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, 2011  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 14, 2011, the Registrant had 18,379,985 shares of its Common Stock outstanding.      INDEX PART I -- FINANCIAL INFORMATION  Item 1.Financial StatementsPageBalance Sheets at January 31, 2011 (unaudited) and October 31, 20102Statements of Operations for the three months ended
January 31, 2011 (unaudited) and 20103Statements of Changes in Shareholders Deficit for the year
ended October 31, 2010 and the three months ended January 31, 2011 (unaudited)4Statements of Cash Flows for the three months ended
January 31, 2011 (unaudited) and 20105Notes to Unaudited Financial Statements6Item 2.Management's Discussion and Analysis of Financial Condition and Results of OperationsIntroduction22Liquidity and Capital Resources22Results of Operations24Item 3.Quantitative and Qualitative Disclosures About Market Risk25Item 4.Controls & Procedures25PART II - OTHER INFORMATIONItem 1.Legal Proceedings27Item 1ARisk Factors27Item 2.Unregistered Sale of Equity Securities and Use of Proceeds27Item 3.Defaults Upon Senior Securities27Item 4.Submission of Matters to a Vote of Security Holders27Item 5.Other Information27Item 6.Exhibits27      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, 2011 and October 31, 2010, and its results of operations for the three month periods ended January 31, 2011 and 2010, its statement of changes of shareholders deficit for the year ended October 31, 2010 and for the three months ended January 31, 2011, and its cash flows for the three month periods ended January 31, 2011 and 2010.  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, 2011October 31, 2010(unaudited)AssetsCurrent assets:Cash$              11,429$              17,313Accounts receivable1,156270Inventory, at cost20,79720,493Total current assets33,38238,076Equipment, net of accumulated depreciation of $64,867 and $60,57043,63647,933Patents, net of accumulated amortization of $5,310 and $4,525 (Note A)26,07526,860Deferred costs (Note A)5,490762Other assets1,4492,449Total assets$            110,032$            116,080Liabilities and Shareholders' DeficitCurrent liabilities:Current maturities on capital lease obligation (Note E)$              13,948$              14,028Accounts payable28,92244,429Accrued expenses3,0998,589Advances and accrued interest payable to officer (Note B)216,492155,733Accrued payroll expenses (Note B)1,373,6781,350,053Lines of credit (Note D)91,29190,832Stock purchase warrants (Note F)-29,300Total current liabilities1,727,4301,692,964Long-term debt (Note E):Capital lease obligation, less current maturities4,8908,856Total liabilities1,732,3201,701,820Commitments 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, $.001 par value; 50,000,000 shares authorized;18,379,985 shares issued and outstanding18,38018,380Additional paid-in capital5,312,8535,312,853Services prepaid with common stock-(3,559)Accumulated deficit(6,953,521)(6,913,414)Total shareholders' deficit(1,622,288)(1,585,740)Total liabilities and shareholders' deficit$            110,032$            116,080   See accompanying notes to these financial statements 2





VITRO DIAGNOSTICS, INC.
Statements of Operations
(unaudited)For the Three Months EndedJanuary 31,20112010Product sales$            4,326$            1,350Cost of goods sold(1,238)(872)Gross profit3,088478Operating costs and expenses:Research and development42,18245,407Selling, general and administrative19,70514,212Total operating costs and expenses61,88759,619Loss from operations(58,799)(59,141)Other income (expense):Interest expense(10,608)(10,028)Fair value of stock purchase warrants29,300-Loss before income taxes(40,107)(69,169)Provision for income taxes (Note C)--Net loss$         (40,107)$         (69,169)Basic and diluted net loss per common share$            (0.00)$            (0.00)Shares used in computing basic and dilutedNet loss per common share18,379,98517,434,557     See accompanying notes to these financial statements 3


VITRO DIAGNOSTICS, INC.Statement of Changes in Shareholders' DeficitServicesAdditionalPrepaid withPreferred StockCommon StockPaid-inCommonAccumulatedSharesAmountSharesPar ValueCapitalStockDeficitTotalBalance, October 31, 2009--17,214,620$   17,214$     5,203,219$     (1,605)$     (6,656,282)$     (1,437,454)Conversions of amounts due on account (Note F)--216,42921733,083--33,300Sale of common stock and stock purchase warrants (Note F)--500,00050012,000--12,500Private placement of common stock (Note F)--300,00030029,700--30,000Common stock issued to director (Note F)--63,8306414,936--15,000Common stock issued to directors for future services (Note F)--85,1068519,915(20,000)--Prepaid services earned (Note F)-----18,046-18,046Net loss for the year ended October 31, 2010------(257,132)(257,132)Balance, October 31, 2010--18,379,98518,3805,312,853(3,559)(6,913,414)(1,585,740)Prepaid services earned (Note F)-----3,559-3,559Net loss for the three months ended January 31, 2011------(40,107)(40,107)Balance, January 31, 2011 (unaudited)--18,379,985$     18,380$     5,312,853$              -$     (6,953,521)$      (1,622,288)


See accompanying notes to these financial statements 4


VITRO DIAGNOSTICS, INC.Statements of Cash Flows(unaudited)For The Three Months EndedJanuary 31,20112010Cash Flows from operating activities:Net loss$       (40,107)$       (69,169)Adjustments to reconcile net loss to net cash used inoperating activities:Depreciation and amortization5,0824,644Stock-based compensation3,559525Fair value of stock purchase warrants(29,300)-Changes in current assets and current liabilities:(Increase) in accounts receivable, inventories,prepaid expenses and deposits(190)(1,948)Increase in accounts payable, accrued expenses,deferred revenue and payroll taxes payable6,38716,728Net cash used in operating activities(54,569)(49,220)Cash flows from investing activities:Purchases of equipment-(8,316)Payments for patents and deferred costs(4,728)(358)Net cash used in investing activities(4,728)(8,674)Cash flows from financing activities:Proceeds from advances from officer57,0009,200(Payments) draws on lines of credit, net45957Principal payments on capital lease(4,046)(2,482)Proceeds from sale of common stock-87,500Net cash provided by financing activities53,41394,275Net change in cash(5,884)36,381Cash, beginning of year17,313104Cash, end of period$        11,429$        36,485Supplemental disclosure of cash flow information:Cash paid during the year for:Interest$          6,849$          7,686Income taxes$               -$               -Non-cash investing and financing activities:Conversion of amounts due on account to common stock$               -$        15,000Issuance 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, 2010 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, 2011 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 distribution of purified human antigens (Diagnostics) that were derived primarily from human tissues.  The Company also developed cell technology including immortalization of certain cells that allowed entry into other markets besides diagnostics.  However, during the 1990s, the Companys sales were solely attributable to the sales of purified human antigens for diagnostic applications.  Following the sale of its Diagnostics operations in August of 2000, the Company began devoting all efforts to its cellular generation technology which evolved from a focus on induction of cellular immortalization to technology related to stem cells.  Stem cell technology has potentially broad application to many medical areas, including drug discovery and development together with numerous therapeutic applications to diseases involving cellular degeneration, injury or to the treatment of cancer.  The Company launched a series of products targeting basic research in stem cell technology in 2009.  These “Tools for Stem Cell and Drug DiscoveryTM” offer researchers basic tools needed to advance stem cell technology including stem cells and their derivatives, media for growth and differentiation of stem cells and advanced tools for measurement of stem cell quality, potency and response to toxic agents.  The Company has been granted patents 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.   6     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.  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, 2011, 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.  The Company has financed its operations primarily through cash advances from the president and chairman, as well as through various private placements of equity securities.  At various times during the three months ended January 31, 2011 and year ended October 31, 2010, the president and chairman advanced the Company a total of $110,900 for working capital on an as needed basis. In December 2009 the Company raised $87,500 through a private placement of common stock and warrants.  And in September 2010, the Company raised $30,000 in a private placement of common stock to two investors.  There is no assurance that these advances or equity offerings will continue in the future.  The Company has formed strategic alliances and is presently engaged in discussions with other companies that have expressed interest in the commercialization of the Companys stem cell and fertility drug technology. Management intends to pursue these and other opportunities with the objective of establishing strategic alliances to enhance its revenue generation and 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.  A current focus is expanded distribution of the Companys advanced stem cell media, MSCGroTM, since management believes that these products show performance advantages over the current  7     leaders in this market sector.  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 strategic alternatives.  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, 2011 and October 31, 2010 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, 2011 and October 31, 2010, finished goods included approximately $7,100 and $10,100, respectively, of labor and overhead allocations.  Inventories consisted of the following: January 31, 2011October 31,
2010Raw materials$    9,079$       7,603Finished goods11,71812,890$  20,797$     20,493    8     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 has also expanded its operations to include manufacturing and R&D, we report 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 $4,297 and $3,951 for the three months ended January 31, 2011 and 2010, 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 $785 and $693 for the three months ended January 31, 2011 and 2010, respectively.  Estimated aggregate amortization expense for each of the next five years is as follows:  Year ended October 31,2011$2,35820123,14420133,14420143,14420153,144Thereafter11,141$26,075   9       The Companys patents consisted of the following at January 31, 2011: Generation and differentiation of adult stem cell lines$31,385This patent is for a proprietary stem cell line with potential application to treatment of diabetes in both animals and humans.Less accumulated amortization(5,310)$26,075  The Company has incurred costs totaling $5,490 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, 2010.  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.  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.  The Company recorded no asset impairment charges during the three months ended January 31, 2011.  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 $345 and $6,770 for the three months ended January 31, 2011 and 2010, 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 obligations consisting of various capital lease obligations 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, 2011 and October 31, 2010, 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 and warrants outstanding at January 31, 2011 and 2010 were not included in the diluted loss per share as all 1,543,500 and 2,043,500 options and warrants outstanding, respectively, were anti-dilutive.  Therefore, basic and diluted losses per share at January 31, 2011 and 2010 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 There were various accounting standards and interpretations issued during 2011 and 2010, 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  Through October 31, 2010, the Companys chief executive officer had advanced the Company a total of $139,682 used for working capital, and during the three months ended January 31, 2011 an additional $57,000 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 $19,810 and $16,050 at January 31, 2011 and October 31, 2010, respectively.  The total advances plus accrued interest totaling $216,492 and $155,733 at January 31, 2011 and October 31, 2010, 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 CEO.  The Agreement establishes annual base salaries of $80,000, $85,000, and $90,000 over the three years of the Agreement, which expires April 30, 2011.  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 CEO through April 30, 2008 under an old agreement due to a lack of working capital.  Accrued salaries and payroll taxes totaled $1,373,678 and $1,350,053 at January 31, 2011 and October 31, 2010, respectively.  His accrued salaries totaled $1,122,482 and $1,099,982 as of January 31, 2011 and October 31, 2010, respectively.  His 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, 2011 and October 31, 2010.  Total accrued payroll taxes on the above salaries totaled $50,363 and $49,238 at January 31, 2011 and October 31, 2010, respectively.  12      Office lease  On July 1, 2008, the Company entered into a five-year non-cancelable operating lease for a facility located in Golden, Colorado.  The facility has been leased from a company that is owned by the presidents wife.  Future minimum rental payments for the fiscal years ending are as follows:  October 31,2011$         16,785201222,380201314,920$         54,085  The total rental expense was $6,828 and $4,656 for the three months ended January 31, 2011 and 2010, respectively.  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 for the years ended: October 31,20102009Benefit related to U.S. federal statutory graduated rate-28.37%-29.48%Benefit related to State income tax rate, net of federal benefit-3.32%-3.27%Accrued officer salaries11.32%10.46%Net operating loss for which no tax benefit is currently available20.37%22.29%Effective rate0.00%0.00%   13     The primary components of temporary differences that give rise to the Companys net deferred tax assets are as follows:  October 31,20102009Net operating loss and tax credit carry forwards$1,522,860$1,445,310Accrued officer salaries500,330466,280Deferred tax asset (before valuation allowance)$2,023,190$1,911,591   At October 31, 2010, deferred taxes consisted of a net tax asset of $2,023,190, due to operating loss carry forwards and other temporary differences of $8,203,608, which was fully allowed for in the valuation allowance of $2,023,190.  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, 2010 and 2009 totaled $111,599 and $58,623, respectively.  Net operating loss carry forwards will expire in various years through 2030.  The Company is delinquent on filing its federal and state tax returns and may be subject to penalties and interest.  A contingency exists with respect to this matter, the ultimate resolution of which may not be presently determined.  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 defined in Section 382 of the Internal Revenue Code, the Companys tax net operating loss carry forwards 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 $1,032 was unused at January 31, 2011.  The interest rate on the credit line was 18.00% at January 31, 2011.  The credit line is collateralized by the Companys checking account.  Principal and interest payments are due monthly.   14     The Company also has five credit cards with a combined credit limit of $55,900, of which $607 was unused at January 31, 2011.  The interest rates on the credit cards range from 10.24% to 29.99% as of January 31, 2011.  In addition, the creditor closed one of the Companys credit cards in May 2009.  At January 31, 2011 the account had a balance of $24,529 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.  Future maturities of the Companys capital lease obligations are as follows:  Year ended October 31,2011$12,22520129,62821,853Less: imputed interest(3,015)Present value of net minimum lease payments$18,838  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, of which none were issued and outstanding at October 31, 2010.  These shares may be issued in series with such rights and preferences as may be determined by the Board of Directors.   15     Sales of common stock  In September 2010, the Company sold 300,000 shares of its common stock to two investors for $30,000, or $.10 per share.  The transaction was recorded at fair value, which was determined to be 83% 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, 2009. 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 non-cash adjustment to the carrying value of the related financial instruments.  The warrants were exercisable upon issuance, and expired unexercised on December 29, 2010.  The liability was adjusted quarterly to the estimated fair market value based upon then current market conditions, and any change in the estimated fair market value was charged to the Companys operating results.  The following assumptions were utilized to determine the estimated fair value of the warrants upon issue:  Expected volatility142%Contractual term1 yearRisk free interest rate0.47%Expected dividend rate0%  Common stock issued for services  In February 2009, the Company appointed Dr. Pamela L. Rice to its Scientific Advisory Board.  The Company issued 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, 2011 the entire $1,800 had been expensed, and is reflected in Services paid with common stock in the accompanying condensed balance sheet.  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  16     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.  In February 2010, the Company appointed Mr. Richard Huebner to its Board of Directors.  The Company issued to Mr. Huebner 106,383 shares of the Companys common stock as compensation for his commitment to serve on the Companys board of directors.  The transaction was valued at $25,000, or $.235 per share based on the fair value of the stock on the transaction date.  Of the total transaction amount, $15,000 was considered as incentive to serve as a director, and as such the amount was charged to operations as stock compensation expense for the year ended October 31, 2010.  The remaining $10,000 was considered as compensation to be earned during his service in 2010.   As of January 31, 2011 the entire $10,000 had been expensed, and is reflected in Services paid with common stock in the accompanying condensed balance sheet.  Also in February 2010, the Company issued 42,553 shares of the Companys common stock to Mr. Erik Van Horn, Director as compensation to be earned during his service in 2010.  The transaction was valued at $10,000, or $.235 per share based on the fair value of the stock on the transaction date.  As of January 31, 2011 the entire $10,000 had been expensed, and is reflected in Services paid with common stock in the accompanying condensed balance sheet.  On September 8, 2010 the Company agreed to convert to common stock certain amounts due an attorney who provides various legal services to the Company.  As a result, $10,000 of amounts due the attorney was converted to 71,429 shares of common stock at a price of $0.14 per share, which approximated the market value of the stock on the date of the transaction.  Also on September 8, 2010 the Company agreed to convert to common stock certain amounts due a consultant who provides various professional accounting services to the Company.  As a result, $8,300 of amounts due the consultant was converted to 59,286 shares of common stock at a price of $0.14 per share, which approximated the market value of the stock on the date of the transaction.  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 $0.19 per share, and expire in 2018.  On the grant date, the traded market value of the stock was $0.19 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, 2011, or for the year ended October 31, 2010.  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 $0.19 and $0.19, respectively.   17     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.   18     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, 20091,543,500$0.08 to $0.818.29 years$ 0.20Options granted-Options exercised-Options expired-Balance at October 31, 20101,543,500$0.08 to $0.817.60 years$ 0.18Options granted-Options exercised-Options expired-Balance at January 31, 20111,543,500$0.08 to $0.816.35 years$ 0.18Exercisable at October 31, 2010543,500$0.08 to $0.814.48 years$ 0.16Exercisable at January 31, 2011543,500$0.08 to $0.814.23 years$ 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 was initially extended without modification through August 20, 2010, and the Company expects to further extend the agreement although no extension has been made as of the date of this report.  Under the terms of the original 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  19     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  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.  Either party may terminate the agreement at any time with thirty days written notice.  As of January 31, 2011 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, 2011 a total of $3,719 in cash and 7,880 shares 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: JOINT PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION AGREEMENTS  On May 29, 2010 the Company executed an Agreement with Mokshagundam Biotechnologies for the development of a medium formulation for growth of marine invertebrates as a potential food source.  Initially, a basal medium formulation consisting of macro nutritional substances is to be developed and this will be supplemented with growth factors commonly used in stem cell media formulations.  The Agreement provides for the Company to provide a pilot batch of medium for testing consisting of macro-nutritional support plus a mixture of common growth factors necessary for in-vitro support of self-renewal in stem cells of higher organisms.  This medium was delivered to Mokshagundam during fiscal year 2010.  The Agreement provided for a payment of $5,000 to the Company upon execution of the Agreement as an advance for the product development, and was received during the third quarter of fiscal year ended October 31, 2010.   20     On April 27, 2010 the Company executed an Agreement for Joint Product Development, Manufacture and Distribution (Agreement) with HemoGenix, Inc., a privately held biotechnology firm located in Colorado Springs, Colorado.  The Agreement provides for the joint manufacture and distribution of stem cell analysis tools.  The agreement provides for the expansion of assay platforms from HemoGenix, in particular, LUMENESC for mesenchymal stem cells (MSC) and LumiSTEM for induced pluripotent stem cells (iPS).  Also, this original agreement between the Company and HemoGenix® was expanded during the latter portions of 2010 to include joint development of cell-specific toxicity assays including those targeting liver cells, heart, kidney and neuronal cells.  Furthermore, the strategic partners intend to jointly develop additional stem cell media products and align their respective quality programs to ensure consistency.  NOTE I: SUBSEQUENT EVENTS  The Company has evaluated subsequent events through the date that the financial statements were available to be issued.     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, 2011 and compares it to the Companys financial condition at October 31, 2010.  It also discusses the Companys results of operations for the three-month period ending January 31, 2011 and compares those results to the results of the three months ended January 31, 2010.  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, 2010, 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, 2010 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 2010 the Company gained working capital through sales of its securities and debt financing while continuing early stage commercialization of its stem cell related products, which resulted in modest increased product sales over prior reporting periods.  The Company continues to experience a working capital deficit and shortage of liquidity.  At January 31, 2011, the Company had a working capital deficit of $1,694,048, consisting of current assets of $33,382 and current liabilities of $1,727,430.  Of total current liabilities, $1,373,678 was comprised of accrued payroll expenses, primarily to our President.  This represents a decrease in working capital of $39,160 from fiscal year end October 31, 2010.  The decrease in working capital was mainly due to $34,466 in increased current liabilities due to operating expenses in excess of revenue from product sales.  Current assets decreased by $4,694 and current liabilities increased by $34,466 during the quarter ended January 31, 2011.  The decrease in current assets was due to decreased cash, while liabilities increased due to operating expenses in excess of revenues.  The Company reported a $1,622,288 deficit in shareholders equity at January 31, 2011, which was $36,548 more than the  22     deficit reported at October 31, 2010.  The majority of the working capital deficit is due to accrued salaries and notes due to the president and CEO.  During the three months ended January 31, 2011, the Companys financing activities provided $53,413 in cash to support our operating activities.  During that time, the Companys operations used $54,569 in cash compared to $49,220 of cash used by operations during the three months ended January 31, 2010.  The Company reported an overall decrease in cash for the first three months of 2011 of $5,884 that was $42,265 less than the increase in cash for the first three months of 2010.  The increase in cash usage during the first quarter of 2011 was primarily due to increased expenses related to the filing of a new patent application related to the Companys technology for the generation of stem cells. Cash raised from financing activities was derived through loans from the Companys president and CEO.   Cash usage reflects a minimum cash requirement of about $13,370 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 had lines of credit totaling $91,291 with $1,639 available in credit at January 31, 2011.  The Company must continue to service debt and the Chairman personally guarantees most of the Company debt.  Management is actively pursuing measures to reduce corporate debt while at the same time implementing various measures to increase revenues, as described elsewhere in this report.  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 2010.  A current focus is product sales derived from launch of its Tools of Stem Cell and Drug DevelopmentTM” product line during 2009.   Management has continued its program to expand sales of its products and especially the MSCGroTMmedia product line that was shown to exhibit performance advances over competing products through a study conducted by the Company during the current reporting period (See Results of Operations for additional detail).   Our MSCGroTMmedia is now being evaluated by potential  accounts that are perceived by management to represent substantial sales opportunities for the Company. In addition, the Company is engaged in discussions with life science manufacturers & distributors that are also believed by management to represent a significant distribution opportunity for the Company’s MSCGroTMmedia product line.   An agreement to out-license the Companys patented and patent-pending technology related to treatment of infertility is also advancing.  Management has conserved capital by reducing expenditures related to its operational activities and is implementing debt reduction activities to decrease interest expenses and monthly debt reduction payments..   The Company is also pursing other approaches to increase its capital resources such as combination with revenue-generating private entities, out-licensing of its intellectual property, sale of assets or other transactions that may be appropriate.  23     Results of Operations  During the three months ended January 31, 2011, the Company realized a net loss of $40,107 or $0.00 per share on $4,326 in revenue.  The net loss was $29,062 less than the net loss for the first quarter ended January 31, 2010.  The decrease net loss in the first quarter of 2011 compared to the same quarter in 2010 was primarily due to other income derived from the fair value of stock purchase warrants that expired during the reporting period.  Total operating expenses were $5,493 more in the first quarter 2011 than the comparable period in 2010.  Research and development expenses decreased by $3,225 and selling, general and administrative expenses increased by $5,493.  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 are directed towards development of new products to add to the commercial products presently available. During the quarter ended January 31, 2011, the Company completed an in-house study showing that its MSCGroTM stem cell culture media consistently improved mesenchymal stem cell growth, quality, potency and cellular recovery over leading competitors.   Furthermore, MSCGroTMalso exhibits real time stability that exceeds 1 year while competitors published recommended usage periods are 2 weeks to 4 weeks, thus resulting in substantial cost savings and expanded usage opportunities to MSCGroTM customers. We intend to leverage these product advances into significant penetration of this market through alliances with major distributors of life science products and direct sales to key accounts.  The Company is engaged in discussions with prospective partners and intends to pursue development of these business relations to the full extent possible. These potential partners possess manufacturing capabilities and well-established, global distribution channels, but lack product offerings that are equivalent to the MSCGroTMstem cell mediaproduct line. Management looks for greater sales of its stem cell-based products during 2011, especially its MSCGroTMbrand of stem cell media and the advanced stem cell testing products, including Lumenesc-HuTM and LumiSTEMTM, that were jointly developed and launched by Vitro and HemoGenix®, Inc. during 2010, although there can be no assurance such revenues will be realized.  Research and development expenses (R&D) were $42,182 during the first quarter of 2011, which was a decrease of $3,225 over the comparable period in 2010.  While the R& D necessary for launch of its initial products was completed in 2009, the Company continued development of its technology related to generation of induced pluripotent stem cells.  These activities resulted in the filling of an international patent application entitled, Induced Pluripotent Stem Cells and Related Methods.  This technology arose from prior R&D by the Company showing that a single gene could induce pluripotency in adult stem cells, while re-programming of somatic cells to pluripotency requires over-expression of three to four individual genes.  Additional R&D efforts are oriented towards expansion and improvement of the Companys stem cell media products, especially so-called serum-free media.  These products do not contain animal or human serum, animal-derived components and are defined with regard to basic constituents.  Such media are critical to clinical applications and the Company desires to develop a line of stem cell media for clinical applications of stem cells in the treatment of various diseases.    24     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 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  25     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, 2011 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.  26     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  27     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 15, 2011By: _/s/James R. MusickJames R. Musick
President, Chief Executive Officer and Chief
Financial Officer     28