UNITED
STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM
10-KSB

|(X) |  | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- |  | -------------------------------------------------------------------------------------

| | For
the fiscal year ended October 31, 2006
| | ------------------------------------------

|(   ) |  | 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 small business issuer as specified in its charter)

|                                          | 
|----------------------------------------- | 
|                                          | 
|Nevada                                    | 
|(State or other jurisdiction of           | 
|incorporation or organization)            | 
|                                          | 
|12635 E. Montview Blvd., Aurora, Colorado | 
|(Address of principal executive offices)  | 
|                                          | 

(720)
859-4120 (Issuer's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Exchange Act:

None

Securities
registered pursuant to Section 12(g) of the Exchange Act:

Common Stock,
$.001 par value (Title of Class)

Check whether
the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. [   ]

Check whether
the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934  during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been  subject to such
filing requirements for the past 90 days.  Yes  [ X ]  No  [   ]

Check if there
is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained
in this form, and no  disclosure will 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-KSB or any amendment to this Form 10-KSB  [   ].



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

State issuers
revenue for its most recent fiscal year:  $1640.

The aggregate
market value of the 6,259,518 shares of voting stock held by non-affiliates of the
Company at January 26, 2007,  calculated by taking the last sales price of the Companys
common stock of $.08 on January 26, 2007, was $500,761.

The number of
shares outstanding of the issuer's common equity as of January 26, 2007 was 12,450,912.

Documents
incorporated by reference:

None

Transitional
Small Business Disclosure Format: [   ]  Yes  [ X ]No

This report
consists of 49 pages, including one page constituting the cover page.

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TABLE OF
CONTENTS

|           |  |                                                              
|---------- |  | -------------------------------------------------------------
|PART I     |  |                                                              
|           |  |                                                              
|ITEM 1     |  | BUSINESS                                                     
|ITEM 2     |  | DESCRIPTION OF PROPERTY                                      
|ITEM 3     |  | LEGAL PROCEEDINGS                                            
|ITEM 4     |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS          
|           |  |                                                              
|           |  |                                                              
|PART II    |  |                                                              
|           |  |                                                              
|ITEM 5     |  | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS     
|ITEM 6     |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION    
|ITEM 7     |  | FINANCIAL STATEMENTS                                         
|ITEM 8     |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS                
|ITEM 8A    |  | CONTROLS AND PROCEDURES                                      
|           |  |                                                              
|           |  |                                                              
|PART III   |  |                                                              
|           |  |                                                              
|ITEM 9     |  | DIRECTORS AND EXECUTIVE OFFICERS                             
|ITEM 10    |  | EXECUTIVE COMPENSATION                                       
|ITEM 11    |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
|ITEM 12    |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS               
|           |  |                                                              
|           |  |                                                              
|PART IV    |  |                                                              
|           |  |                                                              
|ITEM 13    |  | EXHIBITS                                                     
|ITEM 14    |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                       
|           |  |                                                              
|SIGNATURES |  |                                                              
|           |  |                                                              

Additional
Information

Descriptions
in this report are qualified by reference to the contents of any contract,
agreement or other document described herein and are not necessarily complete.
Reference is made to each such contract, agreement or document filed as an
exhibit to this report, or incorporated herein by reference as permitted by
regulations of the Securities and Exchange Commission. (See Item
13. Exhibits.")

Special
Note Regarding Forward-Looking Statements

Please
see the note under Item 6. Managements Discussion and Analysis or
Plan of Operation, for a description of special factors potentially
affecting forward-looking statements included in this report.

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PART
I

ITEM 1.   
BUSINESS

History

Vitro
Diagnostics, Inc. (we or the Company) was incorporated
under the laws of the State of Nevada on February 3, 1986. From November 1990 to
July 31, 2000, the Company was engaged in the development, manufacture and
distribution of purified human antigens and the development of therapeutic
products and related technologies. In August 2000, the Company sold the assets
used in the manufacture and sale of purified antigens for diagnostic
applications. Since that time, the Company has focused on research, development
and commercialization of products and technology with potential applications in
biomedical research, manufacturing and therapeutics.

Our
common stock is currently traded over the counter and quoted on the OTC Bulletin
Board under the ticker symbol VODG. We maintain a website at
www.vitrodiag.com.

Narrative
Description of Business

Our
current strategy is to establish key alliances to provide capital to support our
stem cell research. We presently develop, manufacture and market products for
use in research and related applications that do not require approval of the
United States Food and Drug Administration (FDA) prior to market
introduction. Our existing products include the VITROCELL Product Line
consisting of select human cell lines and related products. We have recently
begun sales of our VITROCELL products and hope to expand these sales. We
have also developed products and product candidates for treatment of
infertility.

The
predominant focus of operations during 2006 was the extension of prior research
involving the establishment and characterization of stem cell lines with
applications in diabetes research and the development of novel cell therapies
for diabetes. The Company developed and owns 29 adult human pancreatic stem cell
lines that are distinct from the limited number of embryonic stem cell lines
that are presently approved for federally funded research. These cell lines have
perceived commercial application to diabetes research and therapy. Our current
goals are to expand the present product offering to research markets, and
develop stem cell-derived products with application to diabetes drug discovery.
Eventually, the Companys stem cell technology may lead to new therapeutic
products to treat animal and human diabetes.

Stem Cell
Technology and Related Products.

Based
upon a desire to produce an infinite supply of human cells for various medical
applications, the Company had previously developed technology for the
immortalization of cells based upon genetic engineering. More recently, the
Company has shifted its technology development to the discovery,
characterization and development of methods to maintain indefinite proliferation
and to induce differentiation of stem cells.

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Stem
cell lines are divided into two broad classes: embryonic and adult. Embryonic
stem cells have the potential to differentiate into all cell types of the body
and their isolation from an embryo generally precludes survival of the embryo.
Adult stem cells are present within various non-embryonic tissues, generally
differentiate into a limited number of different cell types and may be isolated
without necessarily comprising viability of the donor organism, e.g., bone
marrow stem cells are adult stem cells that may be extracted with minimal
consequence to the donor. The Companys stem cell research focuses on the
use of adult stem cells and does not involve embryonic stem cell research.

The
Companys research efforts have focused on the generation, characterization
and differentiation of stem cells that give rise to human beta islets, which are
structures of the pancreas gland responsible for the production and secretion of
insulin and glucagon that in turn regulate carbohydrate metabolism. The Company
developed a novel method for the generation of adult stem cells and using this
method, generated 29 adult human beta islet stem cell lines that are now owned
by the Company. The Company also developed new methods to induce differentiation
of functional beta cells from these stem cells that contain and release insulin
in response to elevated glucose levels. Glucose-regulated insulin secretion is a
critical function of beta cells which is lost in type I diabetics due to
autoimmune reaction against beta cells. Management believes that the discovery
of novel methods for differentiation of functional beta cells enhances the
potential use of its stem cell lines for cell therapy of diabetes.

Type I
diabetes may be successfully treated by transplantation of beta islet cells.
However, there is an insufficient supply of transplantable materials to treat
the number of afflicted patients and discovery of viable methods to increase the
number of available beta islets for transplantation is a major goal of diabetes
research. The Companys stem cell lines and associated differentiation
methods represent a potential indefinite supply of human beta cells for use in
transplantation into diabetic patients.

During
2006, the Company expanded its beta islet stem cell research in an effort to
establish an alliance with a third party. An alliance with a strategic partner
with adequate capital is viewed by management as critical to its stem cell
research. The Companys technology for stem cell line generation was
successfully extended to other sources of human cells resulting in generation of
new adult human pancreatic stem cell lines and associated intellectual property
(see below). Current objectives are to further demonstrate the commercial
potential of these new stem cell lines in treatment of diabetes through
achievement of various technical milestones. Management believes that such
achievements may lead to financial support for its stem cell research and the
establishment of a significant strategic alliance for the Company. Furthermore,
the technical developments achieved through this research enhance the ability of
the Company to commercialize its previously developed adult human pancreatic
stem cell lines for research and possible therapeutic applications. During the
two fiscal years ended October 31, 2006 and 2005, the Company spent $173,037 and
$132,134, respectively, for research and development.

We
presently sell our VITROCELL products to the medical research industry.
These include various human cell lines of pituitary and pancreatic origin and a
growth medium, called VitroPlus II. Laboratories use cell lines for various
experimental purposes including the testing and discovery of new drugs and this
requires growth of cells by a process called cell culture. VitroPlus II is a
proprietary formulation that has been optimized by the Company for growth of its
human pancreatic cell lines. It may also have broader application in the growth
and maintenance of other stem cell lines. The Company also provides technical
support to our customers enabling them to rapidly incorporate our products into
their ongoing research. During fiscal year 2006, the Companys sales
generated $1,640 of revenue.

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The
markets presently being pursued are select non-therapeutic applications in basic
and pharmaceutical research. VITROCELL products have various research
applications. Many researchers use in-vitro animal cell lines as model
systems for biological research. Alternatively, cultured human cell lines
including those manufactured by the Company may be used to extend research that
was initially performed on animal cells. The VITROCELL lines have utility
in studies of basic molecular and cellular biology, drug discovery, toxicology
and studies of the mechanisms involved in pancreatic and pituitary cancer.

Fertility
Drugs.The Companys previous operations of manufacture and sale of
purified antigens for diagnostic purposes resulted in the discovery of several
products and technologies with potential application for therapeutic purposes.
An initial target was the pituitary hormone FSH and related products, since FSH
has been used as a drug to treat infertility for the past 35 years. The
worldwide market for FSH and related products is approximately $1.3 billion per
year. Since the sale of the diagnostic operation in 2000, management has
continued efforts to develop these discoveries into commercially valuable
assets. However, in the recent past, the Company has utilized its limited
resources for its stem cell research and manufacturing of the VITROCELL
product line in an effort to establish a strategic alliance to provide financial
support of its research and revenue from product sales in the near term. There
was no new development of the Companys technology related to fertility
drugs in 2006.

Description
of Products and Product Candidates.VITROPIN is highly purified FSH
derived from the urine of post-menopausal women. It is produced through the
Companys patented technology that management believes represents a
significant improvement over previous methods used to produce this product. FSH
has been used for over 35 years as a drug to treat infertility by inducing
follicle development in the ovary.

VITROPIN-V
is envisioned to be the only product on the market identical to native FSH. The
Company plans to produce this product through use of its cell immortalization
technology. VITROPIN-V is still in an early development stage and is
projected to require substantial funding and approximately three to four
years additional development to be marketable.

VITROJECT
is a novel delivery device for administration of VITROPIN,
VITROPIN-Vand other substances that provide an entire
treatment regime within a single device that is easy and economical to use. FSH
currently must be given by either intramuscular or subcutaneous injection at the
same time in the evening, for 7 to 15 consecutive days. Many of the existing
products are administered by reconstitution of a single dose, loading into a
syringe and injection, with repetition of these steps in subsequent days.
VITROJECT may allow patients to self-inject fertility drugs by
subcutaneous administration at home with fewer drug manipulations and lower cost
compared to existing methods.

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The
U.S. Food and Drug Administration (FDA) has not yet approved any of
these products for commercial distribution within the United States.

Marketing
and Distribution

The
Company has sold its products directly and through distributors. The Company has
a non-exclusive contract for distribution of select VITROCELL products
through Chemicon International, Inc. The Company also has an informal
distribution agreement with Fisher Scientific for its products. The Company also
sells its products directly and may establish distribution agreements with other
third parties in the future.

Patents and
Other Intellectual Property Protection

The
Company has applied for and has obtained or is in the process of obtaining
patents and other protection for its intellectual property in order to protect
its investments. The USPTO issued the Companys first patent on November
23, 1999 (US Patent No. 5,990,288). This invention was entitled Methods
for Purifying FSH and details methods to manufacture highly purified FSH
from various sources. Management believes this invention represents a
significant advance in the methods previously used to purify FSH and to produce
therapeutic FSH. The Company abandoned two patents related to FSH purification
during 2006. The first was a US continuation of US Patent No. 5,990,288 and not
deemed by management to provide necessary protection beyond that afforded by the
parent application given the lack of commercialization of this technology. A New
Zealand patent covering the Companys FSH purification technology was also
abandoned since any manufacturing based on this technology is unlikely to occur
in New Zealand.

The
Company was granted another patent by the USPTO in 2002 entitled,
Immortalized Cell Lines and Methods of Making the Same. This patent
provides protection to the Companys technology related to immortalization
of pituitary cells by genetic engineering. This technology has potential
application to the commercial production of FSH and other human pituitary
hormones through immortalization of the cells of the pituitary gland that
normally produce these hormones. The Company maintains this patent through
payment of required maintenance fees. Certain pending patent applications
seeking expanded protection of the cell immortalization technology were
abandoned by the Company during 2006 in light of its pending patent applications
regarding stem cell technology (See: Notes to the Financial Statements,
Note A, Impairment and Disposal of Long-Lived Assets)

The
Company now has a pending patent application concerning its stem cell technology
entitled, Generation and Differentiation of Adult Stem Cell Lines
that was filed with both the USPTO and the PCT in 2005, potentially allowing
issued patents in the United States and several foreign countries. Research and
cell lines generated during 2006 constitute additional intellectual property
potentially extending protection of the parent application through the filing of
additional patent applications. Management views its patent-pending stem cell
technology as an advanced method of generating immortalized cells without
requiring genetic engineering and thus chose to abandon pending applications
related to its cell immortalization technology, as described above. The
Companys technology related to the production of cell culture media is
protected as trade secret. There can be no assurance that the Company will
succeed in obtaining any such patent protection or that these patents would
withstand legal challenges.

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The
Company has established trademark claims to its products VITROPIN,
VITROJECT, and VITROPIN-V informally by publication. These
trademarks are thus common law marks that may be challenged through similar,
established and registered marks that existed prior to initial publication by
the Company but no such challenge has occurred since original publication of
these marks in 2000. The Company also has the following trademarks registered in
the State of Colorado: Vitro Biopharma, VITROCELL and
Harnessing the Power of Cells; these registrations expire on
7/2/2012, 11/25/2013 and 11/25/2013 respectively. The Company also launched a
new logo during 2005 incorporating a graphic design together with Vitro
Biopharma that has not yet been registered but is also a common law mark.
The Company may elect to extend protection for some or all of these marks
through registration with the United States Patent and Trademark Office in the
future. However, we do not believe the absence of USPTO trademark registration
will adversely affect our business.

Regulatory
Approval

Drugs
used to treat human infertility require registration with, and approval from,
appropriate government authorities prior to sale. In the United States, the FDA
oversees approval of such products. Since the FDA has previously approved FSH,
the Company has determined that the appropriate application to gain
VITROPIN approval is a type of abbreviated version of a new drug
application. The process of FDA can be time consuming and require millions of
dollars in capital expenditures.

Competition

Human
cell lines are also produced and marketed by other companies with substantially
greater resources than the Company. Present suppliers of human cells and related
products include Crucell N.V., Cambrex Corporation and the American Type Culture
Collection. All of these firms have long-standing histories and significant
financial resources.

The
Company faces competition from a number of larger, well-established entities in
the area of fertility treatment and research for other therapeutic products.
Ares-Serono Group, SA controls approximately 50% of the worldwide FSH market.
The Organon division of Akzo-Nobel, SA has the majority of the remaining market,
with a 30% market share. Ferring Pharmaceuticals has the remaining share of the
market, about 20%. Serono, Organon and Ferring have diversified product lines
including impure LH/FSH combination drugs, purified urinary or recombinant FSH.

The
existing market participants represent substantial competition to any entity
hoping to introduce new products into the human fertility market, including the
Company. All of these entities have substantially greater financial and
personnel resources than the Company. Also, Serono is known to vigorously
protect its market position through various means, including litigation. Organon
and Ferring, while not known to engage in aggressive market protection tactics,
may well present substantial obstacles to the entry of any of the Companys
products to the market.

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Employees

The
Company presently has one full time employee, James Musick, the Companys
President, CEO, Chairman, and CFO. Dr. Musick provides primary support of
technical operations including R&D and production of the VITROCELL
product line and all administrative functions of the Company. Erik Van Horn, the
Companys Vice President, provides the Company with periodic consultation
related to the achievement of its business objectives.

The
Company also utilizes the services of consultants and independent contractors to
supplement the resources of its employees from time to time. These consultants
include scientific and laboratory personnel, accountants, attorneys and an
individual who has previous CFO experience in the biotechnology industry. Some
of these consulting positions may be converted to full time employment if and
when the Companys business requires and resources permit.

ITEM 2.   
DESCRIPTION OF PROPERTY

The
Company owns no real property. The Company leases its office and laboratory
space, consisting of 720 square feet, at 12635 East Montview Boulevard, Suite
218, Aurora, CO 80010. The lease is a full service lease allowing Company
personnel access to common areas, conference rooms and use of certain laboratory
equipment. The lease for this space expired December 31, 2005 and has not yet
been renewed. The space is currently occupied on a month-to-month basis.

ITEM 3.   
LEGAL PROCEEDINGS

The
Company is presently engaged in a dispute with the Department of Health and
Human Services of the United States federal government concerning repayment of
$48,518.11 plus accrued interest related to a research grant award received by
the Company in 2000 from the National Institutes of Health. The government
claims that the Company did not properly report the disbursement of the $100,000
awarded to the Company, while the Company claims it did file reports that comply
with federal statutes applicable to the required financial reports. The Company
is currently appealing the enforcement action taken by the government. In the
event that the Company does not prevail, this may have adverse effects since the
Company does not have resources to repay the government.

There
are currently no other legal matters or other regulatory proceedings pending or,
to the knowledge of our management, threatened that involve the Company or its
property or any of the principal shareholders, officers or directors in their
capacities as such.

ITEM 4.   
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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There
were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.

PART
II

ITEM 5.   
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The
following information sets forth the high and low bid price for the
Companys common stock for each quarter within the last two fiscal years.
The Companys common stock is traded over-the-counter and quoted on the
electronic Bulletin Board maintained by the National Association of Securities
Dealers. The following information was obtained from The Nasdaq Stock Market,
Inc. The prices set forth below do not include retail mark-ups, mark-downs or
commissions, and may not represent prices at which actual transactions occurred.

|Fiscal Quarter Ended | High | Low    
|-------------------- | ---- | -------
|                     |      |        
|2006                 |      |        
|January 31           |      | $     0
|April 28             |      | 0      
|July 31              |      | 0      
|October 31           |      | 0      
|                     |      |        
|2005                 |      |        
|January 31           |      | $     0
|April 29             |      | 0      
|July 29              |      | 0      
|October 31           |      | 0      
|                     |      |        

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.

As of
January 26, 2007, the Company had approximately 1,945 shareholders of record,
not including persons who hold their shares in street name.

Dividends

The
Company has paid no dividends since inception and it is not anticipated that any
will be paid in the foreseeable future. The payment of dividends in the future
is dependent on the generation of revenue and profit, and the discretion of the
Board of Directors based upon such matters as the Companys capital needs
and costs of obtaining capital from outside sources.

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ITEM 6.   
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The
following discussion and analysis summarizes the financial condition of the
Company at fiscal year end October 31, 2006, and compares that to its financial
condition at year-end 2005. It also analyzes our results of operation for the
year ended October 31, 2006 and compares those results to the year ended October
31, 2005. This discussion and analysis should be read in conjunction with our
financial statements and notes appearing elsewhere in this report. The
discussion should also be read with the cautionary statements and risk factors
appearing at the end of this section.

The
Companys recent operations and development of its business plan have been
limited due to lack of sufficient capital resources. While the Company did
receive funding through the sale of its diagnostic operating unit in 2000, these
funds were essentially depleted in mid-2002. Since then, the Companys
president, CEO, and Chairman has provided or guaranteed debt and equity
financing through which the Company was able to maintain a curtailed operation
focused primarily on the development and commercialization of its stem cell
technology. During 2006, the Chairman also provided continued financial support
of the Companys limited operation. However, additional expansion and
implementation of the Companys business plan require considerable more
capital resources than are presently available to the Company.

Management
of the Company has been engaged in locating additional sources of outside
funding for the Company. A primary focus during 2006 was securing a strategic
alliance for further research and development of stem cell technology for
potential use in treatment of diabetes through cellular therapy as described
elsewhere in this report (See: Item 1, Narrative Description of
Business). Management believes that achievement of certain technical milestones
will result in research funding support and provide the Company with a strategic
alliance suitable to commercialization of its stem cell technology for
therapeutic applications. Alternatively, and/or contemporaneously, management
plans to seek suitable merger candidates in an effort to provide enhanced
revenue, capitalization and business opportunities necessary to enhance
shareholder value.

Liquidity
and Capital Resources

October 31,
2006

The
Company continues to experience a shortage of working capital and liquidity and
reported a negative net worth at October 31, 2006. At fiscal year end October
31, 2006, the Company had a working capital deficit of $1,016,109, representing
a decrease of $430,707 from fiscal year end October 31, 2005. Current assets
increased $1,126 from year-end 2005 to 2006 while total assets decreased $35,969
during that time, the former from increased cash and accounts receivable while
the latter was predominantly due to the write-off of deferred costs related to
the Companys cell immortalization patents (See also: Note A,
Impairment and Disposal of Long-lived Assets in the Notes to the
Financial Statements). Current liabilities increased $431,833 from year-end 2005
to 2006 while total liabilities increased $438,189, each predominantly from
accrued salaries, a contingent obligation related to prior receipt of grant
funding, accrued interest and increased lines of credit. This working capital
has been further reduced subsequent to year-end.

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The
Company remains dependent on receipt of additional cash to implement its
business plan and generate revenue in the future. The report of the independent
accountant that audited the Companys financial statements for the year
ended October 31, 2006 includes a qualification that the Company may not
continue as a going concern. In that event, the Company might be liquidated and
its assets sold to satisfy any claims of creditors. See Note A in the Notes to
the Financial Statements, attached to this report for a more complete
description of this contingency.

During
the third fiscal quarter of 2006, the Companys President and CEO resigned
and the Chairman and COO became President and CEO while retaining his position
as Chairman of the Board and CFO. The Company has an employment contract with
its senior management whose current salary is being accrued (See Note B:
Related Party Transactions, in the Notes to the Financial Statements
contained herein).

During
the fiscal year ended October 31, 2006, the Companys financing activities
provided cash to support operations. During that time, the Companys
operations used $93,688, compared to $52,150 used during the twelve months ended
October 31, 2005. The increase in cash usage was predominantly due to additional
expenses and increased outlays for research and development. The use of cash
during fiscal year 2006 reflects minimum cash requirements of about $7800 per
month for operations while the cash raised from financing activities was
primarily from purchase of common stock of the Company by its Chairman,
President and CEO. Curtailing operations, deferral of employee salaries and
reduction of operating expenses to fund only essential needs has minimized
operating expenses. The Company anticipates needing approximately equivalent
capital to fund operations at the present levels during fiscal 2007, together
with funds to service its debt. Expansion of operations beyond current levels
would require additional capital.

The
Company had lines of credit totaling $91,419 with $5,081 in available credit at
fiscal year end 2006. Credit balances and available credit are approximately the
same at January 31, 2007. The Chairman personally guarantees all Company debt.
The Company did receive an additional $30,000 in equity funding from its
Chairman subsequent to the end of fiscal year 2006. Given the current financial
conditions, management believes that there is sufficient capital to maintain
operations through approximately the end of March 2007. After that, and failing
receipt of additional capital, the Company will be forced to suspend operations.

The
Company continues to seek funding to maintain and expand its operations. A
primary focus at the present time is the establishment of a strategic alliance
to provide funding for the Companys stem cell research and continued
expansion of the VITROCELL product line as described elsewhere in this
report (See Item I, Business Narrative). These developments, together
with the Companys technology, products and product candidates related to
treatment of infertility, provide potential revenue generation through a
pipeline of products.

Management
has also reduced current spending levels by reducing administrative expenses and
other operational expenditures while maintaining essential activities. In the
continued absence of capital support for operations, the Company intends to
pursue other alternatives to increase its capital resources such as merger with
revenue-generating private entities, sale of assets or other transactions that
may be appropriate.

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During
2007, the Company may receive a judgment from the US Federal Government for
$48,518.11 plus accrued interest as noted above, Item 3. Legal Proceedings. In
such an event, the Company may be forced to repay the judgment or encounter
collection efforts that could force the Company to seek bankruptcy protection
since the financial resources available to the Company presently are
insufficient to meet the demanded repayment. Alternatively, the Company may
accelerate its efforts to merge with revenue generating entities.

Results of
Operations

Year Ended October
31, 2006

During
the year ended October 31, 2006, the Company realized a net loss of $536,193, or
($.05) per share, with $1,640 in product revenue. The net loss in 2006 was
$111,371 more than the net loss of $424,822 in 2005. The increased operating
loss during 2006 as compared to 2005 was primarily due to increased non-cash
operating expenses related to salaries, the write-off of intangible assets and a
contingent loss resulting from a claim of repayment of previously disbursed
research grant funding.

Total
operating expenses were $87,890 more in 2006 than in 2005, primarily due to the
write-off of intangible assets and contingent expenses related to a claim of
repayment of previously disbursed research grant funding while increased selling
general and administrative expenses offset the loss of expenses incurred for
consulting services and expensed stock options in 2005. Increased selling,
general and administrative expenses in 2006 are primarily related to accrued
salaries.

Research
and development expenses increased by $40,903 during fiscal year 2006 compared
to fiscal year 2005. This increase was predominantly due to an allocable portion
of accrued salary expense and approximately $5,000 in increased supply expenses.
The Companys R&D activities were oriented towards advances in its stem
cell technology with potential application to research and treatment of
diabetes. A predominant focus was improved cell culture of stem cells and
derivative beta islet cells to more closely resemble in-vivo conditions,
advances in the technology used to induce differentiation and development of
enhanced measurement tools. Management believes that these advances improve
opportunities for the Company to establish a strategic alliance for research
funding and also enhance the potential commercial value of the Companys
patent-pending stem cell technology.

While
the predominant focus of the Companys curtailed operations during 2006 was
stem cell research, product sales were $16,333 less than in 2005. During 2005,
the Companys sales were mainly to its primary distributor, Chemicon
International, Inc. to provide initial inventory to support product launch of
select VITROCELL products, including immortalized human cell lines,
optimized growth and cryopreservation media. The majority of these sales were
from cell lines that are more expensive than media. These products were
developed through the Companys prior R&D activities and are not
available from other manufacturers. While there were sales of cell lines during
2005 and 2006, these are immortal and do not require repurchase by end-users.
However, the media is required for continued use of the cell lines and the sales
recorded in 2006 were for the Companys VitroPlus II medium that is
optimized to support growth of its human pancreatic cell lines. Since media is
less expensive than cell lines, our sales were reduced even though there was
market demand for these new products following their introduction in 2005.
Management does anticipate revenues from the sale or licensing of
VITROCELL products and underlying technology in 2007.

13



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Management
does not anticipate revenue from its fertility drugs in the immediate future.
Commercialization of these products depends on significant funding, further
product development including clinical trials, FDA approval, and other
conditions prior to commercial sale of any product.

Other
expenses increased from fiscal 2005 to 2006, since interest expenses increased
as the Company increased its debt.

Year Ended
October 31, 2005.

During
the year ended October 31, 2005, the Company realized a net loss of $424,822, or
($.04) per share, on $17,973 revenue.

Operating
expenses increased from fiscal 2004 to fiscal 2005, due to accrued salary
expenses and stock-based compensation. Selling, general and administrative
expenses increased by $136,727 in 2005. Our research and development expenses
also increased by $31,827 in 2005.

Other
expenses increased from fiscal 2004 to 2005 primarily due to increased interest
expense due to increased debt.

Recent
Accounting Pronouncements

In May
2005, the FASB issued SFAS No.154, Accounting Changes and Error Corrections
 a replacement of APB Opinion No. 20, Accounting Changes and SFAS No. 3,
Reporting Accounting Changes in Interim Financial Statements (SFAS 154). SFAS
154 provides guidance on the accounting for and the reporting of accounting
changes, including changes in principle, accounting estimates and the reporting
entity, as well as, correction of errors in previously issued financial
statements. SFAS 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. SFAS 154 is not
expected to have a material impact on the Companys results of operations
or financial position.

On
July 13, 2006 the FASB posted to its website the Financial Interpretation No.
48, Accounting for Uncertainty in Income Taxes, (FIN 48). FIN 48, creates a
single model to address uncertainty in income tax positions. FIN 48 clarifies
the accounting for income taxes by prescribing the minimum recognition threshold
a tax position is required to meet before being recognized in the financial
statements. It also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition and, clearly scopes income taxes out of FASB Statement
No. 5, Accounting for Contingencies. FIN 48 applies to all tax positions related
to income taxes subject to FASB Statement No. 109, Accounting for Income Taxes,
(FAS 109). This includes tax positions considered to be routine as
well as those with a high degree of uncertainty. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The Company does not expect the
adoption to have a material impact on the Companys financial statements.

14



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Effective
November 1, 2006, the Company adopted Statement No. 123R, Share-Based
Payment (SFAS 123R), which requires companies to measure and recognize
compensation expense for all stock-based payments at fair value. SFAS 123R
is being applied on the modified prospective basis.

Under
the modified prospective approach, SFAS 123R applies to new awards and to awards
that are outstanding on November 1, 2006 that are subsequently modified,
repurchased, cancelled or vest. Under the modified prospective approach,
compensation cost recognized after October 31, 2006 includes compensation cost
for all share-based payments granted prior to, but not yet vested on, November
1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123R, and compensation cost for all shared-based payments
granted subsequent to November 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123R. Prior periods are not
restated to reflect the impact of adopting the new standard.

Critical
Accounting Policies and Estimates

The
Company has identified the accounting policies described below as critical to
its business operations and the understanding of the Companys results of
operations. The impact and any associated risks related to these policies on the
Companys business operations is discussed throughout this section where
such policies affect the Companys reported and expected financial results.
The preparation of this Annual Report requires the Company to make estimates and
assumptions that affect the reported amount of assets and liabilities, revenues
and expenses of the Company during the reporting period and contingent assets
and liabilities as of the date of the Companys financial statements. There
can be no assurance that the actual results will not differ from those
estimates.

Patents,
Deferred Costs and Amortization

Patents
consist of costs incurred to acquire issued patents. Amortization commences once
a patent is granted. Costs incurred to acquire patents that have not been issued
are reported as deferred costs. If a patent application is denied or expires,
the costs incurred are charged to operations in the year the application is
denied or expires. The Company amortizes its patents over a period of ten years.
Amortization expense totaled $2,932 and $2,931 for the years ended October 31,
2006 and 2005, respectively.

15



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---

Impairment
and Disposal of Long-lived Assets

The
Company evaluates the carrying value of its long-lived assets under the
provisions of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Statement No. 144 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted future cash flows estimated to be generated by
those assets are less than the assets carrying amount. If such assets are
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying value or fair value, less
cost to sell.

During
the year ended October 31, 2006, the Company completed a balance sheet review
that identified assets whose carrying amounts are not recoverable. As a result
of this review, the Company recorded asset impairment charges of $35,504 for the
write-off of patents and deferred intellectual property costs.

RISK FACTORS

This
10-KSB report, including Managements Discussion and Analysis or Plan of
Operation, contains forward-looking statements that may be materially affected
by several risk factors including those discussed below.

1.   Dependence
on key personnel. Achievement of the objectives described in this report depends
critically upon Dr. James Musick who has contributed substantially to the development of
the products and technology presently owned by the Company. At present, the Company has
an employment contract with Dr. Musick. The Company does not maintain key man life
insurance. Dr. Musick has contributed substantially to the development of the products
to treat infertility and to the Companys stem cell technology and provided all of
the Company's funding for the last three fiscal years. Loss of his services would
adversely impact the successful commercialization of the Companys products.

2.   
Effects of potential litigation. The Company is involved with a dispute
with the United States federal government that could potentially lead to a
judgment against the Company for $48,518 plus accrued interest. The Company is
defending itself against this claim and will use whatever resources are
available to reinstate the de-obligated funds but collection actions against the
Company could force the Company to seek bankruptcy protection. The Company is
also subject to potential litigation as by class action of its shareholders
regarding reduction in the market value of the Companys stock, hostile
takeover efforts, product liability claims and other claims of legal wrongdoing
by the Company. During 2000, a major shareholder attempted to exert control over
the Company and threatened litigation if its demands were not met. The Company
successfully negotiated a compromise with the shareholder resulting in the
restructuring of the Company and satisfaction of the shareholder demands.
However, there are other potential legal challenges that the Company may be
subjected to and such actions could divert resources from the pursuit of the
business objectives of the Company and compromise achievement of these goals.

16



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3.   
Lack of liquidity in the Companys securities. There is presently
limited liquidity in the public stock of the Company as indicated by relatively
low price of the Companys stock and a relatively low volume of trading.
This limited liquidity is related in part to the fact that the Companys
securities are traded on the OTC bulletin board and are considered penny
stocks. Such limited liquidity of the Companys securities may limit
the funding abilities of the Company that are related to equity transactions and
may adversely affect the ability of shareholders to sell their stock at an
acceptable price.

4.   
Dependence on regulatory approvals. Prior to the marketing and sale of
the Companys fertility drug products, regulatory approval is essential.
While the Company maintains relationships with advisors who provide counsel to
the Company regarding its filings for registration by the FDA and other
regulatory authorities, there can be no assurance that the Company will receive
the requisite approvals to market its products. The absence of regulatory
approval together with a lack of working capital, essentially blocks the
commercialization of the Companys fertility drug products.

5.   
Lack of Operating Capital. The Company continues to operate with reduced
available capital. Its primary funding support has come from the Chairman of the
Company whose financial resources are diminishing. Lack of sufficient operating
capital will force suspension of operations with adverse effects including
inability to manufacture products and continue research functions.

6.   
Attachment of Assets. Some of the Companys debt is collateralized
by a lien against certain assets and default by the Company could result in
asset seizure. The Company has a note to its Chairman and primary shareholder
that is secured by a lien against FSH patents that were issued in 1999. These
assets may be seized in the event of default; however, such seizure did not
occur when a similarly secured prior debt instrument was in default.

ITEM 7.   
FINANCIAL STATEMENTS

Reference
is made to the Index of Financial Statements following Part IV of this Report
for a listing of the Companys financial statements and notes thereto.

ITEM 8.   
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

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

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

17



---

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

Item 8A.   
Controls and Procedures

We
maintain a system of controls and procedures designed to ensure that information
required to be disclosed by us in reports that we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported, within time periods specified in the SECs rules and forms
and to ensure that the information required to be disclosed by us in the reports
that we file or submit under the Securities Exchange Act of 1934, as amended, is
accumulated and communicated to our management, including of Chief Executive
Officer and Principal Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. As of October 31, 2006, under the
supervision and with the participation of our Chief Executive Officer and
Principal Financial Officer, management has evaluated the effectiveness of the
design and operation of our disclosure controls and procedures. Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures were effective. There were
no changes in the Companys internal control over financial reporting
during the year ended October 31, 2006 that materially affected, or is
reasonably likely to materially affect, the Companys internal controls
over financial reporting.

18



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PART
III

ITEM 9.   
DIRECTORS AND EXECUTIVE OFFICERS

The
following individuals presently serve as officers and directors of the Company:

|Name                  | Age | Position
|--------------------- | --- | --------
|James R. Musick, Ph.D |     | 60      
|                      |     |         
|                      |     |         
|Erik D. Van Horn      |     | 38      
|                      |     |         
|                      |     |         

Directors
of the Company serve until the next annual meeting of shareholders and until
their successors are elected and qualified. Officers serve at the will of the
Board of Directors.

The
Company currently has no audit or other committee of the Board of Directors and
no financial experts on its Board. The entire Board of Directors performs the
functions typically performed by an audit committee. There is no audit
committee financial expert on the Board, as defined by SEC rule.

The
following represents a summary of the business history of each of the foregoing
individuals for at least the last five years:

JAMES
R. MUSICK, Ph.D. was appointed President and Chief Executive Officer of the
Company on August 7, 2000 where he served until April 2005. He then resigned
those positions to become the Chairman and Chief Operating Officer. On May 19,
2006 he was re-appointed President and Chief Executive Officer. From September
1, 1989 until August 7, 2000, Dr. Musick served as Vice President, Secretary and
Chief Operating Officer of the Company. He has also served as a director of the
Company since September 1, 1989. Dr. Musick received a Bachelor of Arts in
Biological Sciences in 1968 and a doctorate in Biological Sciences in 1975 from
Northwestern University in Evanston, Illinois.

ERIK
D. VAN HORN was appointed Vice President of the Company on August 7, 2000.
He was also the Production Manager from 1993 to 2000 and a director of the
Company from 1993 to 2004. From 2002 to the present, he has been Supervisor of
Manufacturing at Amgen Boulder Inc. He received his Bachelor of Science in
Chemical Engineering from the University of Colorado in 1990.

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

19



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Compliance
with Section 16(a) of the Securities and Exchange Act of 1934

Based
solely on a review of Forms 3, 4 and 5 furnished to the Company under relevant
SEC rules, James Musick, an officer and director of the Company, failed to file
reports required under Section 16(a) of the Securities Exchange Act of 1934, as
amended. During the year ended October 31, 2006, Dr. Musick failed to file 5
reports covering 5 transactions in securities of the Company within the time
stipulated by the SEC.

ITEM 10.   
EXECUTIVE COMPENSATION

The
following table summarizes the total compensation of the chief executive
officer; any person who served as the chief executive officer during the last
fiscal year, and any other executive officers whose compensation from the
Company exceeded $100,000 during that period (the Named Officers):

SUMMARY
COMPENSATION

|Name                             | Year endedOctober 31, | AnnualcompensationSalary | Long-term compensationSecuritiesunderlyingoptions
|-------------------------------- | --------------------- | ------------------------ | -------------------------------------------------
|James R. Musick, Chairman,       |                       | 2006                     |                                                  
|President, Chief Executive       |                       | 2005                     |                                                  
|Officer, Chief Operating         |                       | 2004                     |                                                  
|Officer, Chief Financial Officer |                       |                          |                                                  
|                                 |                       |                          |                                                  
|James T. Posillico, President    |                       | 2006                     |                                                  
|and Chief Executive Officer      |                       | 2005                     |                                                  
|                                 |                       |                          |                                                  

------------------

|(1) |  | All
of the salary was accrued.
|--- |  | ------------------------------

|(2) |  | Excludes
options to purchase 383,333 shares of the Companys common stock issued in
connection with loans made by such individual  to the Company.  See, -Option Grants below.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment
Contracts

Effective
April 8, 2005, the Company entered into employment agreements with Dr. Musick.
This agreement provides for an initial term of three years and is automatically
renewable for an additional three-year period unless either party gives notice
to the other that the agreement will be terminated.

20



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The
agreement provides a base salary of $180,000 per annum for the first year,
$250,000 per annum for the second year, and $300,000 per annum during the third
year. The agreement also provides that if the Company obtains financing of $3
million or more during the first two years of the agreement, the base salary
would automatically increase to $300,000 per annum effective with the closing of
the financing. Dr. Musick has agreed to accrue salary until such time as the
Company obtains sufficient working capital.

The
agreement with Dr. Musick provides for the grant of stock options as follows:

|o |  | Options to purchase 150,000 shares of the Companys common stock at a price
of $.17 per share, vesting at such time as the Company reports cumulative
product sales of $125,000 during any one year as reported in any financial
statement filed with the Securities and Exchange Commission on Form 10-QSB or
10-KSB; and
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | Options to purchase an additional 150,000 shares of the Companys common
stock at market price, vesting at such time as the Company reports cumulative
product sales of $250,000 during any one year as reported in any financial
statement filed with the Commission on Form 10-QSB or 10-KSB.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All of
the options that are subject to vesting expire ten years from the date of
vesting. Further, each of the options would terminate ninety days from the date
the employees employment with the Company is terminated. All of the
options are intended to be granted as incentive stock options under
the Companys Equity Incentive Plan of 2000, although the Plan must be
amended and approved by the shareholders to increase the amount of common stock
reserved under the Plan in order to provide for some of the options.

Compensation
of Directors

Directors
are not paid any additional compensation for their services as such. However,
each is entitled to be reimbursed for reasonable expenses incurred in attending
meetings or other service to the Company.

Option
Grants For 2006

During
fiscal 2006, the Company granted the following stock option to our executive
officer pursuant to our Equity Incentive Plan (the Plan):

|Name         | Number ofsecuritiesunderlyingoptions granted | % of totaloptions grantedto employeesin fiscal year | Exerciseprice/share | Expirationdate(1)
|------------ | -------------------------------------------- | --------------------------------------------------- | ------------------- | -----------------
|James Musick |                                              | 200,000                                             |                     | 50%              

----------------

|(1) |  | All
of the options shown in the table are exercisable immediately.
|--- |  | ------------------------------------------------------------------

21



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Year End
Option Values

The following
table sets forth the value of unexercised options held by the Named Officers at October
31, 2006.  The last sales price  of the Company's common stock prior to October 31, 2006
was $.08 per share.

|Name            | Sharesacquiredon exercise | ValueRealized ($) | Number ofsecuritiesunderlyingunexercisedoptionsat fiscal year endexercisable/unexercisable | Value ofunexercisedin-the-moneyoptions atfiscal year end
|--------------- | ------------------------- | ----------------- | ------------------------------------------------------------------------------------------ | --------------------------------------------------------
|James R. Musick |                           | 0                 |                                                                                            | 0                                                       

-------------

|(1) |  | Based
on the last sales price of the common stock on October 31, 2006 of $.08 per share.
|--- |  | ----------------------------------------------------------------------------------------

Stock Option
Plan

The Company
adopted an Equity Incentive Plan on October 9, 2000 (the Plan) for the
benefit of key personnel and others providing  significant services to the Company.  The
Plan replaced the 1992 Equity Incentive Plan (the 1992 Plan).  The 1992 Plan
will remain  effective only so long as options remain outstanding under the 1992 Plan.
No new options will be granted under the 1992 Plan, and  the only shares that will be
issued under the 1992 Plan are those shares underlying currently outstanding options.

The Plan
authorizes total stock awards of up to 1,000,000 shares of the Companys common
stock.  Awards may take the form of  incentive stock options, non-qualified stock
options, restricted stock awards, stock bonuses and other stock grants.  If a stock
award made under the New Plan expires, terminates, is canceled or settled in cash without
the issuance of all shares of common stock  covered by the award, those shares will be
available for future awards under the Plan.  Awards may not be transferred except by will
or the laws of descent and distribution.  No awards may be granted under the Proposed
Plan after September 30, 2010.

The Plan is
administered by the Companys Board of Directors, which may delegate its authority
to a committee of the Board of  Directors.  The Board of Directors has the authority to
select individuals to receive awards, to determine the time and type of  awards, the
number of shares covered by the awards, and the terms and conditions of such awards in
accordance with the terms of the  Plan.  In making such determinations, the Board of
Directors may take into account the recipient's current and potential  contributions and
any other factors the Board of Directors considers relevant.  The Board of Directors is
authorized to establish  rules and regulations and make all other determinations that may
be necessary or advisable for the administration of the Plan.

22



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All options
granted pursuant to the Plan shall be exercisable at a price not less than the fair
market value of the common stock on  the date of grant.  Unless otherwise specified, the
options expire ten years from the date of grant.

The following
table illustrates the number of shares remaining available for issuance under the Plan.

Equity
Compensation Plan Information

|                                          |  |         | 
|----------------------------------------- |  | ------- | 
|
|
|Equity compensation plans approved by     |  | 616,667 | 
|security holders                          |  |         | 
|                                          |  |         | 
|Equity compensation plans not approved by |  | 189,197 | 
|security holders                          |  |         | 
|                                          |  |         | 
|TOTAL                                     |  | 805,864 | 
|                                          |  |         | 

Item 11.   
Security Ownership of Certain Beneficial Owners and Management

The following
table sets forth information as of January 26, 2007, based solely on information
available to the Company, with respect  to the ownership of the Company's common stock by
all officers and directors individually, all officers and directors as a group, and  all
beneficial owners known to the Company to hold more than five percent (5%) of the
Company's common stock.  The percentages in the  table assume that any options owned by
the beneficial owner have been exercised, but that no other outstanding options have been
exercised.  At January 26, 2007, the Company had outstanding 12,450,912 shares of common
stock, the only class of voting stock  outstanding.

The following
shareholders have sole voting and investment power with respect to the shares, unless it
is indicated otherwise.

23



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|Name and Address of Beneficial Owner         | Number of Shares | %        
|-------------------------------------------- | ---------------- | ---------
|
|
|Officers and Directors                       |                  |          
|James R. Musick(1) (2)                       |                  | 4,348,110
|12635 E. Montview Blvd.,                     |                  |          
|Aurora, Colorado 80010                       |                  |          
|                                             |                  |          
|Erik Van Horn(3)                             |                  | 430,516  
|12635 E. Montview Blvd.,                     |                  |          
|Aurora, Colorado 80010                       |                  |          
|                                             |                  |          
|Officers and Directors as a group(1) (2) (3) |                  | 4,778,626
|(2 individuals)                              |                  |          
|                                             |                  |          
|Other Beneficial Owners                      |                  |          
|Roger D. Hurst(4)                            |                  | 1,135,482
|8100 Southpark Way, Unit B-1                 |                  |          
|Littleton, CO 80120                          |                  |          
|                                             |                  |          
|The James R. Musick Trust                    |                  | 1,530,764
|12635 E. Montview Blvd                       |                  |          
|Aurora, Colorado 80010                       |                  |          
|                                             |                  |          
|Lloyd Hansen                                 |                  | 1,140,000
|2646 S.W. Mapp Rd, Ste. #304                 |                  |          
|Palm City, FL 34990                          |                  |          
|                                             |                  |          

---------------

|(1) |  | Includes
231,848 shares of common stock underlying an option  immediately exercisable.
|--- |  | --------------------------------------------------------------------------------------

|(2) |  | Includes
1,530,764 shares held by The James R. Musick Trust, of which Mr. Musick is a trustee and
beneficiary.
|--- |  | --------------------------------------------------------------------------------------------------------------

|(3) |  | Includes
230,516 shares of common stock underlying options immediately exercisable.
|--- |  | -----------------------------------------------------------------------------------

|(4) |  | Includes
10,386 shares owned by Compion and 3,000 owned by Compion Management Services, Inc.,
companies in which Mr. Hurst is  the sole shareholder
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

Changes in
Control

The Company
knows of no arrangement, including the pledge by anyone of any securities of the Company
that may result in a change in  control.

Item 12.   
Certain Relationships and Related Transactions

Between August
2002 and October 2006, the Company's Chairman, James Musick, loaned the Company $95,300
for working capital.  This  loan and the accrued interest of $21,258 has been represented
by a single promissory note in the amount of $116,558 dated October 31,  2006 bearing
interest at the rate of 10% per year.  The note replaces and cures previous defaults of
older notes. This note is due on  October 31, 2007 under customary terms and conditions
and is collateralized by the Companys patents regarding purification of FSH.

24



---

During January
2005, the Company sold 100,000 shares of its common stock to the Chairman of the Company
for $20,000, or $.20 per  share.  During February 2006, the Company sold 312,500 shares
of its common stock to the Chairman for $20,000, or $.064 per share.  During May 2006,
the Company sold 625,000 shares of its common stock to the Chairman for $20,000 or $0.032
per share.  During August  2006, the Company sold 357,143 shares of its common stock to
the Chairman for $20,000 or $0.056 per share.  In each case, the price  of the stock was
equal to the fair market value of the stock as determined by reference to the quoted
sales price on the OTC Bulletin  Board.

The Company's
Board of Directors is of the opinion that the terms of these transactions are no less
favorable than could be obtained  from an unaffiliated third party.

PART IV

Item 13.   
Exhibits

The following
is a list of exhibits filed or incorporated by reference into this Report:

|No.      | Description
|-------- | -----------
|1        |            
|2        |            
|3.1.1(1) |            
|3.1.2(2) |            
|3.1.3(3) |            
|3.1.4(2) |            
|3.1.5(4) |            
|3.2(3)   |            
|4.1(3)   |            
|9        |            
|10.1(5)  |            
|10.2     |            
|10.6(6)  |            
|11       |            
|13       |            
|14       |            
|16       |            
|18       |            
|20       |            
|21       |            
|22       |            
|23       |            
|24       |            
|31.1     |            
|32       |            
|99       |            
|         |            

25



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---

_________________

|(1) |  | Filed
as an Exhibit to Form 10-KSB dated October 31, 2000.
|--- |  | ----------------------------------------------------------

|(2) |  | Filed
as an Exhibit to Form 10-KSB/A dated July 31, 2000.
|--- |  | ---------------------------------------------------------

|(3) |  | Filed
as an Exhibit to Registration Statement on Form SB-2, SEC File No. 33-59230 and
incorporated herein by reference.
|--- |  | -----------------------------------------------------------------------------------------------------------------------

|(4) |  | Filed
as an Exhibit to Form 10-KSB for the year ended October 31, 2001.
|--- |  | -----------------------------------------------------------------------

|(5) |  | Filed
as an Exhibit to the definitive Proxy Statement on Schedule 14/A as filed with the
Commission on October 30, 2000 and  incorporated herein by reference.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Filed
as Exhibit 10.1 to the Form 8-K dated April 8, 2005 and incorporated herein by reference.
|--- |  | -----------------------------------------------------------------------------------------------

ITEM 14.   
PRINCIPAL ACCOUNTANT FEES AND SERVICES

The
Company currently has no audit committee of the Board of Directors, and is not
required to maintain such a committee since its stock is not quoted on Nasdaq or
traded on any national securities exchange. Accordingly, all material decisions
affecting the Companys audited financial statements, periodic disclosure
with the SEC and its relationship with its auditors are addressed by the entire
Board. The Board currently has no policies and procedures relating to the
pre-approval of audit and audit related services.

Audit Fees

The
Company paid or will pay Schumacher & Associates, Inc. an aggregate of
$7,500 in fees for an audit of its 2006 financial statements. The Company paid
Miller and McCollum, CPA an aggregate of $ 3,000 in fees for an audit of its
2005 financial statements and owes an additional $3,700 for review of its
financial statements for interim quarterly reports filed with the SEC during
fiscal year 2006.

26



---

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized in Aurora, Colorado on the 9th
day of February 2007.

| | VITRO
DIAGNOSTICS, INC.
| | -----------------------

| | By:/s/    James R. Musick James R. Musick, Chairman
| | ---------------------------------------------------

Pursuant
to the requirements of the Security Exchange Act of 1934, as amended, this
Report has been signed by the following person in the capacities and on the
dates indicated.

|Signatures             | Title | Date                                
|---------------------- | ----- | ------------------------------------
|/s/    James R. Musick |       | President, Chairman, Chief Executive
|James R. Musick        |       | Officer, Principal Financial and    
|                       |       | Accounting Officer and Director     
|                       |       |                                     

27



---

VITRO
DIAGNOSTICS, INC.

Index
to  Financial Statements

Page

|                                                  | 
|------------------------------------------------- | 
|Independent auditor's report (2005)               | 
|                                                  | 
|Independent auditor's report (2006)               | 
|                                                  | 
|Balance sheet at October 31, 2006                 | 
|                                                  | 
|Statements of operations for the years ended      | 
|October 31, 2006 and 2005                         | 
|                                                  | 
|Statement of changes in shareholders' deficit for | 
|the years ended October 31, 2006 and 2005         | 
|                                                  | 
|Statements of cash flows for the years ended      | 
|October 31, 2006 and 2005                         | 
|                                                  | 
|Notes to financial statements                     | 
|                                                  | 

F-1



---

Report of
Independent Registered Public Accounting Firm

Board of DirectorsVitro
Diagnostics, Inc.

We
have  audited  the accompanying balance sheet of Vitro Diagnostics, Inc. as of October
31, 2005 and the  related statements of operations, stockholders;  deficit, and
cash flows for the  year then ended. These financial statements are  the responsibility
of the Companys  management. Our responsibility is  to express an opinion on
these financial statements  based on our  audit

We
conducted our audit in accordance with the standards of the Public Company  Accounting
Oversight Board (United States). Those standards require that we plan  and perform the
audit to obtain reasonable assurance about whether the financial  statements are free of
material misstatement. The Company is not required to  have, nor were we engaged to
perform, an audit of its internal control over  financial reporting. Our audit included
consideration of internal control over  financial reporting as a basis for designing
audit procedures that are  appropriate in the circumstances, but not for the purpose of
expressing an  opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also  includes
examining on a test basis, evidence supporting the amounts and  disclosures in the
financial statements, assessing the accounting principles  used and significant estimates
made by management, as well as evaluating the  overall financial statement presentation.
We believe that our audits provide a  reasonable basis for our opinion.

In
our  opinion, the financial statements referred to above present fairly, in all  material
respects, the financial position of Vitro Diagnostics, Inc. as of  October 31, 2005 and
the results of its operations, stockholders deficit, and its cash flows for the
year then ended, in conformity with  accounting principles generally accepted in the
United States of  America.

The
accompanying financial statements have been prepared assuming that the Company  will
continue as a going concern. As described in Note A, the Company has  suffered
significant losses since inception and has a working capital deficit,  which raises
substantial doubts about its ability to continue as a going  concern. Managements
plan in regard to this matter is also discussed  in Note A. The financial statements do
not include any adjustments that might  result from the outcome of these  uncertainties.

/s/    Miller
and McCollom

MILLER AND
MCCOLLOM  Certified Public Accountants  4350 Wadsworth Boulevard, Suite 300  Wheat Ridge,
Colorado 80033

January 25,
2006

F-2



---

Report of
Independent Registered Public Accounting Firm

Board of
DirectorsVitro  Diagnostics, Inc.

We have audited
the accompanying  balance sheet of Vitro Diagnostics, Inc., as of October 31, 2006, and
the  related statements of operations, shareholders (deficit), and cash  flows for
the year ended October 31, 2006. These financial statements are the  responsibility of
the Company management. Our responsibility is to  express an opinion on these
financial statements based on our  audit.

We conducted
our audit in  accordance with the standards of the Public Company Accounting Oversight
Board  (United States of America). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are  free of
material misstatement. The Company is not required to have, nor were we  engaged to
perform an audit of its internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as  a basis for designing
audit procedures that are appropriate in the  circumstances, but not for the purpose of
expressing an opinion on the  effectiveness of the companys internal control over
financial  reporting. Accordingly, we express no such opinion. An audit includes
examining,  on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles  used
and significant estimates made by management, as well as evaluating the  overall
financial statement presentation. We believe our audit provides a  reasonable basis for
our opinion.

In our opinion,
the financial  statements referred to above present fairly, in all material respects, the
financial position of Vitro Diagnostics, Inc. as of October 31, 2006, and the  results of
its operations and cash flows for the year ended October 31, 2006, in  conformity with
accounting principles generally accepted in the United States of  America.

The
accompanying financial  statements have been prepared assuming that the Company will
continue as a going  concern. As described in Note A, the Company has suffered
significant losses  since inception and has working capital and shareholders;
deficits at  October 31, 2006, which raise substantial doubt about its ability to
continue as  a going concern. Managements plans in regard to this matter are also
discussed in Note A. The financial statements do not include any adjustments  that might
result from the outcome of this  uncertainty.

SCHUMACHER & ASSOCIATES,
INC.

Denver,
ColoradoJanuary 31, 2007

F-3



---

VITRO
DIAGNOSTICS, INC.Balance Sheet

October 31,
2006

|                                                               |  |                            
|-------------------------------------------------------------- |  | ---------------------------
|Assets                                                         |  |                            
|Current assets:                                                |  |                            
|Cash                                                           |  |                            
|Accounts Receivable                                            |  |                            
|Inventory, at cost                                             |  |                            
|                                                               |  |                            
|                                                               |  | Total current assets       
|                                                               |  |                            
|Equipment, net of accumulated depreciation of $22,109          |  |                            
|Patents, net of accumulated amortization of $11,971            |  |                            
|Deferred costs                                                 |  |                            
|Other assets                                                   |  |                            
|                                                               |  |                            
|                                                               |  |                            
|                                                               |  |                            
|                                                               |  |                            
|Liabilities and Shareholders’ Deficit                     |  |                            
|Current liabilities:                                           |  |                            
|Current maturities on note payable (Note E)                    |  |                            
|Accounts payable                                               |  |                            
|Grant obligation (Note G)                                      |  |                            
|Due to officer (Note B)                                        |  |                            
|Note payable to officer (Note B)                               |  |                            
|Accrued salaries (Note B)                                      |  |                            
|Lines of credit (Note D)                                       |  |                            
|                                                               |  |                            
|                                                               |  | Total current liabilities  
|                                                               |  |                            
|Long-term debt (Note E):                                       |  |                            
|Note payable, less current maturities                          |  |                            
|                                                               |  |                            
|                                                               |  | Total liabilities          
|                                                               |  |                            
|                                                               |  |                            
|Contingency (Note G)                                           |  |                            
|                                                               |  |                            
|Shareholders’ deficit (Note F):                           |  |                            
|Preferred stock, $.001 par value; 5,000,000 shares authorized; |  |                            
|-0- shares issued and outstanding                              |  |                            
|Common stock, $.001 par value; 50,000,000 shares authorized;   |  |                            
|11,915,198 shares issued and outstanding                       |  |                            
|Additional paid-in capital                                     |  |                            
|Accumulated deficit                                            |  |                            
|                                                               |  |                            
|                                                               |  | Total shareholders' deficit
|                                                               |  |                            
|                                                               |  |                            
|                                                               |  |                            
|                                                               |  |                            
|                                                               |  |                            
|                                                               |  |                            

See
accompanying notes to financial statements  F-4



---

VITRO
DIAGNOSTICS, INC.Statements of Operations

|                                                   | For The Year EndedOctober 31, |                      
|-------------------------------------------------- | ----------------------------- | ---------------------
|
|Product sales                                      |                               | $              1,640 
|                                                   |                               |                      
|                                                   |                               |                      
|Operating costs and expenses:                      |                               |                      
|Research and development                           |                               | 173,037              
|Stock-based compensation (Note F):                 |                               |                      
|Consulting services                                |                               |                     
|Common stock options                               |                               |                     
|Selling, general and administrative                |                               | 246,232              
|Loss resulting from deobligation of grant (Note G) |                               | 54,401               
|Impairment of intangible assets (Note A)           |                               | 35,504               
|                                                   |                               |                      
|Total operating costs and expenses                 |                               | 509,174              
|                                                   |                               |                      
|Loss from operations                               |                               | (507,534             
|                                                   |                               |                      
|Other income (expense):                            |                               |                      
|Interest income, officer loan (Note B)             |                               | 20                   
|Interest expense                                   |                               | (28,679              
|                                                   |                               |                      
|                                                   |                               |                      
|Loss before income taxes                           |                               | (536,193             
|                                                   |                               |                      
|Provision for income taxes (Note C)                |                               |                     
|                                                   |                               |                      
|                                                   |                               |                      
|Net loss                                           |                               | $         (536,193   
|                                                   |                               |                      
|                                                   |                               |                      
|Basic and diluted net loss per common share        |                               | $               (0.05
|                                                   |                               |                      
|Shares used in computing basic and diluted         |                               |                      
|net loss per common share                          |                               | 10,996,585           
|                                                   |                               |                      
|                                                   |                               |                      
|                                                   |                               |                      

See
accompanying notes to financial statements  F-5



---

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



|                                                   | Preferred Stock | Common Stock | AdditionalPaid-in | Loan toOfficerto ExerciseStock | Accumulated |            |  |        
|-------------------------------------------------- | --------------- | ------------ | ----------------- | ------------------------------ | ----------- | ---------- |  | -------
|
|Balance, October 31, 2004                          |                 |             |                   | $                             |             | 10,020,555 |  | $10,021
|                                                   |                 |              |                   |                                |             |            |  |        
|Common stock issued in exchange for                |                 |              |                   |                                |             |            |  |        
|consulting services, $.20 per share (Note B)       |                 |             |                   |                               |             | 500,000    |  | 500    
|Common stock sold to an officer at                 |                 |              |                   |                                |             |            |  |        
|$.20 per share (Note B)                            |                 |             |                   |                               |             | 100,000    |  | 100    
|Common stock options granted to officers           |                 |              |                   |                                |             |            |  |        
|(Note F)                                           |                 |             |                   |                               |             |           |  |       
|Officer compensation charged against the           |                 |              |                   |                                |             |            |  |        
|loan to officer (Note B)                           |                 |             |                   |                               |             |           |  |       
|Interest accrued on officer's equity loan (Note B) |                 |             |                   |                               |             |           |  |       
|Net loss for the year ended October 31, 2005       |                 |              |                   |                               |             |           |  |       
|                                                   |                 |              |                   |                                |             |            |  |        
|                                                   |                 |              |                   |                                |             |            |  |        
|Balance, October 31, 2005                          |                 |             |                   |                               |             | 10,620,555 |  | 10,621 
|                                                   |                 |              |                   |                                |             |            |  |        
|Common stock sold to an officer at                 |                 |              |                   |                                |             |            |  |        
|$0.064 per share (Note B)                          |                 |             |                   |                               |             | 312,500    |  | 312    
|Common stock sold to an officer at                 |                 |              |                   |                                |             |            |  |        
|$0.032 per share (Note B)                          |                 |             |                   |                               |             | 625,000    |  | 625    
|Common stock sold to an officer at                 |                 |              |                   |                                |             |            |  |        
|$0.056 per share (Note B)                          |                 |             |                   |                               |             | 357,143    |  | 357    
|Officer compensation charged against the           |                 |              |                   |                                |             |            |  |        
|loan to officer (Note B)                           |                 |             |                   |                               |             |           |  |       
|Interest accrued on officer's equity loan (Note B) |                 |             |                   |                               |             |           |  |       
|Net loss for the year ended October 31, 2006       |                 |             |                   |                               |             |           |  |       
|                                                   |                 |              |                   |                                |             |            |  |        
|Balance, October 31, 2006                          |                 |             |                   | $                             |             | 11,915,198 |  | $11,915
|                                                   |                 |              |                   |                                |             |            |  |        
|                                                   |                 |              |                   |                                |             |            |  |        

See
accompanying notes to financial statements.  F-6



---

VITRO
DIAGNOSTICS, INC.  Statements of Cash Flows

|                                                             | For The Year EndedOctober 31, |                   
|------------------------------------------------------------ | ----------------------------- | ------------------
|
|Cash Flows from operating activities:                        |                               |                   
|Net Loss                                                     |                               | $   (536,193      
|Adjustments to reconcile net loss to net cash used in        |                               |                   
|operating activities:                                        |                               |                   
|Depreciation and amortization                                |                               | 4,523             
|Impairment of intangible assets (Note A)                     |                               | 35,504            
|Stock-based compensation                                     |                               |                  
|Interest income recognized on Officer's equity loan (Note B) |                               | 2,035             
|Services charged against Officer's equity loan (Note B)      |                               |                  
|Changes in current assets and current liabilities:           |                               |                   
|(Increase) in accounts receivable, inventories,              |                               |                   
|prepaid expenses and deposits                                |                               | 26                
|Increase in accounts payable, accrued expenses               |                               |                   
|and payroll taxes payable                                    |                               | 400,417           
|                                                             |                               |                   
|Net cash used in operating activities                        |                               | (93,688           
|                                                             |                               |                   
|                                                             |                               |                   
|Cash flows from investing activities:                        |                               |                   
|Purchases of property and equipment                          |                               |                  
|Payments for patents and deferred costs                      |                               | (2,932            
|                                                             |                               |                   
|Net cash used in investing activities                        |                               | (2,932            
|                                                             |                               |                   
|                                                             |                               |                   
|Cash flows from financing activities:                        |                               |                   
|                                                             |                               |                   
|Proceeds from issuance of notes payable                      |                               | 36,348            
|Principal payments on notes payable                          |                               | (3,492            
|Proceeds from line of credit, net                            |                               | 7,476             
|Principal payments on capital lease                          |                               | (2,560            
|Proceeds from sale of common stock                           |                               | 60,000            
|                                                             |                               |                   
|Net cash provided by financing activities                    |                               | 97,772            
|                                                             |                               |                   
|                                                             |                               |                   
|Net change in cash                                           |                               | 1,152             
|                                                             |                               |                   
|Cash, beginning of year                                      |                               |                  
|                                                             |                               |                   
|Cash, end of year                                            |                               | $        1,152    
|                                                             |                               |                   
|                                                             |                               |                   
|                                                             |                               |                   
|Supplemental disclosure of cash flow information:            |                               |                   
|Cash paid during the year for:                               |                               |                   
|Interest                                                     |                               | $      19,452     
|                                                             |                               |                   
|                                                             |                               |                   
|Income taxes                                                 |                               | $                -
|                                                             |                               |                   
|                                                             |                               |                   

See
accompanying notes to financial statements  F-7



---

VITRO
DIAGNOSTICS, INC.Notes to Financial Statements

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

| | Nature
of Organization
| | ----------------------

| | The
Company was incorporated under the laws of Nevada on March 31, 1986. From  November of
1990 through July 31, 2000, the Company was engaged in the  development, manufacturing
and marketing of purified human antigens  (Diagnostics) and the development
of therapeutic products  (Therapeutics) and related technologies. The Companys
sales  were solely attributable to the manufacturing of the purified human antigens.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
the transfer of its Diagnostics operations in August of 2000, the Company began  devoting
all efforts to its therapeutic drug development and related  technologies. A present
target area for the Companys therapeutic products  is the development and
commercialization of stem cell technology for use in  diabetes research and treatment.
The Company has been granted a patent for its  proprietary technology related to the
immortalization of human cells and  subsequently expanded this technology to include
patent-pending technology  involving generation of stem cells with application to a
variety of commercial  opportunities including the treatment of degenerative diseases and
drug  discovery.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company also owns patented technology related to treatment of human infertility.  The
Company has been granted three patents for its process to manufacture  VITROPIN.
VITROPIN is a highly purified urinary follicle-stimulating  hormone (FSH)
preparation produced according to the Companys  patented purification process. The
Company has developed a prototype syringe for  administration of fertility drugs called
VITROJECT.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Basis
of Presentation
| | ---------------------

| | The
accompanying financial statements have been prepared in conformity with  generally
accepted accounting principles, which contemplate continuation of the  Company as a going
concern. However, the Company has suffered significant losses  since inception and has
working capital and shareholders deficits at  October 31, 2006 that raise
substantial doubt about its ability to continue as a  going concern. In view of these
matters, realization of certain of the assets in  the accompanying balance sheet is
dependent upon continued operations of the  Company, which in turn is dependent upon the
Companys ability to meet its  financial requirements, raise additional capital, and
the success of its future  operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
financial statements do not include any adjustments relating to the  recoverability of
assets and classification of liabilities that might be  necessary should the Company be
unable to continue as a going concern. The  Companys continuation as a going
concern is dependent upon its ability to  obtain capital from outside sources, generate
sufficient cash flow to meet its  obligations on a timely basis and ultimately to attain
profitability. During the  years ended October 31, 2006 and 2005, the then president and
now chairman has  loaned the Company funds for working capital on an as needed basis.
There is no assurance that these loans will continue in the future. The Company  plans to
seek additional funding to maintain its operations through debt and  equity financing.
The Company is presently engaged in discussions with companies  that have expressed
interest in the commercialization of the Companys stem  cell technology and the
Companys fertility drugs. Management intends to  pursue these and other
opportunities with the objective of establishing  strategic alliances to fund further
development and commercialization of its key  technologies. Also, the Company recently
launched a new product line,  VITROCELL, consisting of novel human cell lines for
research and development.  These products represent unique opportunities for researchers
to utilize  proliferating human cell lines for a variety of research applications
including  basic research in diabetes, pancreatic cancer and endocrinology of the
pituitary  gland. Management intends to pursue revenue generation from this product line
and development of other related products to the fullest extent possible given  its
resources. There is no assurance that any of these initiatives will yield  sufficient
capital to maintain the Companys operations. In such an event,  management intends
to pursue various alternatives such as sale of its assets or  merger with other entities.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-8



---

---

VITRO DIAGNOSTICS, INC.Notes
to Financial Statements

| | Summary
of Sign ificant Accounting Policies
| | -------------------------------------------

| | Use
of estimates
| | ----------------

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

| | Cash
equivalents
| | ----------------

| | For
the purposes of the statement of cash flows, the Company considers all highly  liquid
debt instruments purchased with an original maturity of three months or  less to be cash
equivalents. The Company had no cash equivalents at October 31,  2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accounts
Receivable
| | -------------------

| | Accounts
receivable consists of amounts due from customers. The Company considers  accounts more
than 30 days old to be past due. The Company uses the allowance  method for recognizing
bad debts. When an account is deemed uncollectible, it is  written off against the
allowance. The Company generally does not require  collateral for its accounts
receivable. As of October 31, 2006, management  believes no allowance for uncollectible
accounts is necessary since all accounts  receivable at October 31, 2006 were collected
subsequent to October 31, 2006.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventory
| | ---------

| | Inventories,
consisting of raw materials and VITROCELL product, are stated at the lower of  cost
(using the specific identification method) or market.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | Research
& development
| | ----------------------

| | The
Companys operations are primarily in research and development  (R&D).
These costs are expensed as incurred and are primarily  comprised of costs for: salaries,
supplies, overhead and occupancy, contract  services and other outside costs, quality
assurance and analytical testing.  Since R&D is expensed entirely, cost of sales for
products sold are included  in R&D, and finished goods inventory is not capitalized.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Property,
equipment and depreciation
| | ------------------------------------

| | Property
and equipment are stated at cost and are depreciated over the assets estimated
useful lives using the straight-line method. Depreciation expense  totaled $1,591 and
$1,649 for the years ended October 31, 2006 and 2005,  respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F-9



---

VITRO
DIAGNOSTICS, INC.Notes to Financial Statements

| | Patents,
deferred  costs and amortization
| | -----------------------------------------

| | Patents
consist of costs incurred to acquire issued patents. Amortization commences once  a
patent is granted. Costs incurred to acquire patents that have not been issued  are
reported as deferred costs. If a patent application is denied or expires,  the costs
incurred are charged to operations in the year the application is  denied or expires. The
Company amortizes its patents over a period of ten years.  Amortization expense totaled
$2,932 and $2,932 for the years ended October 31,  2006 and 2005, respectively. Estimated
aggregate amortization expense for each  of the next five years is as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year ended October 31, | 
|---------------------- | 
|2006                   | 
|2007                   | 
|2008                   | 
|2009                   | 
|2010                   | 
|                       | 
|                       | 
|                       | 
|                       | 

| | The
Companys patents and deferred costs consisted of the following at October  31, 2006:
| | -----------------------------------------------------------------------------------------

|                                                                  | 
|----------------------------------------------------------------- | 
|                                                                  | 
|Patent                                                            | 
|Immortalized cell lines and methods of making the same (1 patent) | 
|This patent is for proprietary technology related to the          | 
|immortalization of human cells, which could be used in the        | 
|treatment of degenerative diseases and drug discovery             | 
|Less: accumulated amortization                                    | 
|                                                                  | 
|                                                                  | 
|                                                                  | 
|Deferred costs                                                    | 
|Immortalization of human cell lines (VITROP1N-VTM)                | 
|This patent  application  is a  continuation  on the              | 
|above patent previously obtained                                  | 
|by the Company that seeks to expand                               | 
|protection of its issued patent. The patent application           | 
|was also filed in the United Kingdom, Canada,                     | 
|Australia, New Zealand, Israel, and in the European Patent        | 
|office. (see Impairment below)                                    | 
|Stem Cells                                                        | 
|This patent application  represents an advancement of the         | 
|Companys cell immortalization  platform that                     | 
|provides a competitive modern technology platform with            | 
|wide application to commercial applications in research           | 
|and cell therapeutics                                             | 
|                                                                  | 
|                                                                  | 
|                                                                  | 
|                                                                  | 
|                                                                  | 

F-10



---

VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

| | Impairment
and Disposal of Long-Lived Assets
| | --------------------------------------------

| | The
Company evaluates the carrying value of its long-lived assets under the provisions of
Statement of  Financial Accounting Standard (SFAS) No. 144, Accounting
for the Impairment or Disposal of Long-  Lived  Assets.  Statement No. 144 requires
impairment losses to be recorded on long-lived  assets used in operations  when
indicators  of impairment  are present and the  undiscounted  future cash flows
estimated to be generated by  those  assets are less  than the  assets carrying
amount.  If such  assets are  impaired,  the  impairment  to be  recognized  is  measured
by the amount by which the  carrying  amount of the  assets  exceeds the fair value of
the  assets. Assets to be disposed of are reported at  the lower of the carrying value or
fair value, less costs to sell.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the years ended October 31, 2006 and 2005,  the Company  completed  balance  sheet
reviews that  identified  assets  whose  carrying  amounts  are not  recoverable.  As a
result of this  review,  the Company  recorded  asset  impairment  charges of $35,504
and $-0- during the years ended  October 31, 2006 and 2005,  respectively,  for the
write-off of deferred intellectual property costs as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

October 31,2006

|Description                           | OriginalCost | AccumulatedAmortizationThroughOctober 3l,2006 | Book ValuePrior toImpairment | AssetImpairment | Book ValueOctober 31,2006
|------------------------------------- | ------------ | --------------------------------------------- | ---------------------------- | --------------- | -------------------------
|Deferred Intellectual Property Costs: |              |                                               |                              |                 |                          
|Immortalization of human cell lines   |              | $       35,504                                |                              | $              |                          
|                                      |              |                                               |                              |                 |                          
|                                      |              |                                               |                              |                 |                          
|                                      |              |                                               |                              |                 |                          

| | Income
taxes
| | ------------

| | Income
taxes are provided for the tax effects of transactions  reported in the financial
statements and consist of  taxes  currently due plus deferred taxes related  primarily to
differences  between the recorded book basis and the  tax basis of assets  and
liabilities  for  financial  and  income  tax  reporting.  The  deferred  tax  assets and
liabilities  represent the future tax return  consequences  of those  differences,  which
will either be taxable or  deductible  when the assets and  liabilities  are  recovered
or settled.  Deferred  taxes are also  recognized  for  operating  losses that are
available to offset future  taxable  income and tax credits that are available to offset
future federal income taxes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
and cost recognition
| | ----------------------------

| | The
Company  utilizes the accrual method of accounting  whereby  revenue is recognized when
earned and expenses are  recognized when incurred.  Fair value of financial instruments
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Fair
Value of financial instruments
| | -----------------------------------

| | SFAS
107, Disclosure About Fair Value of Financial  Instruments, requires certain
disclosures regarding the fair  value of financial  instruments.  The carrying  amounts
of cash,  accounts  payable and other  accrued  liabilities  approximate fair value due
to the short-term  maturity of the  instruments.  Based on the borrowing rates currently
available  to the Company for loans with similar  terms and average  maturities,  the
fair value of long-term  debt  approximates its carrying value.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Concentrations
of credit risk
| | -----------------------------

| | Financial
instruments that potentially subject the Company to concentrations of credit risk consist
principally of  temporary cash investments and cash equivalents,  and trade accounts
receivable.  As of October 31, 2006 and 2005,  the Company had no amounts of cash or cash
equivalents in financial  institutions  in excess of amounts insured by  agencies of of
the U.S. Government. Trade receivables are from  customers  in one  geographic  location,
principally  Northern  California,  USA.  The  Company  does not  require  collateral for
its trade accounts receivable.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-11



---

VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

| | Net
loss per share
| | ------------------

| | The
Company  reports net loss per share using a dual  presentation  of basic and diluted loss
per share.  Basic net  loss per share  excludes the impact of common stock  equivalents.
Diluted net loss per share  utilizes the average  market price per share when applying
the treasury stock method in determining  cofnmor~ stock  equivalents.  Common  stock
options  outstanding  at October  31, 2006 were not  included  in th4 dilutid  loss per
share as all 805,864  options were anti-dilutive. Therefore, basic and diluted losses per
share at ~)ctober 31, 2006 were equal.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock-based
compensation
| | ------------------------

| | Through
October 31, 2006, the Company has accounted for its stock-based compensation plans
under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25,  Accounting for Stock Issued to Employees, and related
interpretations, and accordingly, recognized no compensation expense related to
the stock-based plans. The Company has accounted for stock issued to non-employees in
accordance with the provisions of SFAS No. 123. SFAS 123 requires the fair value based
method of accounting for stock issued to non-employees in exchange for services.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Companies
that elect to use the method  provided in APB 25 are  required to disclose  pro forma net
income and pro  forma  earnings per share  information  that would have resulted  from
the use of the fair value based method.  The  Company  has  elected to  continue  to
determine  the value of  stock-based  compensation  arrangements  under the  provisions
of APB 25. Pro forma disclosures have been included in Note F.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
November 1, 2006,  the Company  adopted  Statement No. 123R,  Share-Based  Payment  (SFAS
I 23R),  which  requires companies to measure and recognize  compensation  expense for
all stock-based payments at fair value. SFAS  123R is being applied on the modified
prospective basis.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the modified  prospective  approach,  SFAS 123R applies to new awards and to awards that
are  outstanding  on  November 1, 2006 that are subsequently  modified,  repurchased,
cancelled or vest. Under the modified  prospective  approach,  compensation  cost
recognized  after October 31, 2006 includes  compensation  cost for all  share-based
payments  granted prior to, but not yet vested on,  November 1, 2006,  based on the
grant-date fair value estimated  in accordance  with the  provisions of SFAS 123R,  and
compensation  cost for all  shared-based  payments  granted  subsequent to November 1,
2006,  based on the grant-date  fair value estimated in accordance with the provisions of
SFAS 123R. Prior periods are not restated to reflect the impact of adopting the new
standard.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Recent
accounting standards
| | ---------------------------

| | In
May 2005, the FASB issued SFAS No.154,  Accounting  Changes and Error Corrections - a
replacement of APB Opinion  No. 20,  Accounting  Changes and SFAS No. 3, Reporting
Accounting  Changes in Interim  Financial  Statements (SFAS  154). SFAS 154 provides
guidance on the accounting for and the reporting of accounting  changes,  including
changes  in principle,  accounting estimates and the reporting entity, as well as,
correction of errors in previously issued  financial  statements.  SFAS 154 is effective
for accounting changes and corrections of errors made in fiscal years  beginning after
December 15, 2005.  SFAS 154 is not expected to have a material impact on the Companys
results of  operations or financial position.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-12



---

VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

| | On
July 13, 2006 the FASB posted to its website the Financial Interpretation No. 48,
Accounting for  tax positions.  FIN 48 clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a  tax position is required to meet before
being recognized in the financial statements.  It also provides guidance on
derecognition,  measurement,  classification, interest and penalties, accounting in
interim periods, disclosure and  transition  and,  clearly scopes income taxes out of
FASB Statement No. 5,  Accounting  for  Contingencies.  FIN 48  applies to all tax
positions  related to income taxes  subject to FASB  Statement  No. 109,  Accounting  for
Income  Taxes,  (FAS 109).  This includes tax  positions  considered to be routine as
well as those with a high degree of  uncertainty.  FIN 48 is effective for fiscal years
beginning  after December 15, 2006. The Company does not expect  the adoption to have a
material impact on the Companys financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
were various other accounting standards and interpretations issued during 2006 and 2005,
none of which are  expected to have a material impact on the Companys consolidated
financial position, operations or cash flows.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE B:   
RELATED PARTY TRANSACTIONS

| | Indebtedness
to officer
| | -----------------------

| | During
the years ended October 31, 2006, 2005 and 2004, the Companys president paid
$2,321, $5,671 and $3,537,  respectively, in expenses on behalf of the Company, which
remained unpaid as of October 31, 2006. The balance of  $11,529 is included in the
accompanying condensed financial statements as Due to officer.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Notes
payable
| | -------------

| | During
the period from August 23, 2002 to October 31, 2006 an officer loaned the Company a total
of $95,300  through various notes that had also accrued interest in the amount of
$21,258. These notes and the accrued  interest were consolidated into a single note of
$116,558 that matures on October 31, 2007 and pays interest on  the unpaid principle at a
rate of 10% per annum. This note is collateralized by a first lien on the FSH patents
owned by the Company, the same collateral that had secured a prior note between the
Company and the officer.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Employment
agreements and accrued compensation
| | ----------------------------------------------

| | Effective
April 8, 2005, the Board of Directors of the Company appointed James T. Posillico, PhD,
as its  President and Chief Executive Officer. Simultaneously, James R. Musick resigned
as President and CEO  and was appointed Chairman of the Board of Directors, Chief
Operating Officer and Secretary. Dr.  Musick retained his position as Chief Financial
Officer of the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
conjunction with their appointments, the Company entered into employment agreements with
both Dr. Posillico and  Dr. Musick. Each agreement provides for an initial term of three
years and is automatically renewable for an  additional three-year period unless either
party gives notice to the other that the agreement will be terminated.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
agreements  with both  officers  provide  each with a base  salary of  $180,000  per
annum for the first year,  $250,000 per annum for the second year,  and $300,000 per
annum during the third year.  The agreement also provides  that if the Company  obtains
fmancing of $3 million or more during the first two years of the agreement,  the base
salary  would  automatically  increase to $300,000  per annum  effective  with the
closing of the  financing.  Both  officers have agreed to accrue salary until such time
as the Company obtains sufficient working capital.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-13



---

VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

| | The
agreement with Dr. Posillico also provided for the grant of stock options as follows:
| | -----------------------------------------------------------------------------------------

| |  | Options
to purchase  250,000  shares of the  Companys  common stock at a price of $. 17 per
share,  exercisable  for a period  often years, immediately vested;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Options
to purchase 500,000 shares of the Companys  common stock at a price of $. 17 per
share,  vesting upon the achievement  of a strategic alliance to commercialize the Companys
fertility drug technology,  completion of a successful  fmancing in an  amount not less
than $3 million to commercialize  VITROPIN, or the sale or out-license of the
Companys drug technology to a  third party;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Options
to purchase an  additional  500,000  shares of the Companys  common stock at a
price of $.17 per share,  vesting upon  achievement of a strategic  alliance to
commercialize  the Companys beta islet  technology by a third party,  the
successful  financing of the commercialization of this technology, or the sale or
out-license of the technology to a third party;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Options
to purchase an additional  150,000 shares of the Companys common stock at a price
of $.17 per share,  vesting at such  time as the Company reports  cumulative  product
sales of $125,000  during any one year as reported in any fmancial  statement  filed with
the Securities and Exchange Commission on Form 10-QSB or 10-KSB; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Options
to purchase an additional  150,000 shares of the Companys  common stock at market
price,  vesting at such time as the  Company reports  cumulative  product sales of
$250,000  during any one year as reported in any financial  statement filed with  the
Commission on Form l0-QSB or lO-KSB.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
agreement with Dr. Musick provides for the grant of stock options as follows:
| | ---------------------------------------------------------------------------------

| |  | Options
to purchase  150,000  shares of the Companys  common stock at a price of $.17 per
share,  vesting at such time as the  Company reports  cumulative product sales of
$125,000 during any one year as reported in any fmancial statement filed with the
Securities and Exchange Commission on Form 10-QSB or 10-KSB; and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Options
to purchase an additional  150,000 shares of the Companys  common stock at market
price,  vesting at such time as the  Company reports  cumulative  product sales of
$250,000  during any one year as reported in any financial  statement filed with  the
Commission on Form 10-QSB or 1 0-KSB.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
of the  options  that are  subject  to vesting  expire  ten years from the date of
vesting.  Further,  each of the  options  would  terminate  ninety days from the date the
employees  employment  with the Company is termiuated.  All of the options are
intended to be  granted as  incentive  stock  options under the  Companys
Equity  Incentive  Plan of 2000,  although  the Plan must be amended and  approved  by
the  shareholders  to  increase  the amount of common  stock  reserved  under the Plan in
order to provide for some of the  options.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 19, 2006, Dr. Posillico  resigned his position as the Companys  president/CEO.
At the time of his  resignation,  Dr. Posillico  held options to purchase 2,131,765
shares of the Companys common stock. All of these options expired on August 19,
2006.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Dr.
Musicks salaries totaled $220,833 and $129,045 for the years ended October 31, 2006
and 2005,  respectively.  Dr. Musicks accrued  salaries  totaled  $494,148 as of
October 31, 2006. Dr.  Musicks  salary is allocated as follows:  70% to research
and development and  30% to administration.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-14



---

VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

| | Dr.
Posillicos  salaries totaled $105,000 and $95,833 for the years ended October 31,
2006 and 2005,  respectively.  Dr.  Posillicos  accrued salaries totaled $200,833
as of October 31, 2006. All of Dr. Posillicos salary is allocated to administration.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accrued
payroll taxes on the above salaries totaled $21,758 at October 31, 2006.
| | --------------------------------------------------------------------------------

| | Officer
loan
| | ------------

| | During
May 2002, the Companys  Board of Directors  approved a $14,000 loan to the vice
president of the Company.  The loan was used to  exercise  options to purchase  200,000
shares of the Companys  common stock. The loan carried a five percent interest rate
and matured  on May 8, 2004. The Company was holding stock  certificates  in the name of
the officer,  totaling  116,700 shares of common stock,  as  collateral  for the loan. As
of July 31, 2006,  the vice  president had earned  adequate  compensation  to allocate
against the entire  balance due on the loan and related accrued interest.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Common
stock sales
| | ------------------

| | During
August 2006, the Company sold 357,143 shares of its common stock to an officer of the
Company  for $20,000, or $.056 per share.
| | --------------------------------------------------------------------------------------------------------------------------------------

| | During
May 2006, the Company sold 625,000 shares of its common stock to an officer of the
Company for $20,000, or $.032 per share.
| | ----------------------------------------------------------------------------------------------------------------------------------

| | During
February  2006,  the Company  sold 312,500  shares of its common  stock to an officer of
the Company for $20,000,  or $.064 per  share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | During
January 2005, the Company sold 100,000 shares of its common stock to an officer of the
Company for $20,000, or $.20 per share.
| | -------------------------------------------------------------------------------------------------------------------------------------

| | The
Board of Directors  approved the above stock sales.  The Board of Directors  consisted of
two members  until May 19, 2006,  and one  member  subsequent to May 19, 2006. The stock
transactions  were recorded at fair value,  which was determined to be 80% of the quoted
market price on the day prior to the sale of stock, due to the restricted nature of the
shares.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
| | -----

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

NOTE C:   
INCOME TAXES

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

F-15



---

VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

|                                                                 | October 31, |        
|---------------------------------------------------------------- | ----------- | -------
|
|Benefit related to U.S. federal statutory graduated rate         |             | -34.00%
|Benefit related to State income tax rate, net of federal benefit |             | -3.06% 
|Accrued officer salaries                                         |             | 23.39% 
|Net operating loss for which no tax benefit                      |             |        
|is currently available                                           |             | 13.67% 
|                                                                 |             |        
|Effective rate                                                   |             | 0.00%  
|                                                                 |             |        
|                                                                 |             |        

| | The
primary components of temporary differences that give rise to the Company's net deferred
tax assets are as follows:
| | -----------------------------------------------------------------------------------------------------------------------

|                                                | October 31, |                   
|----------------------------------------------- | ----------- | ------------------
|
|Net operating loss and tax credit carryforwards |             | $          838,069
|Accrued officer salaries                        |             | 716,739           
|                                                |             |                   
|Deferred tax asset (before valuation allowance) |             | $       1,554,808 
|                                                |             |                   
|                                                |             |                   

| | At
October 31, 2006, deferred taxes consisted of a net tax asset of $1,554,808, due  to
operating loss carryforwards and other temporary differences of $4,211,470,  which was
fully allowed for in the valuation allowance of $1,554,808. The  valuation allowance
offsets the net deferred tax asset for which there is no  assurance of recovery. The
changes in the valuation allowance for the years  ended October 31, 2006 and 2005 totaled
$198,691 and $157,421 respectively. Net  operating loss carryforwards will expire in
various years through 2026.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
valuation allowance will be evaluated at the end of each year, considering  positive and
negative evidence about whether the asset will be realized. At that  time, the allowance
will either be increased or reduced; reduction could result  in the complete elimination
of the allowance if positive evidence indicates that  the value of the deferred tax asset
is no longer impaired and the allowance is  no longer required.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Should
the Company undergo an ownership change as defmed in Section 382 of the Internal  Revenue
Code, the Companys tax net operating loss carryforwards generated  prior to the
ownership change will be subject to an annual limitation, which  could reduce or defer
the utilization of these losses.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE D:   
LINES OF CREDIT

| | The
Company has a $12,500 line of credit of which $1,400 was unused at October 31,  2006. The
interest rate on the credit line was 17.25% at October 31, 2006.  Principal and interest
payments are due monthly.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company also has six credit cards with a combined credit limit of $84,000, of  which
$3,681 was unused at October 31, 2006. The interest rates on the credit  cards range from
15.24% to 29.99% as of October 31, 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE E:   
LONG-TERM DEBT

Note Payable

F-16



---

---

VITRO
DIAGNOSTICS, INC.Notes  to Financial Statements

| | During
August 2003, the Company converted liabilities owed to its attorney into a  promissory
note, which had a balance of $6,294 at October 31, 2003. The note  carries a 10 percent
interest rate and is payable at the rate of $500 per month.  As of October 31, 2006, the
Company owed $25,388 on the note. Future maturities  of the note are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year ended October 31, | 
|---------------------- | 
|
|2007                   | 
|2008                   | 
|2009                   | 
|2010                   | 
|2011                   | 
|                       | 
|                       | 
|                       | 
|                       | 

NOTE F:   
SHAREHOLDERS (DEFICIT)

| | As
of  October 31, 2006, the Companys Articles of Incorporation authorized the
issuance of up to 50,000,000 shares of $.001 par value common stock and up to  5,000,000
shares of $.001 par value preferred stock. As of October 31, 2006,  there were 11,915,198
shares of common stock issued and outstanding and there  were no preferred shares issued
or outstanding. The terms and preferences of the  authorized preferred stock may be
determined at the discretion of the  Companys board of directors.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Incentive
plans
| | ---------------

| | Effective
December 2, 2000, the Companys Board of Directors adopted an Equity  Incentive Plan
(the Plan), which replaced the Companys 1992  Stock Option Plan. The
purpose of the Plan is to attract and retain qualified  personnel, to provide additional
incentives to employees, officers, consultants  and directors, and to promote the Companys
business. The Plan authorizes  total stock awards of up to 1,000,000 shares of the Companys
common stock.  Awards may take the form of incentive stock options, non-qualified stock
options, restricted stock awards, stock bonuses and other stock grants. If a  stock award
made under the Plan expires, terminates, is canceled or settled in  cash without the
issuance of all shares of common stock covered by the award,  those shares will be
available for future awards under the Plan. Awards may not  be transferred except by will
or the laws of descent and distribution. No awards  may be granted under the Plan after
September 30, 2010.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Plan is administered by the Companys Board of Directors, which may  delegate its
authority to a committee of the Board of Directors. The Board of  Directors has the
authority to select individuals to receive awards, to  determine the time and type of
awards, the number of shares covered by the  awards, and the terms and conditions of such
awards in accordance with the terms  of the Plan. In making such determinations, the
Board of Directors may take into  account the recipients current and potential
contributions and any other  factors the Board of Directors considers relevant. The
recipient of an award has  no choice regarding the form of a stock award. The Board of
Directors is  authorized to establish rules and regulations and make all other
determinations  that may be necessary or advisable for the administration of the Plan.
All  options granted pursuant to the Plan shall be exercisable at a price not less  than
the fair market value of the common stock on the date of grant. Unless  otherwise
specified, the options expire ten years from the date of grant. The  following schedule
summarizes the changes in the Companys stock option  plan:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-17



---

VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

|                            | Options Outstanding | Options Exercisable | WeightedAverage |              | 
|--------------------------- | ------------------- | ------------------- | --------------- | ------------ | 
|
|Balance at October 31, 2005 |                     | 437,629             |                 | $.08 to $.81 | 
|Options granted             |                     | 2,100,000           |                 | $.08 to $.22 | 
|Options exercised           |                     |                    |                 | $       0.00 | 
|Options expired             |                     |                    |                 | $       0.00 | 
|                            |                     |                     |                 |              | 
|                            |                     |                     |                 |              | 
|Balance at October 31, 2005 |                     | 2,537,629           |                 | $.08 to $.81 | 
|Options granted             |                     | 400,000             |                 | $       0.08 | 
|Options exercised           |                     |                    |                 | $       0.00 | 
|Options expired             |                     | (2,131,765          | )               | $.08 to $.22 | 
|                            |                     |                     |                 |              | 
|Balance at October 31, 2006 |                     | 805,864             |                 | $.08 to $.81 | 
|                            |                     |                     |                 |              | 
|                            |                     |                     |                 |              | 

| | During
February 2006, the Company granted its two officers options to purchase 400,000  shares
of the Companys common stock. The options carry an exercise price  of $.08 per
share, which was equal to the traded  market value of the common stock on the grant date.
All of the options vested on the  grant date.  The weighted average exercise price and
weighted average fair value of these  options on the grant date  were $.08 and $.071,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pro
forma information regarding net income and earnings per share is required by SFAS 123 as
if the  Company had accounted for its granted stock options under the fair value method
of that Statement. The fair  value for the options granted during the quarter ended April
30, 2006 was  estimated at the date of grant using the Black-Scholes option-pricing model
with  the following assumptions:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair  value for the options granted during the year ended October 31, 2005 was estimated
at the  date of grant  using the Black-Scholes option-pricing model  with  the following
assumptions:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | 
|------------------------------ | 
|
|Risk-free interest rate        | 
|Dividend yield                 | 
|Volatility factor              | 
|Weighted average expected life | 

| | During
September 2005, the Company granted 250,000 options to its president at an  exercise
price of $.08 per share. On the grant date, the traded market value of  the stock was
$.09 per share. Because the options were granted with exercise  prices below market, the
difference has been recorded as stock-based  compensation. All 250,000 options vested on
the date of grant, resulting in total stock-based  compensation of $2,500. The weighted
average exercise price and weighted average fair value of these  options on the grant
date were $.08 and $.086, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
February 2005, the Company granted 1,950,000 options to two officers with  exercise
prices ranging from $. 17 to $.22 per share. On the grant date, the  traded market value
of the stock was $.22 per share  share.  Because some options were granted with exercise
prices below market, the  difference has been recorded as stock-based compensation.
Options to purchase  250,000 shares had vested as of October 31, 2005, resulting in total
stock-based  compensation of $12,500. The weighted average exercise price and  weighted
average fair value of these options on the grant date were $.18 and $.211,  respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-l8



---

---

VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

|                               | 
|------------------------------ | 
|
|Risk-free interest rate        | 
|Dividend yield                 | 
|Volatility factor              | 
|Weighted average expected life | 
|                               | 
|                               | 

| | The
Black-Scholes options valuation model was developed for use in estimating the  fair value
of traded options, which have no vesting restrictions and are fully  transferable. In
addition, option valuation models require the input of highly  subjective assumptions
including the expected stock price volatility. Because  the Companys stock options
have characteristics significantly different  from those of traded options, and because
changes in the subjective input  assumptions can materially affect the fair value
estimate, in managements  opinion, the existing models do not necessarily provide a
reliable single  measure of the fair value of its stock options. However, the Company has
presented the pro forma net loss and pro forma basic and diluted loss per common  share
using the assumptions noted above.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | For the Years EndedOctober 31, |             
|---------------------------------------------- | ------------------------------ | ------------
|
|Net loss, as reported                          |                                | $  (536,193 
|                                               |                                |             
|Stock-based employee compensation, as reported |                                | $          
|                                               |                                |             
|Stock-based employee compensation, fair value  |                                | $   (28,400)
|                                               |                                |             
|Pro forma net loss                             |                                | $  (564,593 
|                                               |                                |             
|Basic and diluted net loss per common          |                                |             
|share, as reported                             |                                | $     (0.05 
|                                               |                                |             
|Pro forma basic and diluted net loss           |                                |             
|per common share                               |                                | $     (0.05 
|                                               |                                |             
|                                               |                                |             

NOTE G:   
COMMITMENTS AND CONTINGENCIES

| | Grant
obligation
| | ----------------

| | During
the year ended October 31, 2000, the Company was awarded a $100,000 grant from  the
National Institute of Health (NIH). Proceeds from the grant were  expended
during the fiscal year ended October 31, 2001 for research related to  the Companys
cell immortalization technology.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 14, 2006, the Company received a notification from the Department of  Health and
Human Services (HHS) that the NIH deobligated $48,518  from the Companys
grant award, which reduced the authorized grant award to  $51,482. On November 27, 2006,
the Company received a second collection letter  from HHS stating that the total amount
to be remitted had increased to $54,451,  due to interest and administrative fees. As of
October 31, 2006, the amount owed  for the grant and related interest and administrative
fees totaled $54,401.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
believes it is probable that the Company will be required to repay the $54,401
de-obligated by the NIH. Accordingly, the Company has recorded a liability equal  to
$54,401 in the accompanying financial statements classified as Grant  obligation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19



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VITRO
DIAGNOSTICS, INC.  Notes to Financial Statements

| | Material
transfer agreement
| | ---------------------------

| | Effective
January 23, 2006, the Company entered into an agreement with an entity to  transfer
samples to the Company to evaluate, analyze and test. Any intellectual  property that is
created under this agreement by either party shall be owned  jointly by the parties,
provided that any intellectual property existing prior  to the date of this agreement
shall remain the property of the original owner.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE  H:    SUBSEQUENT
EVENT

| | During
November 2006, the Company sold 535,714 shares of its common stock to an officer  of the
Company for $30,000, or $.056 per share. The number of common shares  issued and
outstanding following the stock sale totaled 12,450,912. The Board of  Directors approved
the above stock sale. The Board of Directors consisted of one  member subsequent to May
19, 2006. The stock transaction was recorded at fair  value, which was determined to be
80% of the quoted market price on the day  prior to the sale of stock, due to the
restricted nature of the shares.During  the year ended October 31, 2000, the Company was
awarded a $100,000 grant from  the National
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-20