CONFORMED COPY
FORM 10-KSB
UNITED STATES
SECURITIES AN EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-17378
VITRO DIAGNOSTICS, 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:
Common Stock, $.001 par value
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
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B 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-QSB or
any amendment to this form 10-QSB. [ ]
The issuer's revenues for its most recent fiscal year were $835,452
The aggregate market value of the 2,240,358 shares of voting stock held by
non-affiliates of the Company calculated by taking the average of the bid and
the ask ($3.22 as quoted on January 27, 2000) was $7,213,953.
The number of shares outstanding of the issuer's common
equity as of January 31, 2000, was 8,455,087.
Document incorporated by reference: None
This report consists of 22 pages, including one page constituting the
cover page.
Except for the historical information contained herein, this document
contains forward-looking statements relating to future financial results
or business expectations. These statements are identified by words such as
"expects," "anticipates" or "hopes." Investors should be aware that business
plans may change as circumstances warrant. Actual results could differ
materially as a result of risk-related factors over which the company has no
control. Such factors include, but are not limited to those discussed in
"Business", "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Investors should not put
undue reliance on these forward looking statements. Except as otherwise
required by rules of the Securities and Exchange Commission, the Company
disclaims any intent or obligation to update publicly these forward looking
statements, whether as a result of new information, future events or otherwise.
<PAGE>
PART I
Item 1. History and Business and Properties background
The Company was incorporated under the laws of the State of Nevada on March
31, 1986. In July of 1989, former 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 transform Vitro
Diagnostics, Inc. into a biotechnology company. The Company currently
manufactures purified human antigens for diagnostic use only.
The Company's revenues and profits or losses have been attributable to the
manufacture of purified human antigens.
PURIFIED DIAGNOSTIC ANTIGENS
The Company is presently only one of a few companies in the world that
specialize in the purification of human pituitary hormones. 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, hCG, beta hCG and alpha hCG. These hormones and
tumor markers are sold to diagnostic kit manufacturers, distributors, and to
university researchers.
Human tissues, fluids or media collected from cultured cells are used as the
raw materials for production. The Company has several sources available for
each of these raw materials and the Company does not consider its raw material
supply to be an obstacle for the foreseeable future. The Company protects its
purification technology as proprietary and trade secret information. The
Company has one US patent granted for the purification of FSH. (See "Patents
and Trademarks")
Purified human antigens are subject to minimal FDA regulations as they
are considered Class I diagnostic devices. The Company operates its
antigen purification operation in accordance with all relevant regulations.
Additional details concerning the Company's products may be found in the
Company's web site, www.vitrodiag.com.
MARKETS AND DISTRIBUTION FOR PURIFIED ANTIGENS
The market for the pituitary hormones arose out of the field of endocrinology
and understanding of the regulatory function of the pituitary gland. These
functions include control of body growth, reproduction and metabolism
regulation. The market for the purified tumor markers arose from cancer
research. Tumor markers are produced by malignant tumors. When released into
the blood, these markers can be measured by immunodiagnostic tests.
The Company's antigens are raw materials of the diagnostic testing industry.
They are purchased for use in diagnostic kits, standards and controls,
antibody production, and research. The Company presently sells to over
150 clients, the majority of which are domestic. The Company utilizes its
employees and independent brokers and distributors to assist in sales efforts.
During the most recent fiscal year ended October 31, 1999, sales made to
any one customer in an aggregate amount equal to 10% or more of the Company's
consolidated revenues included: Jerome Diagnostics and Bio Rad.
NEW PRODUCT DEVELOPMENT
To reduce the dependence on human tissue and fluid as a raw material source,
the Company is developing cell lines. In addition to the cost of the raw
material being less expensive with a cell line, the purity of the raw cell
line material can be as high as 90%, compared to tissue extracts that are
usually less than 0.1% pure. Purer raw materials result in lower production
costs.
The Company has shown significant developments in its ongoing research to
immortalize human pituitary cells. Total expenses in R&D for 1999 were
$271,016 which was an increase of $218,807 over 1998 expenses of $52,209.
Its patent pending technology concerns methods to immortalize cells by
genetic engineering. Historically, human cells that are grown in vitro
by cell culture methods eventually die. The Company is developing
immortalization technology that prevents the death of these cells.
Cells immortalized by the Company's method continue to divide in
cell culture. FSH, LH and Growth Hormone are the initial targeted products
to be developed through this method. FSH and LH regulate reproduction,
therefore they are used in the treatment for infertility. The global
therapeutic market for these hormones exceeds $800 million per year.
Growth Hormone is used to treat deficiencies in children for short stature
and in adults for growth hormone deficiency. The annual market for
Growth Hormone is approximately $2 billion. Future applications for this
immortalization technology may be treatment of Alzheimer's, Parkinson's,
Amyotrophic Lateral Sclerosis and Diabetes.
In order to commercialize therapeutics, initially urofollitropin, the Company
must outsource the manufacturing to a FDA-regulated facility. The Company's
technology will be transfered to this facility to purify materials for clinical
trails that are needed to file an ANDA (Abbreviated New Drug Application) with
the FDA for the approval of generic drugs. The Company has retained a former
FDA employee as a consultant to assist with all aspects of submitting an ANDA
to the FDA and other issues related to regulatory approvals.
COMPETITION
According to independent distributors and brokers of antigens and antibodies,
Vitro has displaced Dr. Albert Parlow, a professor at UCLA, as the largest
supplier of pituitary antigens in the United States. Dr. Parlow still
supplies the National Institutes of Health with pituitary antigens, but most of
the private sector uses Vitro's products. Cortex Biochem, located in
San Leandro, California, who was once a broker for Vitro's products, has
partnered with HDM Labs in Long Beach, New York to manufacture pituitary
hormones. Currently, their prices are much higher than Vitro's and the
purity is yet to be determined.
PATENTS AND TRADEMARKS
The Company's first patent, "Method for Purifying FSH", United States patent
number 5,990,288 claims a new purification and production method for the
manufacture of pharmaceutical grade, high purity human FSH derived from urine,
recombinant DNA methods or FSH-producing cell lines. This patent was issued on
November 23, 1999. The term of the patent extends for twenty years from the
filing date of May 8, 1998. A continuation-in-part application has been filed
in the US. Foreign applications have been filed in Canada, United Kingdom,
Australia, New Zealand and the European patent office.
Another pending patent concerns the technology for immortalization of human
cells. Projected issue date is Summer 2001.
The Company also has a pending patent concerning a multiple dose syringe
for use in the delivery of injectable FSH or other substances. Projected
issue date is Spring 2002.
A proprietary position for the production of recombinant PSA for use in the
treatment of prostate and other cancers is patent pending with the projected
issue date in Spring 2002.
EMPLOYEES
The Company presently has ten full time employees, eight scientific and two
administrative. Full time employees include Roger Hurst, the Company's
President, and Jim Musick, the Company's Chief Operating Officer.
RISK FACTORS
The projected product development activities outlined herein depend on available
capitalfor completion. This capital is presently being provided by operations
and a small bank line of credit, however in order to commercialize FSH and
continue the pituitary immortalization research, outside funds must be obtained.
The Company has applied for research grant funding to support its research,
but no funds have been awarded and there is no assurance of receiving
any money. Also, although management believes the Company competes favorably
within the industry in which it operates, there can be no assurance that the
Company can obtain sufficient working capital to continue product development
and other steps necessary to maintain its competitive position.
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.
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.
The nature of the 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 located in a 5,700 square foot,
one-story brick building leased by the Company and located at 8100
Southpark Way, Building B-1, Littleton, CO 80120. The facilities
lease expires on December 31, 2001. The Company has outgrown this
facility and will be looking for larger building as soon as capital
is available.
ITEM 3. LEGAL PROCEEDINGS
There are currently no legal matters or other regulatory procedures pending or
threatened which involve the Company or its property or any of the principal
shareholders or officers or directors in their capacities as such.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended October 31, 1999, 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.
The Company's common stock is traded over-the-counter and quoted on the
Bulletin Board. The following information has been obtained by the Company
with reference to such source.
Price Ranges ( Closing Bid)
Quarter Ended High Low
- ------------- ------ ------
January 31, 1998 $ .07 $ .04
April 30, 1998 $ .07 $ .04
July 31, 1998 $ .52 $ .07
October 31, 1998 $ .35 $ .14
January 31, 1999 $ .65 $ .62
April 30, 1999 $ .75 $ .75
July 31, 1999 $ 2.125 $ 1.875
October 31, 1999 $ 2.31 $ 2.00
The Company's securities are presently classified as "Penny Stocks" as defined
by existing securities laws. This classification places significant
restrictions upon broker-dealers desiring to make a market in such securities.
The existence of market quotations should not be considered evidence of the
"established public trading market". The over-the-counter market quotations
above reflect inter-dealer prices, without retail markup, markdown or commission
and may not necessarily represent actual transactions.
b) HOLDERS
As of October 31, 1999 the Company had approximately 1,978 shareholders
of record, not including persons who hold their shares in "street name".
c) Dividends
The Company has paid no dividends since inception and it is not anticipated
that any will be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
October 31, 1999
At fiscal year end October 31, 1999, the Company had working capital of
$678,029, consisting of current assets of $738,525 and current liabilities of
$60,496. This represents an increase in working capital of $310,479 from
October 31, 1998. In addition to the working capital available October 31,
1999, the Company had available a line of credit in the amount of $250,000 to
help finance operations and capital requirements. At October 31, 1999, the
entire line of credit was available; the Company has drawn down approximately
$110,000 subsequent to fiscal year end and prior to the date of filing this
Report. Management is of the opinion that the Company wil also require
additional capital fromutside sources to finance its capital requirement
for fiscal 2000.
During the fiscal year ended October 31, 1999, the Company's operations used,
rather than provided, cash. During that time, the Company's operations used
$241,760, compared to cash generated by operations of $64,389 during the
fiscal year ended October 31, 1998. Management believes the decrease in cash
flow is primarily attributable to two factors: (i) a substantial, one-time
sale of products to a single purchaser in fiscal 1998 which was not repeated
during fiscal 1999; and (ii) a substantial increase in research and development
expenses during fiscal 1999. Management therefore anticipates that if the
Company is unable to obtain capital from outside sources, it may be required to
curtail its research and development.
Capital requirements for fiscal 2000, in addition to research and development
expenses, include expansion of its existing office facility and funds proposed
for development of the Company's anticipated entry into the therapeutic drug
market. Currently, all Company products are utilized as diagnostics. This use
requires no expenditures with the United States Food and Drug Administration
("FDA"). In order to enter the therapeutic market, the Company must expend
substantial amounts for FDA approval of its product. Capital requirements for
this purpose for fiscal 2000 are estimated at $2 million. In order to finance
this capital requirement, the Company is currently exploring strategic alliances
and private placement of its equity securities. In the event the Company is
unsuccessful in obtaining such funding, its future development activities will
be curtailed.
During Fiscal 1999, the Company relied on revenues from the sale of its product
as well as cash from financing activities to meet it working capital
requirements. The Company borrowed $150,000 from its primary lender in fiscal
1999 in the form of a term loan. Such loan bears interest at the rate of 8.5%
per annum and is payable in monthly installments of $3,707 until maturity. The
Company also realized $376,000 from the sale of its Common Stock in private
placements and from exercise of outstanding stock options. A portion of the
proceeds of those transactions were used to repay short-term notes payable. The
short-term notes accrued interest at rates ranging from 14 to 25%; the Company's
ability to refinance such notes with proceeds of the term note will assist
in reducing interest expense for the coming year.
Also as a result of the financing activities, the Company was able to reduce
current liabilities and increase cash. Cash increased approximately $45,000
from fiscal year end 1998 to October 31, 1999. Current liabilities were reduced
from $256,702 at October 31, 1998 to $60,496 at October 31, 1999. Accounts
payable were reduced approximately $70,000. A portion of the accrual for short-
term notes payable at October 31, 1998 were refinanced into long-term
obligations.
October 31, 1998
At October 31, 1998, the Company had working capital of $367,550, consisting of
current assets of $624,252 and current liabilities of $256,702. At that time,
the Company had no cash. Short-term borrowings from shareholders of the
Company, previously utilized to supplement cash flow, totaled $154,708 at
October 31, 1998. These obligations accrued interest at rates ranging from 14
to 25%. The Company's ability to pay these obligations through the proceeds of
a term loan and other transactions discussed above were instrumental in
improving the Company's working capital position during fiscal 1999.
Management believes the Company's financial condition improved substantially
during fiscal 1999; however, the Company still requires cash from outside
sources to finance product development and satisfy other capital requirements.
Results of Operations
Year Ended October 31, 1999
During the year ended October 31, 1999, the Company realized a net loss of
$140,803, or $.02 per share, on total revenues of $835,452. The net loss for
fiscal 1999 is a decrease of $515,290 from the net income for the year ended
October 31, 1998. Revenues also decreased from fiscal 1998 to 1999, from
$1,232,244 to $835,452, a decrease of $396,792 or 32%. The decrease in revenue
is attributable to a one-time sale consummated in 1998 which was not repeated
during 1999. The net loss experienced during fiscal 1999, in the opinion of
management, is attributable to the decrease in revenues and an increase in
research and development expenses during fiscal 1999.
In fiscal 1999, the Company sold 3,297 milligrams of antigens to its customers.
This compares to 5,700 milligrams sold during 1998, including the one-time sale
to a single customer. This accounts for the decrease in revenues during fiscal
1999. Prices for the Company's products remained generally constant from 1998
to 1999.
Gross profit from sale of the Company's product increased from fiscal 1998 to
1999, from 62% for the year ended October 31, 1998 to 65.5% for the year ended
October 31, 1999. However, operating expenses increased substantially during
the same time. Operating expenses for 1999 were $640,214, compared to $362,135
for the year ended October 31, 1998. The greatest increase in operating
expenses was research and development, which increased from $52,209 for 1998 to
$271,016. This increase is attributable to increased emphasis on development of
new products and techniques, part of which resulted in the issuance of a patent
to the Company and several patents pending. Subject to availability of working
capital, the Company hopes to continue this research and development during
fiscal 2000.
Operating expenses, costs and other expenses of the Company for fiscal 1999
totaled $981,798, or $81,817 per month. At the same time, revenues equaled
$835,452 or $69,621 per month, leaving a deficit of $5,800 per month.
Management hopes to supplement this deficiency with cash from outside sources as
discussed above under Liquidity and Capital Resources.
Management does not believe that inflation has had a material impact on the
Company's operations during the last two fiscal years, nor is it expected to
have such an impact in the immediate future. Management does not believe the
Company's business is seasonal in nature, although the first quarter of each
fiscal year (November through January) is historically slow, primarily as a
result of holiday interruptions for the Company's customers.
Year Ended October 31, 1998
During the year ended October 31, 1998, the Company realized a net profit of
$374,487, or $.05 per share on a fully diluted basis, on total revenues of
$1,232,244. Revenues represent an almost 100% increase from the year ended
October 31, 1997, when the Company realized $650,846 in revenue.
The substantial increase in sales and profitability was primarily the result
of a sale of a Company product to a single purchaser. The sale, together with
other customers, contributed to an increase in product sales from $1,730
milligrams in 1997 to 5,700 milligrams in 1998.
The Company was not able to repeat this performance during fiscal 1999.
Revenues and results of operations decreased. However, with the capital
obtained during 1999, the Company was able to invest in the development of
additional products which management believes will produce benefits in the
future. Such benefits may include the Company's introduction of its first
therapeutic product, subject to receipt of additional capital and FDA approval.
Subject to the availability of working capital management hopes to be able to
continue new product development during fiscal 2000.
Recent Sales of Unregistered Securities
On June 15, 1999, the Company sold 100,000 shares of unregistered Rule 144
common stock to Barnabas Trust for the purchase price of $87,500 or $.875 per
share.
On June 9, 1999, the Company issued 2,778 shares of unregistered Rule 144 common
stock in exchange for $2,000 in debt to Dr. Ken Faber. Dr. Faber is a member of
the Company's advisory board.
On June 8, 1999, the Company sold 135,429 shares of unregistered rule 144 common
stock to Michael E. Hanson for the purchase price of $118,500 or $.875 per
share.
On June 3, 1999, the Company issued 2,778 shares of unregistered rule 144 common
stock in exchange for $2,000 in debt to Michael Hanson. Mr. Hanson is a member
of the Company's advisory board.
On March 30, 1999, the Company issued 2,286 shares of unregistered rule 144
common stock in exchange for $2,000 in debt to Dr. Pamela Mellon. Dr. Mellon is
a member of the Company's advisory board. All of these transactions were made
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. The Company had a preexisting relationship with these
sophisticated individuals or entities and each was afforded access to
information about the Company typically contained in a registration statement.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the two most recent fiscal years, there have been no changes in the
Company's certified public accountants of the nature requiring disclosure
pursuant to this item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
a) Identification of Directors and Executive Officers. The name, position
with Company and age of each executive officer and director and the period
during which each current individual has served are as follows:
Name Age Position
- ---- --- --------
Roger D. Hurst* 49 President,
Director
James R. Musick* 53 Secretary/Treasurer,
Chief Operating Officer,
Director
Erik D. Van Horn 32 Production Manager,
Director
* Members of the Compensation Committee of the Board of Directors
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 was no
arrangement or understanding between any executive officer and any other person
pursuant to which any executive officer was selected as such. There is no
family relationship between any member of the Board of Directors.
Roger D. Hurst has been President and a director of the Company since
February 15, 1988. 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. Dr. Musick received a
Bachelor of Arts in Biological Sciences in 1968 and a doctorate in Biological
Sciences in 1975 from Northwestern University. Dr. Musick devotes 100% of
his time to the affairs of the Company.
Erik D. Van Horn has been Production Manager and Director of the Company
since March, 1993. He received his Bachelor of Science in Chemical
Engineering from the University of Colorado in 1990.
The following table shows all compensation paid by the Company during the last
three fiscal years to the chief executive officer of the
Company and the other executive officers (the "Named Officers")
who received cash during fiscal 1999.
Year Securities
Ended Underlying
Name and Position Oct. 31 Salary Options
Roger Hurst 1999 $55,876 31,848
President 1998 $53,920 100,000
1997 $21,600 100,000
James Musick 1999 $55,876 31,848
COO 1998 $53,920 100,000
1997 $21,600 100,000
Erik Van Horn 1999 $53,538 30,516
Production Manager 1998 $48,170 100,000
1997 $45,147 100,000
OPTION GRANTS FOR 1999
The following table sets forth information regarding the grant of stock
options to the Named Officers of the Company during the fiscal year 1999.
Number of
Securities % of Total
Underlying Options Granted Exercise Price Expiration
Name Options to Employees in ($/share) Date
Fiscal Year
- ---- ------- ------------------ ---------- ----------
Roger D. Hurst 31,848 16% $.625 06-06-2009
James R. Musick 31,848 16% $.625 06-06-2009
Erik D. Van Horn 30,516 15% $.625 06-06-2009
YEAR END OPTION VALUES
The following table sets forth the value of unexercised options held by the
Named Officers at October 31, 1999. The price of the Company's common
stock on October 31, 1999 was $2.31.
Shares Number of Value of unexercised
Acquired Value Unexercised in-the-money options
Name on Exercise Realized($) Options at FYE at FYE
- ---- ----------- ---------- -------------- --------------------
Roger D. Hurst 600,000 1,386,000 31,848 $ 53,664
James R. Musick 800,000 1,848,000 31,848 $ 53,664
Erik D. Van Horn -0- -0- 530,516 $ 1,158,420
COMPENSATION OF DIRECTORS
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 First
Union) 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 $24,000 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 have been reserved for issuance under
the Plan. To date, options to purchase an aggregate of 2,840,000 shares
have been issued 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.
COMPLIANCE WITH SECTION 16.
The following sets forth each director, officer or beneficial owner of more
than ten percent of any class of equity securities of the registrant registered
pursuant to Section 12 that failed to file on a timely basis, Forms 3, 4 or 5
as required by Section 16(a) during the most recent fiscal year or prior years.
The numbers of late Form 3, Form 4 and Form 5 reports, and the late Form 4
transactions reported are as follows:
Name of reporting Person Late Form 3 Late Form 4 Late Form 5 Transactions
Roger D. Hurst 1 1 1 1
James R. Musick 1 1 1 1
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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 known to the
Company. The following shareholders have sole voting and investment power with
respect to shares, unless it is indicated otherwise. The percentages are based
upon 8,455,087 outstanding shares of Common Stock as of January 11, 2000, the
only class of voting securities outstanding.
Name and Address of Beneficial Owner Number of Shares %
------------------------------------ ---------------- ---
Roger D. Hurst 1 1,246,577 14.7
8100 Southpark Way
Unit B-1
Littleton, CO 80120
James R. Musick 1 1,381,848 16.3
8100 Southpark Way
Unit B-1
Littleton, CO 80120
Erik Van Horn 2 530,516 5.9
8100 Southpark Way
Unit B-1
Littleton, CO 80120
Lloyd Hansen 1,280,000 15.1
2646 S.W. Mapp Rd
STE #304
Palm City, FL 34990
World Wide Capital Investors, LLC 2,370,000 28.0
P.O. Box 8
Westcliffe, CO 81252
Officers and Directors as a group 3,158,941 35.0
(3 individuals)
1 Includes 31,848 shares of common stock underlying an option exercisable at
$.625 until June 6, 2009.
2 Includes 530,516 shares of common stock issuable upon exercise of all options.
CHANGES IN CONTROL
The Company knows of no arrangement, including the pledge by any person of
securities of the Company, which may at a subsequent date result in a change
of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management and Others.
During fiscal year 1999, the Company repaid all existing notes payable that
existed in fiscal year 1998. Included in those paid were notes from Roger
Hurst, the Company's CEO and Jim Musick, the Company's Chief Operating Officer.
Amounts paid were $28,400 to Mr. Hurst, including $4,200 of interest and $32,400
to Dr. Musick, including $26,800 interest. These notes were made on terms which
were no less favorable to the Company than transactions with non-affiliates.
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:
Independent auditor's report
Balance sheet, October 31, 1999
Statements of Operations for the years ended
October 31, 1999 and 1998
Statement of Stockholder's Equity for the years
October 31,1999 and 1998
Statements of Cash Flows for the years ended
October 31, 1999 and 1998
Notes to Financial Statements for the years ended
October 31, 1999 and 1998
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, 1999 and the related statements of operations,
Stockholders' equity and cash flows for the years ended October 31, 1999
and 1998. These financial statements are the responsibility of the Company's
management. 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, 1999 and the results of its operations and its cash
flows for the years ended October 31, 1999 and 1998 in conformity with
generally accepted accounting principles.
/s/Larry O'Donnell, CPA, P.C.
January 18, 2000
<PAGE>
VITRO DIAGNOSTICS, INC
Balance Sheet October 31, 1999
Assets
Current Assets:
Cash $ 44,291
Accounts Receivable-Trade, 108,527
Inventories 516,011
Prepaid Expenses 68,255
Current portion of note receivable 1,441
----------
Total Current Assets 738,525
Property, Plant and Equipment :
Office Furniture and Equipment 14,793
Laboratory and EDP Equipment 136,128
Leasehold Improvements 27,645
----------
Sub Total 178,566
Less Accumulated Depreciation 147,490
----------
Total Property, Plant and Equipment 31,076
Other Assets:
Inventory Non -Current 51,471
Patents 103,335
Note Receivable, net of current portion 5,059
Deposits 6,925
----------
Total Other Assets 166,791
----------
Total Assets $ 936,393
==========
<PAGE>
VITRO DIAGNOSTICS, INC
Balance Sheet October 31, 1999
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable - Trade $ 16,899
Payroll Taxes Payable 5,925
Accrued Expenses 1,032
Current portion of Note Payable 36,640
----------
Total Current Liabilities 60,496
----------
Note Payable, net of current portion 105,432
Stockholders' Equity ----------
Common Stock; 500,000,000 Shares of
$.001 Par Value Authorized;
8,455,087 Issued and Outstanding 283,036
Paid-in Capital in Excess
of Par Value 3,656,593
Accumulated Deficit (3,169,164)
----------
Total Stockholders' Equity 770,465
----------
Total Liabilities and
Stockholders' Equity $ 936,393
==========
The accompanying notes are an integral part of these financial statements
<PAGE>
VITRO DIAGNOSTICS, INC
Statement of Operations
For The Years Ended October 31, 1999 and 1998
1999 1998
Revenue
Product Sales $ 835,452 $ 1,232,244
Cost of Sales 288,565 462,819
------- ---------
Gross Profit 546,887 769,425
Operating Expenses
Selling, General and Admin 355,529 295,029
Research and Development 271,016 52,209
Depreciation 13,669 14,897
------- ---------
Total Operating Expenses 640,214 362,135
------- ---------
Income (Loss) From Operations (93,327) 407,290
Other Income (Expense)
Interest Expense (52,866) (24,280)
Penalties Expense (152) (9,147)
Miscellaneous Income 5,543 624
------- ---------
Total Other Income (Expenses) (47,476) (32,803)
------- ---------
Net Income (Loss) For the Year $ (140,803) $374,487
======= =========
Net Income (Loss) Per
Share of Common Stock
Primary $ (0.02) $ 0.06
======= =========
Fully diluted $ (0.02) $ 0.05
======= =========
Weighted Average Number
of Shares Outstanding
During the Year
Primary 7,097,000 6,413,702
========= =========
Fully Diluted 8,856,000 7,819,816
========= =========
<PAGE>
VITRO DIAGNOSTICS, INC
Statement of Stockholders' Equity
For the Years Ended October 31, 1999 and 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Capital in
Number Excess Accumulated
of Shares Par Value of Par Deficit Total
Balance 10/31/97 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 $ 3,255,328 $(3,028,361) $507,968
Stock issued for
Services 149,842 150 27,150 27,300
Stock issued for
Cash 485,429 485 251,515 252,000
Stock options
exercised for cash 1,400,000 1,400 122,600 124,000
Net loss for the
year ended 10/31/99 (140,803) (140,803)
--------- -------- ---------- --------- --------
Balance 10/31/99 8,455,087 $283,036 $3,656,593 $(3,169,164) $770,465
========= ======== ========== ========= ========
</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, 1999 and 1998
1999 1998
Cash Flows from
Operating Activities:
Net Income (Loss) $ (140,803) $ 374,487
Adjustments to Reconcile
Net Income (Loss) to
Net Cash Provided by
Operating Activities:
Depreciation 13,763 14,897
Expenses Incurred for Stock 27,300
Changes in Assets and Liabilities:
(Increase) Decrease in
Accounts Receivable 19,839 (22,689)
Inventories (98,668) (179,651)
Prepaid Expenses (4,712) 3,895
Deposits 15,411 (15,934)
Increase (Decrease) in
Accounts Payable (68,140) 450
Accrued Expenses (2,365) (5,514)
Payroll Taxes Payable (3,385) (26,338)
------ --------
Net Cash Provided (Used) by
Operating Activities (241,760) 64,389
Cash Flows from
Investing Activities:
Capital Expenditures (17,953) (13,793)
Patents (48,612) (54,725)
Increase in note receivable (6,825)
Payments on note receivable 325
------ -------
Net Cash Provided (Used)
by Investing Activities (73,065) (68,518)
Cash Flows from
Financing Activities:
Proceeds from note
payable bank 150,000
Payments on
Notes Payable, Bank (7,928)
Proceeds from Short
Term Notes Payable 7,635
Payments on Short
Term Notes Payable (154,708)
Sales of common stock 376,000
------- ------
Net Cash Provided (Used) by
Financing Activities 363,364 7,635
------- ------
Net Increase (Decrease) in Cash 48,539 3,506
Cash (Bank Overdraft)
at Beginning of Year (4,248) (7,754)
------- ------
Cash (Bank Overdraft)
at End of Year $44,291 $ (4,248)
====== ======
Supplemental disclosures of cash flow information
1999 1998
Cash paid during the year for:
Interest $51,854 $ 24,289
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
<PAGE>
Vitro Diagnostics, Inc.
Notes to the Financial Statements
October 31, 1999
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:
10-31-99
Finished Goods $ 408,329
Goods in Process 50,752
Raw Materials 56,930
--------
$ 516,011
========
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
denied, 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.
On May 15, 1992, the Board of Directors of the Company issued stock
options, which were exercisable 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 common shares of the Company. Mr. Van Horn was granted the
right to acquire 200,000 common shares of the Company.
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.
The Board of Directors has issued options in 1992, 1994, 1996, 1997, 1998, and
1999 which are exercisable at the market value on the grant date. The options
are for a period of 10 years.
The following schedule summarizes the changes in the Plans:
1999 1998
Options outstanding at beginning
of year 2,470,000 1,850,000
Granted 220,000 620,000
Exercised 1,500,000
Canceled
Options outstanding at end of year 1,190,000 2,470,000
========= =========
Options exercisable at end of year 1,190,000 2,470,000
========= =========
Average price of options:
Granted during year $.63 $.10
Exercised during year $.42
Canceled during year
Outstanding at end of year $.30 $.45
Note #3: LEASE OBLIGATION
The Company's lease at 8100 Southpark Way expires on December
31, 2001. Monthly lease payments are $5,136. Rent expense recorded
under the lease is $63,439 and $49,238 for the years ended October 31,
1999 and 1998, respectively.
The Company leases laboratory equipment under leases which are
classified as operating leases. Rent expense recorded under the leases
is $80,625 and $44,809 for the years ended October 31, 1999 and 1998,
respectively.
Future minimum lease payments for each of the years ending October 31 are
as follows: 2000 $110,000; 2001 $30,000; 2002 $7,000; 2003 $6,000.
NOTE #4: Notes Payable
The Company has a note payable due to a bank. The note is secured by
inventory, accounts receivable and property and equipment. The note
requires payments of $3,707 per month including interest and bears interest
at 8.5%. Future maturities are as follows: 2000 $36,640; 2001 $36,939;
2002 $40,204; 2003 $28,289.
The Company has a line of credit for $250,000 with a bank. The note payable
is secured by inventory, accounts receivable and property and equipment
and has an interest rate of 1% over the bank's index rate. The line of
credit expires in June, 2000. No amounts were drawn on the line at
October 31, 1999. The note is personally guaranteed by an officer.
The Company had notes payable to individuals which were unsecured
and due on demand. The notes were retired during the year ended October 31,
1999. As of October 31, 1998 the notes were as follows:
Issue Interest
Date Rate Balance
---------- ------------ -----------
Unrelated Party:
1/10/90 20.00% $ 17,800
6/12/90 14.45% 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 $7,984 and $15,968 for
the years ended October 31, 1999 and 1998, 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 $660,000 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, 1999, 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
----------- ---------- ---------- ---------- ----------
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 2017 156,514 156,514
1999 2019 140,803 140,803
-------
$1,777,025
==========
NOTE 6. Earnings per share
1999 1998
Weighted number of shares outstanding 7,097,000 6,419,816
Stock options 1,759,000 1,900,000
--------- ---------
Fully diluted number of shares
outstanding 8,856,000 7,819,816
========= =========
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 two major
customers in 1999. They accounted for 37% and 30% 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.
January 27, 2000
Securities and Exchange Commission
450 Fifth Street,. N.W.
Washington, DC. 20549
RE: Vitro Diagnostics, Inc.
Form 10-KSB for the year ending October 31, 1999
SEC File No. 0-17378
Dear Sir or Madam:
Transmitted herewith through the EDGAR system is Form 10-KSB for the fiscal
year ended October 31, 1999 for Vitro Diagnostics, Inc. Should you have any
questions or comments concerning this matter please contact the undersigned
at 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, 1999 and the Statement of
Income for the Year Ended October 31, 1999. It is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> Oct-31-1999
<CASH> 44,291
<SECURITIES> 0
<RECEIVABLES> 108,527
<ALLOWANCES> 0
<INVENTORY> 516,011
<CURRENT-ASSETS> 738,525
<PP&E> 178,566
<DEPRECIATION> 147,490
<TOTAL-ASSETS> 936,393
<CURRENT-LIABILITIES> 60,496
<BONDS> 0
<COMMON> 283,036
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 936,393
<SALES> 835,452
<TOTAL-REVENUES> 835,452
<CGS> 288,565
<TOTAL-COSTS> 640,214
<OTHER-EXPENSES> 47,476
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,866
<INCOME-PRETAX> (140,803)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,803)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
