Horn.
On May 1, 1998, stock options of 100,000 shares were approved for issuance by
the Board of Directors in favor of Dr. James Musick, Roger Hurst and Erik Van
Horn.
On October 28, 1997, the Company issued 8,000 "restricted" common
Shares to Dr. Patrick Sluss, an unaffiliated third party, in exchange for the
forgiveness of indebtedness aggregating $500.
Note #3: LEASE OBLIGATION
The Company's lease at 8100 Southpark Way expires on December 31,
2001. Monthly lease payments are $4,813. Rent expense recorded under the
lease is $49,238 and $50,000 for the years ended October 31, 1998 and 1997,
respectively.
The Company leases laboratory equipment under leases which are classifie
d as operating leases. Rent expense recorded under the leases is $44,809 and
$81,902 for the years ended October 31, 1998 and 1997, respectively.
Future minimum lease payments for each of the years ending October 31 are
as follows: 1999 $112,000; 2000 $92,000; 2001 $75,000; 2002 $11,000.
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% $ 17,800
6/12/90 14.453% 27,010
6/30/95 15.00% 32,467
Related Party:
Corporate COO 6/29/95 15.00% 17,054
Corporate COO 8/4/95 25.00% 8,939
Corporate COO 7/7/97 25.00% 13,478
Corporate COO 7/7/97 25.00% 8,345
Corporate CEO 10/31/95 21.00% 29,615
Total $154,708
Interest expense to related parties was $15,968 and $23,929 for
the years ended October 31, 1998 and 1997, respectively.
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 $600,000 has been offset by a valuation allowance.
During the year ended October 31, 1998, the Company utilized a portion
of its net operating loss carryover recognizing a benefit of approximately
$140,000 which reduced the entire amount of its income tax expense.
At October 31, 1998, 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 $ 333,034 $
1989 2004 783,474 192,229 591,245
1990 2005 480,296 480,296
1991 2006 21,321 21,321
1995 2010 386,846 386,846
1997 2012 156,514 156,514
---------
$1,636,222
=========
NOTE 6. Earnings per share
1998 1997
Weighted number of shares outstanding 6,419,816 6,419,816
Stock options 1,400,000
---------- ---------
Fully diluted number of shares
outstanding 7,819,816 6,419,816
========== =========
NOTE 7. Concentrations
Major customers - The Company had three major customers in 1998. They
accounted for 35%, 16% and 15% of sales. The Company had three major customers
in 1997. They accounted for 16%, 15% and 11% of sales.
Credit risk - The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers.
Raw materials - The Company purchases substantially all of its raw
materials from one supplier.
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
February 12, 1999.
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 February 9, 1999.
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 Van Horn
Erik Van Horn
February 12, 1999
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, 1998
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, 1997 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, 1998 (Audited) and the
Statement of Income for the Year Ended October 31, 1998 (Audited). It is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-END> Oct-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 128,366
<ALLOWANCES> 0
<INVENTORY> 417,343
<CURRENT-ASSETS> 624,252
<PP&E> 165,906
<DEPRECIATION> 139,020
<TOTAL-ASSETS> 764,670
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0
0
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<SALES> 1,232,244
<TOTAL-REVENUES> 1,232,244
<CGS> 462,819
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<INCOME-CONTINUING> 374,487
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<NET-INCOME> 374,487
<EPS-PRIMARY> 0.06
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</TABLE>
