UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  FORM 10-Q  [ X ]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended January 31, 2010  OR  [   ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT For the transition period from  to  Commission file number 1-17378  VITRO DIAGNOSTICS, INC. (Exact Name of Small Business Issuer as Specified in its Charter)  Nevada84-1012042(State or other jurisdictionI.R.S. Employerof incorporation or organization)Identification number  4621 Technology Drive, Golden, CO  80403(Address of Principal Executive Offices) Issuer's telephone number:     (303) 999-2130 Former name, former address, and former fiscal year, if changed since last report Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [ X ]    No [    ]  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,  a non-accelerated filer, or a smaller reporting company.  See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.  (Check one): Large accelerated filer [    ] Accelerated filer [    ] Non-accelerated filer [    ] Smaller Reporting Company [  X  ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [   ]  No  [ X ].  As of March 17, 2010, the Registrant had 17,800,334 shares of its Common Stock outstanding.      INDEX PART I -- FINANCIAL INFORMATION  Item 1.Financial StatementsPageBalance Sheets at January 31, 2010 (unaudited) and October 31, 20092Statements of Operations (unaudited) for the three months ended
January 31, 2010 and 20093Statements of Changes in Shareholders Deficit (unaudited) for the year
ended October 31, 2009 and the three months ended January 31, 20104Statements of Cash Flows (unaudited) for the three months ended
January 31, 2010 and 20095Notes to (Unaudited) Consolidated Financial Statements6Item 2.Management's Discussion and Analysis of Financial Condition and Results of OperationsIntroduction22Liquidity and Capital Resources22Results of Operations23Item 3.Quantitative and Qualitative Disclosures About Market Risk24Item 4.Controls & Procedures24PART II - OTHER INFORMATIONItem 1.Legal Proceedings26Item 1ARisk Factors26Item 2.Unregistered Sale of Equity Securities and Use of Proceeds26Item 3.Defaults Upon Senior Securities26Item 4.Submission of Matters to a Vote of Security Holders26Item 5.Other Information26Item 6.Exhibits26      PART 1.  FINANCIAL INFORMATION  Item 1. Financial Statements  The financial statements included herein have been prepared by Vitro Diagnostics, Inc. (the Company), pursuant to the rules and regulations of the Securities and Exchange Commission (SEC).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such SEC rules and regulations.  In the opinion of management of the Company the accompanying statements contain all adjustments necessary to present fairly the financial position of the Company as of January 31, 2010 and October 31, 2009, and its results of operations for the three month periods ended January 31, 2010 and 2009, its statement of changes of shareholders deficit for the year ended October 31, 2009 and for the three months ended January 31, 2010, and its cash flows for the three month periods ended January 31, 2010 and 2009.  The results for these interim periods are not necessarily indicative of the results for the entire year.  The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto filed as a part of the Company's annual report on Form 10-K.   1      VITRO DIAGNOSTICS, INC.Balance SheetsJanuary 31, 2010October 31, 2009(Unaudited)AssetsCurrent assets:Cash$              36,485$                  104Accounts receivable1,777802Inventory, at cost18,73417,763Total current assets56,99618,669Equipment, net of accumulated depreciation of $47,750 and $43,79958,38054,015Patents, net of accumulated amortization of $2,079 and $17,835 (Note A)25,62426,317Deferred patent costs (Note A)358-Other assets2,4492,449Total assets$            143,807$            101,450Liabilities and Shareholders' DeficitCurrent liabilities:Current maturities on capital lease obligation (Note E)$                7,099$                9,535Accounts payable33,57258,103Accrued expenses4,1022,500Advances and accrued interest payable to officer (Note B)102,34290,800Accrued payroll expenses (Note B)1,280,4901,258,177Lines of credit (Note D)92,27492,217Stock purchase warrants (Note F)75,000-Total current liabilities1,594,8791,511,332Capital lease obligation, less current maturities (Note E)27,52627,572Total liabilities1,622,4051,538,904Commitments and contingencies (Notes A, B, C, D, E, F, G, and H)Shareholders' deficit (Note F):Preferred stock, $.001 par value; 5,000,000 shares authorized;-0- shares issued and outstanding--Common stock, $.001 par value; 50,000,000 shares authorized;17,800,334 and 17,214,620 shares issued and outstanding17,80017,214Additional paid-in capital5,230,1335,203,219Services prepaid with common stock(1,080)(1,605)Accumulated deficit(6,725,451)(6,656,282)Total shareholders' deficit(1,478,598)(1,437,454)Total liabilities and shareholders' deficit$            143,807$            101,450  See accompanying notes to these financial statements 2        VITRO DIAGNOSTICS, INC.
Statements of Operations
(Unaudited)For the Three Months EndedJanuary 31,20102009Product sales$            1,350$                -Cost of goods sold(872)-Gross profit478-Operating costs and expenses:Research and development45,40745,381Selling, general and administrative14,21219,645Total operating costs and expenses59,61965,026Loss from operations(59,141)(65,026)Other income (expense):Interest expense(10,028)(8,586)Loss before income taxes(69,169)(73,612)Provision for income taxes (Note C)--Net loss$         (69,169)$         (73,612)Basic and diluted net loss per common share$            (0.00)$            (0.00)Shares used in computing basic and dilutedNet loss per common share17,434,55715,342,949  See accompanying notes to these financial statements 3


VITRO DIAGNOSTICS, INC.Statement of Changes in Shareholders' DeficitServicesAdditionalPrepaid withPreferred StockCommon StockPaid-inCommonAccumulatedSharesAmountSharesPar ValueCapitalStockDeficitTotalBalance, October 31, 2008-$         -15,143,681$   15,144$     4,921,958$     (6,680)$     (6,385,201)$     (1,454,779)Sale of common stock to officer (Note B)--226,6672278,2738,500Sales of common stock to investors (Note B)--550,00055039,450--40,000Shares issued to director for future services (Note F)--12,000121,788(1,800)--Conversion of debt and accrued interest to officer (Note B)--1,238,1761,237223,094--224,331Conversion of amounts due on account (Note F)--36,216366,664--6,700Prepaid services earned (Note F)-----6,875-6,875Common stock issued under consulting contract,$0.25 per share (Note G)7,88081,9922,000Net loss for the year ended October 31, 2009------(271,081)(271,081)Balance, October 31, 2009-$         -17,214,620$   17,214$     5,203,219$     (1,605)$     (6,656,282)$     (1,437,454)Conversion of amounts due on account (Note F)--85,7148614,914--15,000Sale of common stock and stock purchase warrants--500,00050012,000--12,500Prepaid services earned (Note F)-----525-525Net loss for the three months ended January 31, 2010------(69,169)(69,169)Balance, January 31, 2010 (Unaudited)-$         -17,800,334$   17,800$     5,230,133$     (1,080)$     (6,725,451)$     (1,478,598)  See accompanying notes to these financial statements 4


VITRO DIAGNOSTICS, INC.Statements of Cash Flows(Unaudited)For The Three Months EndedJanuary 31,20102009Cash Flows from operating activities:Net loss$       (69,169)$       (73,612)Adjustments to reconcile net loss to net cash used inoperating activities:Depreciation and amortization4,6443,943Stock-based compensation5252,800Changes in current assets and current liabilities:(Increase) in accounts receivable, inventories,prepaid expenses and deposits(1,948)-Increase in accounts payable, accrued expensesand payroll taxes payable16,72828,067Net cash used in operating activities(49,220)(38,802)Cash flows from investing activities:Purchases of equipment(8,316)-Payments for patents and deferred costs(358)(990)Net cash used in investing activities(8,674)(990)Cash flows from financing activities:Proceeds from advances from officer9,20023,600Draws on lines of credit, net572,922Principal payments on capital lease(2,482)(1,998)Proceeds from sale of common stock87,5008,500Net cash provided by financing activities94,27533,024Net change in cash36,381(6,768)Cash, beginning of year1046,768Cash, end of period$        36,485$               -Supplemental disclosure of cash flow information:Cash paid during the year for:Interest$          7,686$        8,171Income taxes$                -$               -Non-cash investing and financing activities:Conversion of amounts due on account to common stock$        15,000$               -Issuance of stock purchase warrants$        75,000  See accompanying notes to these financial statements 5   VITRO DIAGNOSTICS, INC. Notes to Unaudited Financial Statements  NOTE A: NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Basis of Presentation  The unaudited condensed financial statements presented herein have been prepared by the Company in accordance with the instructions for Form 10-Q and the accounting policies in its Form 10-K for the year ended October 31, 2009 and should be read in conjunction with the notes thereto.  In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim periods presented. The results of operations presented for the period ended January 31, 2010 is not necessarily indicative of the results to be expected for the year.  Financial data presented herein are unaudited.   Nature of Organization  The Company was incorporated under the laws of Nevada on February 3, 1986.  From November of 1990 through July 31, 2000, the Company was engaged in the development, manufacturing and marketing of purified human antigens (Diagnostics) and the development of therapeutic products (Therapeutics) and related technologies.  The Companys sales were solely attributable to the sales of purified human antigens.  Following the transfer of its Diagnostics operations in August of 2000, the Company began devoting all efforts to its therapeutic drug development and related technologies.  A present target area for the Companys therapeutic products is the development and commercialization of stem cell technology for use in diabetes and cancer research and treatment.  The Company has been granted a patent for its proprietary technology related to the immortalization of human cells and subsequently expanded this technology to include patented and patent-pending technology involving generation of stem cells with potential application to a variety of commercial opportunities including the treatment of degenerative diseases and drug discovery.  The Company also owns patented technology related to treatment of human infertility.  The Company has been granted a US patent for its process to manufacture VITROPINTM.  VITROPINTM is a highly purified urinary follicle-stimulating hormone (“FSH”) preparation produced according to the Company’s patented purification process.   6     The Company also owns patented technology that provides protection to a specific cell line derived from human pancreatic tissues that gives rise to structures comparable to the Islets of Langerhans (beta islets).  These islets also synthesize and secrete insulin in response to elevated glucose levels, as do beta islets contained within pancreatic tissue.  Vitro has also developed a process for the commercial production its cell line-derived islets.  Furthermore, the Company previously obtained regulatory approval for an animal protocol to determine reversal of Type I diabetes, a critical step in the demonstration of efficacy.  This patent affords an exclusive proprietary position to the Company for a new cellular therapy to treat Type I diabetes.  Basis of Presentation  Going Concern  The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has suffered significant losses since inception and has working capital and shareholders deficits at January 31, 2010, that raise substantial doubt about its ability to continue as a going concern. In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Companys ability to meet its financial requirements, raise additional capital, and generate revenues and profits from operations.  The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. During the three months ended January 31, 2010 and the year ended October 31, 2009, the president and chairman has advanced the Company funds for working capital on an as needed basis.  During the three months ended January 31, 2010 and the year ended October 31, 2009, the president and chairman advanced the company a total of $90,172 for working capital purposes.  There is no assurance that these advances will continue in the future. In December 2009 the Company raised $87,500 through a private placement of common stock and warrants.  Also, during the year ended October 31, 2009, the Company raised $40,000 in working capital through sales of common stock to private investors, and $8,500 through sales of common stock to its president.  The Company is presently engaged in discussions with companies that have expressed interest in the commercialization of the Companys stem cell technology and the Companys fertility drugs. Management intends to pursue these and other opportunities with the objective of establishing strategic alliances to fund further development and commercialization of its key technologies. Also, the Company has new stem cell products that were launched during fiscal year 2009.  Initial revenues from these products have been established and management intends to pursue enhanced revenue generation from this product line and development of other related products to the fullest extent possible given its resources. There is no assurance that any of these initiatives will yield sufficient capital to maintain the Companys operations. In such an event, management intends to pursue various alternatives such as sale of its assets or merger with other entities.      7     Summary of Significant Accounting Policies  Use of estimates  The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Cash equivalents  For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.  Accounts receivable  Accounts receivable consists of amounts due from customers.  The Company considers accounts more than 30 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable.  At January 31, 2010 and October 31, 2009 no allowances were recorded and all amounts due from customers were considered collectible.  Inventory  Inventories, consisting of raw materials and finished goods, are stated at the lower of cost (using the specific identification method) or market.  Finished goods inventories include certain allocations of labor and overhead.  At January 31, 2010 and October 31, 2009, finished goods included $8,977 and $9,204 of labor and overhead allocations.  Inventories consisted of the following:   October 31,
2009October 31,
2009Raw materials$     8,830$     6,987Finished goods9,90410,776$   18,734$     17,763   Research and development  The Companys operations are predominantly in research and development (R&D).  These costs are expensed as incurred and are primarily comprised of costs for: salaries, overhead and occupancy, contract services and other outside costs, quality assurance and analytical testing. As the Company  8     has now also expanded its operations to include manufacturing and R&D, we are  now reporting cost of goods sold, including estimates of labor, materials and overhead allocations to the production of specific products.  Property, equipment and depreciation  Property and equipment are stated at cost and are depreciated over the assets estimated useful lives using the straight-line method.  Depreciation expense totaled $3,951 and $3,210 for the three months ended January 31, 2010 and 2009, respectively.  Upon retirement or disposition of equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations.  Repairs and maintenance are charged to expense as incurred and expenditures for additions and improvements are capitalized.  Patents, deferred costs and amortization  Patents consist of costs incurred to acquire issued patents.  Amortization commences once a patent is granted.  Costs incurred to acquire patents that have not been issued are reported as deferred costs.  If a patent application is denied or expires, the costs incurred are charged to operations in the year the application is denied or expires.  The Company amortizes its patents over a period of ten years.  Amortization expense totaled $693 and $733 for the three months ended January 31, 2010 and 2009.  Estimated aggregate amortization expense for each of the next five years is as follows:  Year ended October 31,2010$2,07820112,77120122,77120132,77120142,771Thereafter12,462$25,624  On May 5, 2009 the United States Patent Office issued patent number 7,527,971 to the Company for its stem cell technology, Generation and Differentiation of Adult Stem Cell Lines.  9       The Companys patents consisted of the following at January 31, 2010: Generation and differentiation of adult stem cell lines$27,703This patent is for a proprietary stem cell line with potential application to treatment of diabetes in both animals and humans.Less accumulated amortization(2,079)$25,624  During the three months ended January 31, 2010 the Company incurred costs totaling $358 relating to the filing of a new United States patent application entitled POU5-F1 Expression in Human Mesenchymal Stem Cells and the development of new technology related to generation of human induced pluripotent stem cells (iPS).  These costs are included as deferred patent costs in the accompanying balance sheet at January 31, 2009.  Impairment and Disposal of Long-Lived Assets  The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying value to future undiscounted cash flows expected to be generated by the asset.  If such assets are considered impaired, the impairment to be recognized is determined as the amount by which the carrying value exceeds the fair value of the assets.  The Company periodically reviews the carrying amount of it long-lived assets for possible impairment.  At October 31, 2009 the Company determined that one of its patents named Immortalized cell lines and methods of making the same was impaired and as such recognized an impairment charge of $8,551 on this patent on October 31, 2009.  The Company recorded no asset impairment charges during the three months ended January 31, 2009 or 2008.  A contingency exists with respect to these matters, the ultimate resolution of which cannot presently be determined.  Income taxes  The Company uses the liability method of accounting for income taxes.  Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.   10     Revenue recognition  The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred (or service has been performed), the sales price is fixed and determinable, and collectability is reasonably assured.  Advertising Costs  The Company expenses all advertising costs as they are incurred.  Advertising costs were $6,770 and $-0- for the three months ended January 31, 2010 and 2009, respectively.  Fair value of financial instruments  The carrying amounts of cash, accounts receivable, accounts payable and other accrued liabilities approximate fair value due to the short-term maturity of the instruments. Based on the borrowing rates currently available to the Company for loans with similar terms and average maturities, the fair value of long-term debt approximates its carrying value.  Concentrations of credit risk  Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and cash equivalents, and trade accounts receivable.  As of January 31, 2010 and 2009, the Company had no amounts of cash or cash equivalents in financial institutions in excess of amounts insured by agencies of the U.S. Government.  Net loss per share  The Company reports net loss per share using a dual presentation of basic and diluted loss per share. Basic net loss per share excludes the impact of common stock equivalents.  Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents.  Common stock options outstanding at January 31, 2010 and 2009 were not included in the diluted loss per share as all 1,543,500 and 1,605,864 options, respectively, were anti-dilutive.  Therefore, basic and diluted losses per share at January 31, 2010 and 2009 were equal.  Stock-based compensation  Financial Accounting Standards Board (FASB) Accounting Standards Codification (the ASC) Topic 718, Stock Compensation, establishes fair value as the measurement objective in accounting for share based payment arrangements, and requires all entities to apply a fair value based measurement method in accounting for share based payment transactions with employees.  Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the period during which the holder is required to provide services in exchange for the award, i.e., the vesting period.   11     Recent accounting standards The FASBs Accounting Standards Codification is effective for all interim and annual financial statements issued after September 15, 2009.  The ASC is now the single official source of authoritative, nongovernmental generally accepted accounting principles (GAAP) in the United States.  The historical GAAP hierarchy was eliminated and the ASC became the only level of authoritative GAAP, other than guidance issued by the Securities and Exchange Commission.  Our accounting policies were not affected by the conversion to ASC.  However, we have conformed references to specific accounting standards in these notes to our consolidated financial statements to the appropriate section of ASC. In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (ASC Topic 605): Multiple Deliverable Revenue Arrangements  A Consensus of the FASB Emerging Issues Task Force. This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. We have not determined the impact, if any, that this update may have on our financial statements.  In January 2010, the FASB issued guidance that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The guidance is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures that are effective for annual periods beginning after December 15, 2010. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. There were various other accounting standards and interpretations issued during 2010 and 2009, 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 Advances and accrued interest payable to officer  During the years ended October 31, 2009 and 2008, the Companys chief executive officer advanced the Company a total of $85,782 used for working capital, and during the three months ended January 31, 2010 an additional $9,200 of working capital advances were made by the officer.  The advances are uncollateralized, due on demand and accrue interest on the unpaid principal at a rate of 10% per annum.  Accrued interest payable on the advances totaled $7,360 and $5,018 at January 31, 2010 and  12     October 31, 2009, respectively.  The total advances plus accrued interest totaling $102,340 and $90,800 at January 31, 2010 and October 31, 2009, respectively, are included as Advances and accrued interest payable to officer in the accompanying financial statements.  Employment agreements and accrued compensation  Effective May 1, 2008, the Company entered into a new Executive Employment Agreement with its sole officer.  The Agreement establishes annual base salaries of $80,000, $85,000, and $90,000 over the three years of the Agreement.  The Agreement also provides for incentive compensation based on the achievement of minimum annual product sales and an option to purchase one million shares of the Companys common stock that includes contingent vesting requirements. The employment agreement includes changes in control given exercise of underlying stock options and also includes severance provisions.  The Company accrued the salaries of its officer through April 30, 2008 under an old agreement due to a lack of working capital.  Accrued salaries and payroll taxes totaled $1,280,490 and $1,258,177 at January 31, 2010 and October 31, 2009, respectively. Dr. Musicks accrued salaries totaled $1,033,732 and $1,012,482 as of January 31, 2010 and October 31, 2009, respectively.  Dr. Musicks salary is allocated as follows: 70% to research and development and 30% to administration.  In addition, accrued salaries for a previous officer of the Company totaled $200,833 at January 31, 2010 and October 31, 2009.  Total accrued payroll taxes on the above salaries totaled $45,925 and $44,862 at January 31, 2010 and October 31, 2009, respectively.  Conversion of debt and accrued interest to officer  During the period from August 2002, to October 2007, the president loaned the Company a total of $168,150 through various notes that had also accrued interest in the amount of $35,483.   In October 2007, these notes and the accrued interest were consolidated into a single note of $203,633, and accrued interest on the unpaid principle at a rate of 10% per annum.  Additional interest of $15,170 had accrued on this note, and the total balance of $218,803 was included in Note payable and accrued interest payable to officer in the accompanying financial statements.  This note was collateralized by a first lien on the FSH patents owned by the Company, the same collateral that had secured a prior note between the Company and the officer.  On July 29, 2008, the Board of Directors approved the issuance of 1,238,176 shares of the Companys common stock in exchange for the notes payable plus accrued interest to an officer not to exceed $225,000.  At that time the Note was cancelled effective July 29, 2008.  The exchange was completed on February 10, 2009.  A total of $224,333, representing the balance of the note payable and accrued interest, plus the outstanding balance of the indebtedness to the officer of $5,530 was exchanged for 1,238,176 shares of the Companys common stock.   13     Common stock sales  In November 2008, the Company sold 226,667 shares of its common stock to an officer of the Company for $8,500, or $.0375 per share.  The transaction was recorded at fair value, which was determined to be 75% of the quoted market price on the day of the approval of sale of stock due to the restricted nature of the shares.  Office lease  On July 1, 2008, the Company entered into a five-year non-cancelable operating lease for a facility located in Golden, Colorado.  The facility has been leased from a company that is owned by the presidents wife.  Future minimum rental payments for the fiscal years ending are as follows:  October 31,2010$         16,785201122,380201222,380201314,920$         76,465  The total rental expense was $4,656 and $6,328 for the three months ended January 31, 2010 and 2009, respectively.  Other  The president has personally guaranteed all debt instruments of the Company including all credit card debt.   14     NOTE C: INCOME TAXES  A reconciliation of the U.S. statutory federal income tax rate to the effective rate is as follows for the years ended: October 31,20092008Benefit related to U.S. federal statutory graduated rate-34.00%-34.00%Benefit related to State income tax rate, net of federal benefit-3.06%-3.06%Accrued officer salaries7.76%14.84%Net operating loss for which no tax benefit is currently available29.30%22.22%Effective rate0.00%0.00%  The primary components of temporary differences that give rise to the Companys net deferred tax assets are as follows:  October 31,20092008Net operating loss and tax credit carryforwards$1,445,310$1,418,792Accrued officer salaries466,280434,177Deferred tax asset (before valuation allowance)$1,911,591$1,852,968   At October 31, 2009, deferred taxes consisted of a net tax asset of $1,911,591, due to operating loss carryforwards and other temporary differences of $7,762,724, which was fully allowed for in the valuation allowance of $1,911,591.  The valuation allowance offsets the net deferred tax asset for which there is no assurance of recovery.  The changes in the valuation allowance for the years ended October 31, 2009 and 2008 totaled $58,623 and $168,317, respectively.  Net operating loss carryforwards will expire in various years through 2029.  The valuation allowance will be evaluated at the end of each year, considering positive and negative evidence about whether the asset will be realized.  At that time, the allowance will either be increased or reduced; reduction could result in the complete elimination of the allowance if positive  15     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 defined in Section 382 of the Internal Revenue Code, the Companys tax net operating loss carryforwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer the utilization of these losses.   NOTE D: LINES OF CREDIT  The Company has a $12,500 line of credit of which $1,075 was unused at January 31, 2010.  The interest rate on the credit line was 18.00% at January 31, 2010.  The credit line is collateralized by the Companys checking account.  Principal and interest payments are due monthly.  The Company also has five credit cards with a combined credit limit of $56,000, of which $1,536 was unused at January 31, 2010.  The interest rates on the credit cards range from 10.24% to 29.99% as of January 31, 2010.  In addition, one of the Companys credit cards was closed by the creditor in May 2009.  At January 31, 2009 the account had a balance of $27,146 and carries an annual interest rate of 34.99%.  NOTE E: CAPITAL LEASE OBLIGATIONS  In July 2007, the Company entered into a capital lease agreement to acquire laboratory equipment.  The Company is obligated to make 3 monthly payments of $25 and monthly payments of $382 through August 2012.  In June 2008, the Company entered into a capital lease agreement, also for the acquisition of laboratory equipment.  The Company is obligated to make monthly payments of $830 through May 2012.  In July 2009, the Company entered into a capital lease agreement, also for the acquisition of laboratory equipment.  The Company is obligated to make monthly payments of $570 through June 2011.  16      Future maturities of the Companys capital lease obligations are as follows:  Year ended October 31,2010$17,061201118,40320129,62845,092Less: imputed interest(10,467)Present value of net minimum lease payments$34,625  The president of the Company has personally guaranteed the lease obligations.  NOTE F: SHAREHOLDERS DEFICIT  Preferred Stock  The Company has authorized 5,000,000 shares of $.001 par value preferred stock.  These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors.  Sale of common stock  In February 2009, the Company sold 250,000 shares of its common stock to an investor for $25,000, or $.10 per share.  Also in February 2009, the Company completed the sale of 300,000 shares of its common stock to one investor for $15,000, or $.05 per share, which was negotiated in January 2009.  Proceeds from the sales of common stock were used for general working capital purposes.  The transaction was recorded at fair value, which was determined to be 75% of the quoted market price on the day prior to the negotiated sale of stock, due to the restricted nature of the shares.  Sale of Common Stock and Warrants  On December 29, 2009 the Company sold an aggregate of 500,000 shares of common stock together with an aggregate of 500,000 warrants for $87,500 to three investors.  The warrants are exercisable for a period of twelve months from the date of issuance to purchase an additional 500,000 shares of common stock at an exercise price of $0.175 per share.  The Company applied the provisions of ASC Topic 815,Derivatives and Hedging and related standards for the accounting of the valuation of the common stock warrants issued as part of the private placement of common stock completed on December 29, 2010. Accordingly, the Company recorded a warrant liability upon the issuance of its common stock, equal to the estimated fair market value of the various features of the warrants.  The initial warrant liability of $75,000 represented a  17     non-cash adjustment to the carrying value of the related financial instruments.  The warrants are exercisable upon issuance, and expire on December 29, 2010, and as such the liability is classified as a current liability at January 31, 2010.  The liability will be adjusted quarterly to the estimated fair market value based upon then current market conditions, and any change, if any, in the estimated fair market value will be charged to the Companys operating results.  The following assumptions were utilized to determine the estimated fair value:  Expected volatility142%Contractual term1 yearRisk free interest rate0.47%Expected dividend rate0%     Common stock issued for services  On March 25, 2008, the Company issued a consultant 12,000 additional shares of the Companys common stock as compensation to serve on the Companys Scientific Advisory Board (SAB) for a period of two years.  The transaction was valued at $2,400, or $.20 per share, based on the fair value of the stock on the transaction date.  The transaction is being expensed over the period of the service.  As of January 31, 2010, $2,220 has been expensed, and $180 is included as Services prepaid with common stock in the accompanying condensed balance sheet.  In February 2009, the Company appointed Dr. Pamela L. Rice to its Scientific Advisory Board.  The Company issued to Dr. Rice 12,000 shares of the Companys common stock as compensation for her commitment to serve on the SAB.  The transaction was valued at $1,800, or $.15 per share based on the fair value of the stock on the transaction date.  As of January 31, 2010 a total of $900 had been expensed, and $900 is included as Services paid with common stock in the accompanying condensed balance sheet.  On October 29, 2009, the Company agreed to convert certain amounts due to a consultant who provides various professional accounting services.  As a result of the agreement, $6,700 of amounts due the consultant was converted to 36,216 shares of common stock at a price of $0.185 per share, which approximated the market value of the stock on the date of the transaction.  On December 21, 2009 the Company agreed to convert to common stock certain amounts due an attorney who provides various legal services to the Company.  As a result, $15,000 of amounts due the attorney was converted to 85,714 shares of common stock at a price of $0.175 per share, which approximated the market value of the stock on the date of the transaction.   18     Stock options granted to officer  On May 1, 2008, the Company granted a stock option to its president to purchase 1,000,000 shares of the Companys common stock at an exercise price of $.19 per share.  On the grant date, the traded market value of the stock was $.19 per share.  The options vest upon the achievement of certain contingencies.  None of the contingencies have been met, and as a result, no stock-based compensation was recorded for the options for the three months ended January 31, 2010 or 2009.  The fair value of the options will be recorded as stock-based compensation upon achievement of these contingencies. The weighted average exercise price and weighted average fair value of these options on the grant date were $.19 and $.19, respectively.  The fair value of the options was determined to be $189,000, and was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:  Risk-free interest rate3.68%Dividend yield0.00%Volatility factor228.72%Weighted average expected life6.5 years   Incentive plans  Effective December 2, 2000, the Companys Board of Directors adopted an Equity Incentive Plan (the Plan), which replaced the Companys 1992 Stock Option Plan.  The purpose of the Plan is to attract and retain qualified personnel, to provide additional incentives to employees, officers, consultants and directors, and to promote the Companys business.  The Plan authorizes total awards of up to 1,000,000 shares of the Company's common stock. Awards may take the form of incentive stock options, non-qualified stock options, restricted stock awards, stock bonuses and other stock grants. If an award made under the Plan expires, terminates, is canceled or settled in cash without the issuance of all shares of common stock covered by the award, those shares will be available for future awards under the Plan. Awards may not be transferred except by will or the laws of descent and distribution. No awards may be granted under the Plan after September 30, 2010.  The Plan is administered by the Company's Board of Directors, which may delegate its authority to a committee of the Board of Directors. The Board of Directors has the authority to select individuals to receive awards, to determine the time and type of awards, the number of shares covered by the awards, and the terms and conditions of such awards in accordance with the terms of the Plan. In making such determinations, the Board of Directors may take into account the recipient's current and potential contributions and any other factors the Board of Directors considers relevant. The recipient of an award has no choice regarding the form of a stock award. The Board of Directors is authorized to establish rules and regulations and make all other determinations that may be necessary or advisable for the administration of the Plan. All options granted pursuant to the Plan shall be exercisable at a price not less than the fair market value of the common stock on the date of grant. Unless otherwise specified, the options expire ten years from the date of grant.   19     The following schedule summarizes the changes in the Companys stock options:  Number of SharesExercise Price Per ShareWeighted Average Remaining Contractual LifeWeighted Average Exercise Price Per ShareBalance at October 31, 20081,605,864$0.08 to $0.818.29 years$ 0.19Options granted-Options exercised-Options expired(62,364)$ 0.63Balance at October 31, 20091,543,500$0.08 to $0.817.60 years$ 0.20Options granted-Options exercised-Options expired-Balance at January 31, 20101,543,500$0.08 to $0.817.35 years$ 0.18Exercisable at October 31, 2009543,500$0.08 to $0.814.55 years$ 0.21Exercisable at January 31, 2010543,500$0.08 to $0.813.84 years$ 0.16   NOTE G: CONSULTING AGREEMENTS  On August 20, 2007, the Company entered into a Consulting Agreement with Mr. Joe Nieusma of Superior Toxicology & Wellness (Superior).  This agreement has been extended without modification through August 20, 2010.  Under the terms of the agreement, Superior will provide services including, but not limited to:  · The development and funding of the Companys current business plan;  · The launch of products targeting applications in the development and discovery of new drug and biological products; and  · The marketing and sales of all existing and proposed products and technology that are now available, or will be available for commercial distribution during the term of the agreement.  In exchange for the above services, the Company will pay Superior $50 per hour capped at a maximum of 240 hours for the term of the agreement.  In addition, the Company has agreed to issue Mr. Nieusma the following stock bonuses to be paid in shares of the Companys common stock:  a. 100,000 shares upon the sale of stem-derived human beta islets as evidenced by issuance of a commercial invoice;  b. 100,000 shares upon the submission of a validation package to the United States Food and Drug Administration requesting approval of the use of Vitros stem cell-derived human beta islets for safety and efficacy testing and the use of this data within applications submitted for marketing approval of new drugs and biological products; and  20      c. 100,000 shares upon the receipt of $100,000 or more in capital funding of the Company based upon Vitros current business plan or subsequent versions thereof.  This event occurred during fiscal year ending October 31, 2008 and the Company issued 100,000 shares to its consultant on March 27, 2008.  Compensation for the successful sale of Vitros products, patent licenses or other revenue-generating event shall be based on industry standards and include a gross sales commission of 15% in addition to the compensation described above.  On June 3, 2009 the Company entered into a business development consulting agreement with Seraphim Life Sciences Consulting LLC, to provide services primarily designed to identify and bring to Vitro potential industrial partners that could benefit from Vitros technologies.  The agreement entitles the consultant to performance based compensation in the amount of 8% of all consideration received by the Company resulting from the consultants services.  The agreement also provides for compensation at hourly rates for services not considered project specific as may be requested by Vitro.  The agreement may be terminated at any time by either party with thirty days written notice.  As of January 31, 2010 no services have been performed and no compensation has been paid under the agreement.  On July 27, 2009 the Company entered into a consulting agreement with SK Helsel & Associates LLC to provide certain public relations and media services.  The agreement provides compensation in the total amount of $2,500 per press release, to be paid with a combination of common stock and cash.  The agreement also provides for other related hourly based consulting services to be provided on an as-needed basis as requested by Vitro.  As of January 31, 2010 a total of $3,719 in cash and 7,880 shared of the Companys common stock at an average price of $0.25 per share had been paid the consultant under the term of the agreement.   NOTE H: SUBSEQUENT EVENTS  The Company has evaluated subsequent events through  the date which the financial statements were available to be issued.  Except as discussed elsewhere in this report, no reportable events occurred subsequent to January 31, 2010.      21      ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  Introduction  This section discusses the financial condition of Vitro Diagnostics, Inc. (the Company) at January 31, 2010 and compares it to the Companys financial condition at October 31, 2009.  It also discusses the Companys results of operations for the three-month period ending January 31, 2010 and compares those results to the results of the three months ended January 31, 2009.  This information should be read in conjunction with the information contained in the Companys Annual Report on Form 10-K for the fiscal year ended October 31, 2009, including the audited financial statements and notes contained therein.  Certain statements contained herein and subsequent oral statements made by or on behalf of the Company may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements include, without limitation, statements regarding the Companys plan of business operations, potential contractual arrangements, and receipt of working capital, anticipated revenues and related expenditures.  Factors that could cause actual results to differ materially include, among others, acceptability of the Companys products in the market place, general economic conditions, receipt of additional working capital, the overall state of the biotechnology industry and other factors set forth in the Companys filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended October 31, 2009 under the caption, Risk Factors.  Most of these factors are outside the control of the Company.  Investors are cautioned not to put undue reliance on forward-looking statements.  Except as otherwise required by applicable securities statutes or regulations, the Company disclaims any intent or obligation to update publicly these forward looking statements, whether as a result of new information, future events or otherwise.  Liquidity and Capital Resources  During 2009 the Company gained working capital through sales of its securities and debt financing while it continues to experience a working capital deficit and shortage of liquidity.  At January 31, 2010, the Company had a working capital deficit of $1,537,883, consisting of current assets of $56,996 and current liabilities of $1,594,879.  This represents a decrease in working capital of $(45,220) from fiscal year end October 31, 2009.  The decrease in working capital was primarily due to the stock purchase warrant liability resulting from the issuance of the warrants as part of the private placement of common stock completed on December 29, 2009 as discussed below.  Current assets increased by $38,327 and current liabilities increased by $83,547 during the quarter ended January 31, 2010.  The increase in current assets was due to increased cash from the sale of the Companys securities to a group of investors.  The Company reported a $1,478,598 deficit in shareholders equity at January 31, 2010, which was $41,144 more than the deficit reported at October 31, 2009.  The majority of the working capital deficit is due to accrued salaries and advances due to the president and CEO, and the stock purchase warrant liability.  22      During the three months ended January 31, 2010, the Companys financing activities provided $94,275 in cash to support our operating activities.  During that time, the Companys operations used $49,220 in cash compared to $38,802 of cash used by operations during the three months ended January 31, 2009.  The Company reported an overall increase in cash for the first three months of 2010 of $36,381  that is attributed to the proceeds from the private placement of common stock and warrants completed on December 29, 2009.  The increase in cash used in our operating activites during the first quarter of 2010 was primarily due to increased expenses related to product manufacturing and marketing activities. Cash raised from financing activities was derived through the sale of an aggregate of 500,000 shares of common stock together with an aggregate of 500,000 warrants for $87,500 to three investors.  The warrants are exercisable for a period of twelve months from the date of issuance (12-29-2009) to purchase an additional 500,000 shares of common stock at an exercise price of $0.175 per share.   Cash usage reflects a minimum cash requirement of about $16,000 per month for operations. Cash requirements for operations have been cut to a minimum level by previous cost reduction measures and are unlikely to be further reduced without additional curtailment or suspension of operations.  The Company utilizes various credit facilities consisting of overdraft protection and bank credit cards.  The total credit available to the Company under these facilities was $98,000 at January 31, 2010, of which $92,274 was outstanding. The Company must continue to service this debt, most of which is personally guaranteed by the Companys chief executive officer.  The Company continues to pursue various activities to obtain additional capitalization, as described in the Company’s Annual Report on Form 10-K for the fiscal year ended 2009.  A current focus is product sales derived from launch of its “Tools of Stem Cell and Drug DevelopmentTM” product line during 2009.  The Company attended and co-sponsored a trade show entitled Stem Cell Differentiation and De-differentiation during the second quarter of 2010 and the company gained contacts and established relations with numerous prospective customers and collaborators. The Company has also raised additional capital through sales of its securities, as described in Note F.  There are several opportunities for collaboration with other firms working in the stem cell sector that may lead to strategic alliances expanding sales of the Companys products and development of new products targeting stem cell research and drug development. Results of Operations  During the three months ended January 31, 2010, the Company realized a net loss of $69,169 or $0.00 per share on $1,350 in revenue.  The net loss was $4,443 less than the net loss for the first quarter ended January 31, 2009.  The decrease net loss in the first quarter of 2010 compared to the same quarter in 2009 was primarily due to decreased selling, general and administrative expenses and increased sales.  Total operating expenses were $5,407 less in the first quarter 2010 than the comparable period in 2009.  Research and development expenses increased by $26 and selling, general and administrative expenses decreased by $5,433.  Current activities of the Company have shifted to manufacturing of its stem cell based product line and expansion of manufacturing capacity, while R&D efforts continue to develop new  23     products to add to the commercial products presently available. During the quarter ended January 31, 2010, equipment was acquired to provide substantial expansion of stem cell medium manufacturing capacity.  The Company also completed a patent-pending, research project involving generation of a new cell line to enable expanded differentiation capacity of human mesenchymal stem cells through reprogramming of these cells.  Such a cell line positions the Company to commercialize additional products to add to its existing product line, including differentiated cellular systems for use by pharmaceutical firms in the development, testing and regulatory approval of new drugs. The market being approached is viewed to be expanding and under-served.  A key target is stem cell researchers, especially those exploring reprogramming of adult cells to induce plurapotentiality or the ability to differentiate into any cell of the body. Such reprogramming has substantial potential in regenerative medicine and these research goals have recently been supported by the repeal of the prior administrations ban of embryonic stem cell research.  In addition, the Company maintains patented and patent-pending technology regarding the application of stem cell technology to cancer and diabetes.   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our short term money market investments. The Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure. The Company does not have any credit facilities with variable interest rates.   ITEM  4. CONTROLS AND PROCEDURES  a.  Disclosure Controls and Procedures  The Company's Principal Executive Officer and Principal Financial Officer, has established and is currently maintaining disclosure controls and procedures for the Company.  The disclosure controls and procedures have been designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure.  The Principal Executive Officer and Principal Financial Officer has conducted a review and evaluation of the effectiveness of the Company's disclosure controls and procedures and has concluded, based on his evaluation as of the end of the period covered by this Report, that our disclosure controls and procedures are not effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commissions rules and  24     forms and to ensure that the information required to be disclosed by the Company is accumulated and communicated to management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure.  Additionally, management identified the following internal control deficiencies.  (1) The Company has not properly segregated duties as its President initiates, authorizes, and completes all transactions.  The Company has not implemented measures that would prevent the President from overriding the internal control system.  The Company does not believe that this control deficiency has resulted in deficient financial reporting because the President is aware of his responsibilities under the SECs reporting requirements and personally certifies the financial reports.  In addition, the Company engaged a financial consultant to review all financial transactions to determine that they have been properly recorded in the financial statements. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.  The Company does not think that this control deficiency has resulted in deficient financial reporting because the Company has implemented a series of manual checks and balances to verify that previous reporting periods have not been improperly modified and that no unauthorized entries have been made in the current reporting period.  Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles.  Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.  b.  Changes in Internal Control over Financial Reporting  There has been no change in our internal control over financial reporting during the quarter ended January 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  c. Limitations of any Internal Control Design  Our principal executive and financial officer does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive and financial officer has determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  25     PART II OTHER INFORMATION  Item 1. Legal Proceedings  None, except as previously disclosed.  Item 1A. Risk Factors  None, except as previously disclosed.  Item 2 Unregistered Sales of Equity Securities and Use of Proceeds  None, except as previously disclosed.  Item 3. Defaults Upon Senior Securities  None, except as previously disclosed.  Item 4. Submission of Matters to a Vote of Security Holders  None, except as previously disclosed.  Item 5. Other Information  None, except as previously disclosed.  Item 6. Exhibits  Certification Certification pursuant to 18 U.S.C. Section 1350  26     SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.  VITRO DIAGNOSTIC, INC.Date: March 17, 2010By: _/ James R. Musick__________ _James R. Musick
President, Chief Executive Officer and Chief
Financial Officer     27