- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)
þ	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January 31, 2010

OR

o	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 333-23460

MERA PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)

Delaware		04-3683628
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

73-4460 Queen Ka'ahumanu Highway, Suite 110

Kailua-Kona, Hawaii 96740

(808) 326-9301

(Address and telephone number of principal executive offices)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO þ

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). . YES o NO þ

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. YES þ NO o

547,769,915 shares of $0.0001 par value common stock outstanding as of January 31, 2010

80 shares of $0.0001 par value Series A preferred stock outstanding as of January 31, 2010

974 shares of $0.0001 par value Series B preferred stock outstanding as of January 31, 2010

Mera Pharmaceuticals, Inc.

Form 10-Q

For the Quarter Ended January 31, 2010

Contents

		Page
Part I - Financial Information

Item 1:	Financial Statements	2
	Condensed Balance Sheet	2
	Condensed Statements of Operations	3
	Condensed Statements of Cash Flows	4
	Notes to Condensed Financial Statements	5
Item 2:	Management's Plan of Operation	10
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 4(T).	Controls and Procedures	11

Part II - Other Information

Item 1:	Legal Proceedings	12
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3.	Defaults Upon Senior Securities	12
Item 5:	Other Information	12
Item 6:	Exhibits	12
Signature		13
Certifications

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Mera Pharmaceuticals, Inc.

Balance Sheets

	January 31, 2010			October 31, 2009
	(Unaudited)			(Audited)

ASSETS
Current assets:
Cash and cash equivalents	$	2,241		$	3,135
Accounts receivable		14,281			6,656
Tax credit receivable		36,849			31,229
Prepaid expenses		11,974			15,994

Total current assets		65,345			57,014

Plant and equipment, net		197,142			200,482

Total Assets	$	262,487		$	257,496

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	151,907		$	181,040
Accrued expenses	$	141,935		$	133,172
Notes payable - related parties		51,936			51,936
Deferred revenue		73,200			30,450
Other current liabilities		-			-

Total Current Liabilities		418,978			396,598

Contingencies

Stockholders' deficit:
Convertible preferred stock, $.0001 par value, 10,000
shares authorized, 80 Series A shares issued and
outstanding and 974 Series B shares issued and
outstanding		2			2
Common stock, $.0001 par value: 750,000,000
shares authorized, 547,769,915 shares issued
and outstanding		54,777			54,777
Additional paid-in capital		7,920,003			7,920,003
Treasury stock at cost		(2,025	)		(2,025	)
Accumulated deficit		(8,129,248	)		(8,111,859	)
Total stockholders' deficit		(156,491	)		(139,102	)

Total Liabilities and Stockholders' Equity	$	262,487		$	257,496

The accompanying notes are an integral part of these financial statements

Mera Pharmaceuticals, Inc.

Condensed Statement of Operations

	Three Months Ended			Three Months Ended
	January 31,			January 31,
	2010			2009
	(Unaudited)			(Unaudited)

NET SALES	$	96,215		$	187,937
Cost of goods sold		1,306			453

GROSS PROFIT		94,909			187,484

Operating Expenses
Selling and administrative expenses		50,747			101,023
Research and development costs		62,932			96,670
Depreciation and amortization		4,325			21,607

Total operating expenses		118,004			219,300

Operating loss		(23,095	)		(31,816	)

Other income (expense)
Interest income		-			1,371
Other income		1,333			-
Interest expense		(1,248	)		(1,282	)

Total other income (expense)		85			89

Net loss before tax provision		(23,010	)		(31,727	)

Provision for income taxes		-			-
Refundable tax credit		5,620			7,581

NET INCOME (LOSS)	$	(17,390	)	$	(24,146	)

Net income (loss) per common share	$	(0.0000	)	$	(0.0000	)

Weighted Average Shares Outstanding		547,769,915			547,769,915

The accompanying notes are an integral part of these financial statements

Mera Pharmaceuticals, Inc.

Statements of Cash Flows

	Three Months			Three Months
	Ended			Ended
	January 31, 2010			January 31, 2009
	(Unaudited)			(Unaudited)
Cash Flows from Operating Activities:
Net loss	$	(17,390	)	$	(24,146	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accumulated depreciation and amortization		4,325			21,608
Changes in assets and liabilities
Accounts receivable		(7,624	)		7,465
Tax credit receivable		(5,620	)		(7,581	)
Prepaid expenses		4,020			5,437
Accounts payable and accrued liabilities		(20,370	)		(2,500	)
Deferrecd revenue		42,750			-
Net cash provided by operating activities		91			283

Cash Flows from Investing Activities:
Purchases of marketable equitable securities		-			(14,255	)
Proceeds from sales of marketable equitable securities		-			34,400
Purchases of fixed assets		(985	)		-
Net cash used by investing activities		(985	)		20,145

Cash Flows from Financing Activities:
Net cash provided by financing activities		-			-

Net increase in cash and cash equivalents		(894	)		20,428
Cash and cash equivalents, beginning of the period		3,135			19,288
Cash and cash equivalents, end of the period	$	2,241		$	39,716

Supplemental Cash Flow Information
Interst Paid	$	-		$	-
Taxes Paid	$	-		$	-

The accompanying notes are an integral part of these financial statements

MERA PHARMACEUTICALS

CONDENSED FINANCIAL STATEMENTS

1.	Basis of Presentation of Financial Statements

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month periods ended January 31, 2010 are not necessarily indicative of the results that may be expected for the year ending October 31, 2010. For further information, refer to the financial statements and footnotes thereto for the year ended October 31, 2009, included in Form 10-K filed with the Securities and Exchange Commission

The preparation of the Company’s financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related 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. The more significant areas requiring the use of management’s estimates and assumptions relate to depreciation and amortization calculations; inventory valuations; asset impairments (including impairments of goodwill, long-lived assets, and investments); valuation allowances for deferred tax assets; reserves for contingencies and litigation; and the fair value and accounting treatment of financial instruments. The Company bases its estimates on the Company's historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ significantly from these estimates under different assumptions or conditions.

2.	Going Concern.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred a net loss of $23,010 for the First quarter ending January 31, 2010 and a net accumulated loss of $8,129,248 from October 31, 2002 through January 31, 2010. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development and sales from Kona Sea Salt. Management has plans to seek additional capital through private placement and public offerings of its common stock. These factors raise substantial doubt that the Company will be able to continue as a going concern.

Management’s plan for the continuation of the Company as a going concern includes financing the Company’s operations through issuance of its common stock. If the Company is unable to complete its financing requirements or achieve revenue as projected, it will then modify its expenditures and plan of operations to coincide with the actual financing completed and actual operating revenues. There are no assurances, however, with respect to the future success of these plans.

Unless otherwise indicated, amounts provided in these notes to the financial statements pertain to continuing operations.

MERA PHARMACEUTICALS

CONDENSED FINANCIAL STATEMENTS

3.	Related Party Transactions.

On November 2, 2009 the Company entered into an agreement with an entity created and controlled by certain members of its Board of Directors. The agreement involves the purchase by such entity of Bulk Kona Deep Sea Salt from unsold inventory at a price on $7.25 per kilogram. The Company estimates its direct cost for the material is approximately $5.00 per kilogram. The purpose of this transaction is, in the absence of any other funding sources to provide the cash flow needed to maintain and grow operations so that the Company is able to produce enough Kona Deep Sea Salt to market and sell outside of Hawaii. This program will end once the Company is able to attain positive cash flow sufficient to sustain such operations. Under this agreement, the Company shall have the right of first refusal to repurchase some or the entire product purchased by the related entity at a price of $8.50 per kilogram if certain conditions are met. During the three months ended January 31, 2010 the Company received $65,250 from the related entity under this agreement. Of this amount $42,750 was recorded as deferred revenue resulting from product that had not yet been shipped.

4. Summary of Significant Accounting Policies

Revenue Recognition . The Company has adopted Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. Product revenue is recognized upon shipment to customers. Contract services revenue is recognized as services are performed on a cost reimbursement basis. Royalties are recognized upon receipt.

5. Recent Accounting Pronouncements

Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.

Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

In June 2009, the Financial Accounting Standards Board “FASB” issued Statement of Financial Accounting Standard (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS No. 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. This statement will have an impact on the Company’s financial statements since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.

MERA PHARMACEUTICALS

CONDENSED FINANCIAL STATEMENTS

Subsequent Events

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”.(“SFAS No. 165”) This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual periods ending after June 15, 2009. The adoption of SFAS No. 165 did not have a material impact on the Company’s financial statements.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The implementation of FSP FAS No. 157-4 did not have a material on the Company’s financial position and results of operations.

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments ". The objective of an other-than-temporary impairment analysis under existing U.S. generally accepted accounting principles (GAAP) is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. FSP FAS No. 115-2 and FAS No. 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted. The implementation of FSP FAS No. 115-2 and FAS No. 124-2 did not have a material impact on the Company’s financial position and results of operations.

MERA PHARMACEUTICALS

CONDENSED FINANCIAL STATEMENTS

Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments". This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS No. 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The implementation of FSP FAS No. 107-1 did not have a material impact on the Company’s financial position and results of operations

Amendments to the Impairment Guidance of EITF Issue No. 99-20

In January 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20". This FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other than- temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. This Issue is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The adoption of FSP EITF 99-20-1 did not have a material effect on the Company’s financial statements.

MERA PHARMACEUTICALS

CONDENSED FINANCIAL STATEMENTS

Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing

In June 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”. This Issue is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. Share lending arrangements that have been terminated as a result of counterparty default prior to the effective date of this Issue but for which the entity has not reached a final settlement as of the effective date are within the scope of this Issue. This Issue requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. This Issue is effective for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact of FSP EITF 09-1 on its financial position and results of operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Report contains forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements that include the words "believes," "expects," "estimates," "anticipates" or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements. Risk factors include, but are not limited to, our ability to raise or generate additional capital; our ability to cost-effectively manufacture our products on a commercial scale; the concentration of our current customer base; competition; our ability to comply with applicable regulatory requirements; potential need for expansion of our production facility; the potential loss of a strategic relationship; inability to attract and retain key personnel; management's ability to effectively manage our growth; difficulties and resource constraints in developing new products; protection and enforcement of our intellectual property; compliance with environmental laws; climate uncertainty; currency fluctuations; exposure to product liability lawsuits; and control of our management and affairs by principal stockholders.

The reader should carefully consider, together with the other matters referred to herein, the information contained under the caption "Risk Factors" in our Annual Report on Form 10-K for a more detailed description of these significant risks and uncertainties. We caution the reader, however, that these factors may not be exhaustive.

Since inception, our primary operating activities have consisted of basic research and development and production process development, recruiting personnel, purchasing operating assets, raising capital and sales of product. From September 16, 2002, the effective date of our plan of reorganization, through January 31, 2010 we had an accumulated deficit of $8,129,249. Our losses to date have resulted primarily from costs incurred in research and development, production costs and from general and administrative expenses associated with operations. We expect to continue to incur smaller operating losses through the current fiscal year. We also expect to have quarter-to-quarter and year-to-year fluctuations in revenues, expenses and losses, some of which could be significant.

We have a limited operating history. An assessment of our prospects should include the technology risks, market risks, expenses and other difficulties frequently encountered by early-stage operating companies, and particularly companies attempting to enter competitive industries with significant technology risks and barriers to entry. We have attempted to address these risks by, among other things, hiring and retaining highly qualified persons, diversifying our customer base and expanding revenue sources, e.g., by performing other contract services and increasing efforts to sell raw materials to other product formulators. However, our best efforts cannot guarantee that we will overcome these risks in a timely manner, if at all.

Results of Operations

Revenues. Revenue declined 48.8% for the quarter ending January 31, 2010 to $96,215 vs. $187,937 in the year ago quarter ending January 31, 2009. The revenue decline was attributable to the ending of the HRBioPetroleum agreement which ended on June 8, 2009. Product sales of AstaFactor and Kona Sea Salt increased to $96,215 versus $47,368 in the comparable periods, an increase of 103.1%

Cost of Sales. Cost of goods sold was $1,306 for the quarter ending January 31, 2010 versus $453 in the quarter ending January 31, 2009 which was a 288% increase as we added materials and inventory to meet expected future sales of our AstaFactor and Kona Sea Salt products.

Research and Development Costs . Research and development costs decreased to $62,932 for the quarter ending January 31, 2010 versus $96,670 for the quarter ending January 31, 2009, an decrease of approximately 34.9%. The decrease was due to the winding down of costs associated with the conclusion of the Company’s technical service agreement and shift of personnel to work on research for the introduction of future new products that the Company hopes to introduce in the second quarter of 2010.

Selling, General and Administrative Expenses . These expenses decreased to $50,747 for the quarter ending January 31, 2010 as compared with $101,023 in the quarter ending January 31, 2009, a decrease of 49.8% as the Company, concluded the technical service agreement and the employees associated with that project. The Company will also continue to contain expenses though the use of part time workers who are available on a call basis when needed.

Interest Expense. For the quarter ended January 31, 2010 versus 2009, interest expense was $1,248 and $1,282, respectively.

ITEM 4(T). CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our chief executive officer, we conducted an evaluation of our disclosure controls and procedures, as such terms are defined in Rule 13a-14(c) promulgated under the Exchange Act, within the 90 day period prior to the filing date of this quarterly report. Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that our disclosure controls and procedures were effective as of that date.

(b) There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer pursuant to Rule 13a – 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically).

31.2	Certification of Principal Financial and Accounting Officer pursuant to Rule 13a – 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically).

32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith electronically).

32.2	Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 (filed herewith electronically)

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.