**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Form 10-K**

(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the fiscal year ended December 31, 2010

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 0-28475

Merilus, Inc.

(Name of registrant as specified in its charter)

Nevada       87-0635270

(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification No.)

44 West Broadway, #1850, Salt Lake City, Utah    84101

(Address of principal executive offices)    (Zip Code)

Issuer’s telephone number (801) 949-1020

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

Title of each class     Name of each exchange on which registered

None       Not Applicable

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

Common Stock, par value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes [  ]

No   [ X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act

Yes [X ]

No   [   ]

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                             Yes [X]  No [   ]

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).  The registrant is not yet in the Interactive Data reporting system.                                                                  Yes [  ]  No  [  ]

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    [   ]

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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 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   ̈ (Do not check if a smaller reporting company)

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 [X]   No [  ]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: The bid on June 30, 2010, was $0.02 giving the shares held by non-affiliates a market value of $6,028.  

As of April 15, 2011, the Registrant had 2,186,692 shares of common stock issued and outstanding.

**DOCUMENTS INCORPORATED BY REFERENCE**

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement, and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (“Securities Act”). The listed documents should be clearly described for identification purposes: None

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**PART I**

***Item 1. Business***

Merilus, Inc. (“Company”) was incorporated in Nevada in May 1985 and its initial business endeavors were not successful. During the year 2000 the Company filed a definitive information statement pursuant to Section 14c of the Securities Act of 1934, to disclose that it had entered into a reorganization agreement with the intent to acquire all of the issued and outstanding shares of Merilus Technologies, Inc. ("MTI"), a British Columbia, Canada corporation. The Company had issued warrants for the purchase of 2,000,000 shares of its common stock at an exercise price of $1.00 per share and upon entering into the reorganization agreement, the warrants were exercised and the Company received $2,000,000, which was given to MTI in exchange for notes receivable. Terms of the reorganization agreement included the establishment of a trust into which the Company issued 1 share of preferred stock that represented 3,767,500 “exchangeable shares” of the Company’s common stock. Upon surrender by MTI stockholders of their MTI stock, the Company would issue its common stock to the MTI stockholder. By end of the year 2001, the Company had issued 828,300 shares of its common stock, which represented approximately 22% of the exchangeable shares. MTI filed for bankruptcy protection and was liquidated under the laws of Canada.  There are potentially 146,060 shares which could still be converted under the terms of the agreement with MTI.

Subsequently, the Company has had no revenue producing operations and is considered a development stage enterprise. The Company is currently seeking an acquisition or merger with an operating entity and has received loans from a stockholder, issued shares of its common stock, and may raise capital through the issuance of its common stock to further these efforts. The Company does not propose to restrict its search for a business opportunity to any particular industry or geographical area and may, therefore, seek such business opportunity in essentially any business in any industry. The Company has unrestricted discretion in seeking and participating in a business opportunity, subject to the availability of such opportunities, economic conditions, and other factors. The selection of a business opportunity in which to participate is complex and risky and the Company has only limited resources that it may use to find good business opportunities. There can be no assurance that the Company will be able to identify and acquire any business opportunity which will ultimately prove to be beneficial to the Company and its stockholders.

 

The activities of the Company are subject to several significant risks that arise primarily as a result of the fact that the Company has no specific business and may acquire or participate in a business opportunity based on the decision of management. The Company will select a potential business opportunity based on management's business judgment and potentially could act without the consent, vote or approval of the Company's stockholders. The risks faced by the Company are further increased as a result of its lack of resources and its inability to provide a prospective business opportunity with significant capital. See Item 7 Plan of Operations in this report.

***Item 2. Property***

The Company does not maintain an administrative office but utilizes the home office  of the Company’s president, Alex Demitriev, for business correspondence. Without current operations, the Company does not believe that it is necessary to have a business office.

***Item 3. Legal Proceedings***

None.

**Item 4. (Removed and Reserved)**

**PART II**

***Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.***

*Market information* – The principal market for the Company's common stock is the Over the Counter Bulletin Board. The following high and low bid prices for the Company's Common Stock  are based on over-the-counter quotations that reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions. Furthermore, the Company’s common stock has traded sporadically and in small volume. Consequently, the information provided below may not be indicative of the Company's common stock price under different conditions. 

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Quarter Ended

High Bid

Low Bid

December 2010

$0.49

$0.02

September 2010

$0.10

$0.02

June 2010

$0.10

$0.02

March 2010

$0.11

$0.02

December 2009

$0.12

$0.05

September 2009

$0.14

$0.11

June 2009

$0.13

$0.11

March 2009

$0.13

$0.12

December 2008

$0.45

$0.13

September 2008

$0.45

$0.15

June 2008

$1.00

$0.15

March 2008

$0.27

$0.20

The prices above are based on very limited volume and wide spreads between the bid and ask prices.  Investors should not rely on the historical quotes as a guide to the direction of the Company’s stock given the low volume and wide spreads.  On April 15, 2011, the bid price was $0.10 per share.  The Company’s shares of common stock have limited trading and the bid and ask price may not be indicative of the actual price a shareholder would receive if they tried to sell their shares.

*Holders* – At April 15, 2011, the Company had approximately 45 stockholders of record based on information obtained from the Company’s transfer agent.

*Dividends* – Since its inception, the Company has not paid any dividends on its common stock and the Company does not anticipate that it will pay dividends in the foreseeable future.

**Item 6.  Selected Financial Data**

**Summary of Financial Information**

We had no revenues in 2010 or 2009.  We had a net loss of $18,397 for the year ended December 31, 2010.  At December 31, 2010, we had cash and cash equivalents of $1,653, other receivables of $500 and a negative working capital of $65,552.

The following table shows selected summarized financial data for the Company at the dates and for the periods indicated. The data should be read in conjunction with the financial statements and notes included herein beginning on page F-1.

**STATEMENT OF OPERATIONS DATA**:
|  

**For the Year Ended**

**December 31, 2010**

**For the Year Ended**

**December 31, 2009**

Revenues

$                 -

$                 -

General and Administrative Expenses

13,558

35,488

Other Income and Expense

4,839

3,547

Net Loss

18,397

39,035

Basic Loss per Share

(0.01)

(0.02)

Diluted Loss per Share

(0.01)

(0.02)

Weighted Average Number of Shares Outstanding

1,767,514

1,632,445

Weighted Average Number of Fully Diluted Shares Outstanding

1,767,514

1,632,445

**BALANCE SHEET DATA**:

 

 

 

**December 31, 2010**

**December 31, 2009**

Total Current Assets

$            2,153

$            280

Total Assets

2,153

280

Total Current Liabilities

67,705

57,435

Working Capital

(65,552)

(57,155)

Stockholders’ Equity (Deficit)

(65,552)

(57,155)

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**Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.**

**Special Note Regarding Forward-Looking Statements**

This annual report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Plan of Operations provided below, including information regarding the Company’s financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, plans and objectives of management. The statements made as part of the Plan of Operations that are not historical facts are hereby identified as "forward-looking statements."

Plan of Operations

*Overview*:

The Company has not had revenues from operations in each of the last two fiscal years and is considered a development stage enterprise. The Company’s current operations have consisted of taking such action, as management believes necessary, to prepare to seek an acquisition or merger with an operating entity. The Company has obtained loans from a stockholder and has issued shares of its common stock to its president for services rendered. The Company may also issue shares of its common stock to raise equity capital. A stockholder of the Company has financed the Company's current operations, which have consisted primarily of maintaining in good standing the Company's corporate status and in fulfilling its filing requirements with the Securities and Exchange Commission, including the audit of its financial statements. Beyond the financial arrangements herein, the Company has not entered into a definitive agreement with this stockholder, or anyone else, regarding the receipt of future funds to meet its capital requirements. However, management anticipates that whatever reasonable financial requirements may be necessary to further its plan of operations, this stockholder will continue to provide such financial resources to the Company as needed during the next twelve months.

Nevertheless, the Company’s financial statements contained in this report have been prepared assuming that the Company will continue as a going concern. As discussed in the footnotes to the financial statements and elsewhere in this report, the Company is in the development stage and has not established any source of revenue to sustain operations. These factors raise substantial doubt that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

A major stockholder of the Company has provided funds to keep the Company operating, cover costs associated with bringing the Company current on its reporting obligations and fund ongoing expenses.  On March 28, 2008, the stockholder converted part of the debt owed by the Company into 600,000 shares of common stock of the Company. On March 31, 2008, this same stockholder entered into a non-convertible unsecured note payable in the amount of $6,855 bearing interest at 18% per annum, due May 31, 2008. Subsequently, this stockholder has provided additional capital to the Company and was owed at December 31, 2010, a totaled $24,211. This stockholder has entered into a verbal agreement with the Company to provide additional funding as may be needed to fund the Company’s operations as discussed herein at a rate of 18% per annum. Furthermore, this stockholder has agreed not to make demand for immediate payment on the Company for payment of this note. In 2010, this stockholder settled $10,000 in debt for 500,000 shares of our common stock.

In 2005, Denny W. Nestripke accepted the position of the Company's sole officer and director.  During January of 2006, Mr. Nestripke received 37,500 shares of the Company’s common stock valued at $0.06, the prevailing market price during the period, for services rendered, valued at  $2,250.  On December 7, 2006, Mr. Nestripke resigned and Alex Demitriev was appointed in his place.  In April 2009, Mr. Demitriev received 200,000 shares for his services as director and sole officer of the Company.  These shares were valued at the prevailing bid price of the Company’s common stock as reflected on the OTCBB of $0.11 or a total of $22,000.  

*Risks associated with the plan of operations*:

In its search for a business opportunity, management anticipates that the Company will incur additional costs for legal and accounting fees to locate and complete a merger or acquisition. Other than previously discussed, the Company does not have any revenue producing activities whereby it can meet these financial requirements and its cash position is minimal. On December 31, 2010, the Company’s obligations exceeded its cash position by $65,552 and the company may further obligate itself as it pursues its plan of operations. There can be no assurance that the Company will receive any benefits from the efforts of management to locate business opportunities.

The Company does not propose to restrict its search for a business opportunity to any particular industry or geographical area and may, therefore, attempt to acquire any business in any industry. The Company has unrestricted discretion in seeking and participating in a business opportunity, subject to the availability of such opportunities, economic conditions, and other factors. Consequently, if and when a business opportunity is selected, such business opportunity may not be in an industry that is following general business trends.

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The selection of a business opportunity in which to participate is complex and risky. Additionally, the Company has only limited resources and this fact may make it more difficult to find good opportunities. There can be no assurance that the Company will be able to identify and acquire any business opportunity which will ultimately prove to be beneficial to the Company and its stockholders. The Company will select any potential business opportunity based on management's business judgment. At the present time, only Mr. Demitriev serves in management and allowing only one individual to exercise his business judgment in the selection of a business opportunity for the Company presents a significant risk to the Company's stockholders. The Company may acquire or participate in a business opportunity based on the decision of management that potentially could act without the consent, vote, or approval of the Company's stockholders.

Since its inception, the Company has not generated any revenue and it is unlikely that any revenue will be generated until such time as the Company locates a business opportunity to acquire or with which it can merge. However, the Company is not restricting its search to those business opportunities that have profitable operations. Even though a business opportunity is acquired that has revenues or gross income, there is no assurance that profitable operations or net income will result therefrom. Consequently, even though the Company may be successful in acquiring a business opportunity, such acquisition does not assume that a profitable business opportunity is being acquired or that stockholders will benefit through an increase in the market price of the Company's common stock.

The acquisition of a business opportunity, no matter what form it may take, will almost assuredly result in substantial dilution for the Company's current stockholders. Inasmuch as the Company only has its equity securities (its common and preferred stock) as a source to provide consideration for the acquisition of a business opportunity, the Company's issuance of a substantial portion of its authorized but unissued common stock is the most likely method for the Company to consummate an acquisition. The issuance of any shares of the Company's common stock will dilute the ownership percentage that current stockholders have in the Company.

The Company does not intend to employ anyone in the future, unless its present business operations were to change. Mr. Demitriev does not have a contract to remain with the Company over any certain time period and may resign his position prior to the time that a business opportunity is located and/or business reorganization takes place.

At the present time, management does not believe it is necessary for the Company to have an administrative office and utilizes the home office of the Company's president for business correspondence. The Company intends to reimburse management for any out of pocket costs.

**Liquidity and Capital Resources**

As of December 31, 2010, the Company had a negative $65,552 in working capital with assets of $2,153 and liabilities of $67,705.  If the Company cannot find a new business, it will have to seek additional capital either through the sale of its shares of common stock or through a loan from its officer, stockholders or others. The Company has  ongoing expenses primarily associated with maintaining its corporate status and professional fees associated with accounting and legal costs.

Management anticipates that the Company will incur more costs including legal and accounting fees to locate and complete a merger or acquisition.  At the present time the Company does not have the assets to meet these financial requirements. Additionally, the Company does not have substantial assets to entice potential business opportunities to enter into transactions with the Company.

It is unlikely that any revenue will be generated until the Company locates a business opportunity that it may acquire or with which it may merge.  Management of the Company will be investigating various business opportunities.  These efforts may cost the Company not only out of pocket expenses for its management but also expenses associated with legal and accounting costs.  There can be no guarantee that the Company will receive any benefits from the efforts of management to locate business opportunities.

 If and when the Company locates a business opportunity, management of the Company will give consideration to the dollar amount of that entity's profitable operations and the adequacy of its working capital in determining the terms and conditions under which the Company would consummate such an acquisition.  Potential business opportunities, no matter which form they may take, will most likely result in substantial dilution for the Company's stockholders as it has only limited capital and no operations.

**Results of Operations**

For the years ended December 31, 2010 and 2009, the Company had a net loss of $18,397 and $39,035, respectively.  The Company anticipates losses to remain at the 2010  level or slightly higher until a business opportunity is found. The Company had no revenue during the years ended December 31, 2010 and 2009. The Company does not anticipate any revenue until it locates a new business opportunity.

Off-balance sheet arrangements.

The Company does not have any off-balance sheet arrangements and it is not anticipated that the Company will enter into any off-

balance sheet arrangements.

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**Item 8. Financial Statements and Supplementary Data**

The Company’s financial statements are presented immediately following the signature page to this Form 10-K.

***Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure***

The Company has had no disagreements with its principal independent accountants with respect to accounting practices or procedures or financial disclosure.

***Item 9A. Controls and Procedures***

**Evaluation of Disclosure Controls and Procedures**

Our management, which consists of one person and with the assistance of an outside accountant, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our President and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Principal Executive and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.  This evaluation was made in light of the fact the Company has no operations or revenue and limited cash on hand.

 

**Management’s Annual Report on Internal Control over Financial Reporting**

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. 

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. 

 

Our management, which consists of one officer, with the participation of the outside accountant, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2010.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework.   Further, our management considered the lack of operations and revenue, the limited cash on hand, the limited transactions which occur on a monthly basis and the use of an outside accountant which reconciles all financial transactions prior to being delivered to our auditors.  Based on this evaluation, our management, consisting of our sole officer, concluded that, as of December 31, 2010, our internal control over financial reporting were not effective.  Management determined controls needed improvements as to the booking of transactions and the closing of books.  Management recognized the weaknesses of inadequate segregation of duties consistent with control objectives due to our small size and limited resources but believes the use of an outside accountant helps mitigate this potential weakness.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Security and Exchange Commission that permit the Company to provide only management’s report in this annual report.

**Changes in internal control over financial reporting**

There have been no changes in internal control over financial reporting.

***Item 9B. Other Information***

None

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**PART III**

**Item 10. Directors, Executive Officers, and Corporate Governance**

The following table sets forth the name, age, and position of each executive officer and director and the term of office.

Name

Age

Position

Director or Officer Since

Alex Demitriev

45

President, Secretary, Treasurer,

Director

2006

Set forth below is certain biographical information regarding the Company's executive officer and director.

Mr. Demitriev has been self-employed over the last five years owning a part interest in an art gallery in Park City, Utah as well as engaging in the importation of art, primarily from Russia.  Mr. Demitriev also is an investor in real estate projects in Utah and several foreign countries.  At the present time, Mr. Demitriev has not entered into any employment or other compensation arrangements with Merilus, Inc. and will serve on a part-time, as needed basis. During 2009 Mr. Demitriev received 200,000 shares of the Company’s common stock valued at the Company’s prevailing bid price as reflected on the OTCBB of $0.11 or $22,000.  Mr. Demitriev is not an officer or director in any other companies that file reports with the SEC.  Mr. Demitriev is 45 years old and has had no prior relationship with Merilus, Inc.

**Summary Compensation Table**

Name and

Principal Position

Year

Salary

Bonus

Stock

Awards

Option

Awards

Non-Equity

Incentive Plan

Compensation

NonqualifiedDeferredCompensationEarnings

All

Other Compensation

Total

Alex Demitriev, Director

2010

--

--

--

--

--

--

--

--

2009

--

--

$22,000

--

--

--

--

$22,000

To the knowledge of management, during the past five years, no present or former director, or executive officer of the Company:

(1) Has filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;

(2) Was convicted in a criminal proceeding or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

(3) Was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting, the following activities:

(i) Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliate person, director or employee of any investment company, or engaging in or continuing any conduct or practice in connection with such activity;

(ii) Engaging in any type of business practice;

(iii) Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

(4) Was the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity;

(5) Was found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law, and the judgment in such civil action or finding by the Securities and Exchange Commission has not been subsequently reversed, suspended, or vacated.

(6) Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have 

8

violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. 

**Compliance With Section 16(A) Of The Exchange Act**

The Company is not aware of any late reports filed by officers, directors and ten percent stockholders.

**Item 11. Executive Compensation**

**Summary Compensation Table**

The following tables set forth certain summary information concerning the compensation paid or accrued for each of the Company's last three completed fiscal years to the Company's or its principal subsidiaries’ chief executive officer and each of its other executive officers that received compensation in excess of $100,000 during such period (as determined at December 31, 2010, the end of the Company's last completed fiscal year):

**Summary Compensation Table**

Name and

Principal Position

Year

Salary

Bonus

Stock

Awards

Option

Awards

Non-Equity

Incentive Plan

Compensation

NonqualifiedDeferredCompensationEarnings

All

Other Compensation

Total

Alex Demitriev, CEO

2010

--

--

--

--

--

--

--

--

 

2009

--

--

$22,000

--

--

--

--

$22,000

Denny Nestripke, CEO

2008

--

--

--

--

--

--

--

--

*Cash Compensation* – No cash compensation  was  paid to any director or executive officer of the Company during the fiscal years ended December 31, 2010 and 2009. 

*Bonuses and Deferred Compensation* – None

*Compensation Pursuant to Plans* – None

*Pension Table* – None

 

*Other Compensation* – None

*Compensation of Directors* – None

**Termination of Employment and Change of Control Arrangement**

There are no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in Cash Compensation set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person's employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person's responsibilities following a changing in control of the Company.

9

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters**

The following table sets forth as of April 15, 2011, the name and the number of shares of the Company's common stock, par value $0.001 per share, held of record or beneficially by each person who held of record, or was known by the Company to own beneficially, more than 5% of the 2,186,692 issued and outstanding shares of the Company's common stock, and the name and stockholdings of each director and of all officers and directors as a group. 

Amount and Nature of

Title of Class

Name of Beneficial Owner

Beneficial Ownership (1)

Percent of Class

Common

Micvic, LLC

    336,780 

   15.4%

4764 South 900 East

Salt Lake City, UT

Common 

Michelle Turpin

4764 South 900 East

Salt Lake City, UT

1,436,780

    65.7%

Common

Denny Nestripke

   237,500

    10.9%

PO Box 581072

Salt Lake City, UT 84158

Common

Cede & Co.

P.O. Box 222

Bowling Green 

New York, NY 10274

  250,775

   11.47%

Name of Officer, Director

Amount and Nature of

Title of Class

and Nominee

Beneficial Ownership (1)

Percent of Class

Common

Alex Demitriev

   213,000

      9.7%

Common

All Officers and Directors

as a Group

   213,000

      9.7%

(1) Ms. Turpin owns 1,100,000 directly and through her management and ownership of Micvic, LLC is beneficially deemed to own the 336,780 shares held by Micvic, LLC.  The owners of Micvic, LLC is Michelle Turpin and Judy Wiles, the mother of Ms. Turpin.

***ITEM 13. Certain Relationships and Related Transactions and Director Independence.***

**Transactions with management and others**

A stockholder, Michelle Turpin, of the Company paid, on behalf of the Company, and advanced other costs through a series of promissory notes.  In 2007, the Company consolidated the promissory notes into one note with a credit line up to $30,000 which was convertible into up to 600,000 shares of common stock.  Ms. Turpin has continued to loan the Company funds to pay ongoing expenses.  The loans are at 18% interest.  In 2010, Ms. Turpin settled additional debt for another 500,000 shares  of common stock.  Ms. Turpin has continued to provide financial support for the Company with additional loans.

Denny W. Nestripke, received 37,500 shares of the Company’s common stock valued at $0.06 (the prevailing market price during the period of his service), for services rendered through the filing of this report. The services provided by Mr. Nestripke were largely related to the preparation of financial statements, the preparation and review of filings being made with the United States Securities and Exchange Commission, other regulatory filings (such as tax returns), and the performance of other duties associated with the Company's plan of operations (see Item 6 of this report).

***Item 14. Principal Accountant Fees and Services***

(1) *Audit Fees* - The aggregate fees billed in each of the last two fiscal years for professional services rendered by the Company’s principal accountant for the audit of the annual financial statements and review of financial statements included in the Form 10-QSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $5,880 for 2010 and $7,250 for 2009.

(2) *Audit-Related Fees* - The aggregate fees billed in each of the last two fiscal years for assurance and related services by the Company’s principal accountant that are reasonably related to the performance of the audit or review of the financial statements and are not reported in (1) Audit Fees:     $0 for 2010 and $0 for 2009.

(3) *Tax Fees* - The aggregate fees billed in each of the last two fiscal years for professional services rendered by the Company’s principal accountant for tax compliance, tax advice, and tax planning:     $0 for 2010 and $0 for 2009.

10

(4) All Other Fees - The aggregate fees billed in each of the last two fiscal years for products and services provided by the Company’s principal accountant, other than the services reported in (1) Audit Fees; (2) Audit-Related Fees; and (3) Tax Fees:     $0 for 2010 and  $0 for 2009.

(5) The Company does not have an audit committee

(6) Not Applicable

***ITEM 15. Exhibits***

*Financial Statements* – the following financial statements are included in this report:

Title of Document

Page

Report of Independent Registered Public Accounting Firm

F-1

Balance Sheet

F-2

Statements of Operations

F-3

Statements of Changes in Stockholders’ Deficit

F-4

Statements of Cash Flows

F-6

Notes to Financial Statements

F-8-10

11

*Financial Statement Schedules* – There are no financial statement schedules are included as part of this report

*Exhibits* – The following exhibits are included as part of this report:

Exhibit

Reference

Number

Number

Title of Document

Location

3.01

3

Articles of Incorporation

Incorporated by reference*

3.02

3

Amended Articles of Incorporation

Incorporated by reference**

3.03

3

Amended Articles of Incorporation

Incorporated by reference***

3.04

3

Bylaws

Incorporated by reference*

4.01

4

Specimen Stock Certificate

Incorporated by reference*

31.01

31

CEO certification Pursuant to 18 USC

Section 1350, as adopted pursuant to

Section 302 of Sarbanes-Oxley Act of 2002

This Filing

31.02

31

Principal Financial Officer certification Pursuant to 18 USC

Section 1350, as adopted pursuant to

Section 302 of Sarbanes-Oxley Act of 2002

This Filing

32.01

32

CEO and CFO Certification pursuant to Section 906

This Filing

*  Incorporated by reference from the Company's registration statement on Form 10-SB filed with the Commission, SEC file no.000-28475.

**  Incorporated by reference from the Company's definitive 14C filed on July 31, 2000, with the Commission, SEC file no.000-28475.

***  Incorporated by reference from the Company's definitive 14C filed on January 9, 2001, with the Commission, SEC file no.000-28475.

12

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to by signed on its behalf by the undersigned, thereunto duly authorized.

Merilus, Inc.

By: /s/ Alex Demitriev

      Alex Demitriev, Principal Executive and Financial Officer

Date: April 19, 2011

In accordance with the Exchange Act, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Alex Demitriev

       Alex Demitriev, Principal Executive and Financial Officer

Date: April 19, 2011

13

[Child, Van Wagoner & Bradshaw, PLLC letterhead]

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders

Merilus, Inc.

Salt Lake City, UT

 

We have audited the accompanying balance sheets of Merilus, Inc. (a development stage company) (the “Company”) as of December 31, 2010 and 2009, and the related statements of operations, changes in stockholders' deficit, and cash flows for the years then ended, and for the period from May 7, 1985 (date of inception) through December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.    

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Merilus, Inc. as of December 31, 2010 and 2009, and the results of its operations and cash flows for the years then ended, and for the period from May 7, 1985 (date of inception) through December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. 

The accompanying financial statements referred to above have been prepared assuming the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has recurring losses and has not generated revenues from its planned principal operations.  These factors raise substantial doubt that the Company will be able to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Child, Van Wagoner & Bradshaw, PLLC

Certified Public Accountants

Salt Lake City, Utah

           April 19, 2011

F - 1

Merilus, Inc.

( a development stage enterprise )

Balance Sheets

 

 

 

 

 

 

 

December 31,

 

2010

 

2009

Assets:

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash in bank

$

1,653

 

$

280

Other receivables – related party

 

               500 

 

 

                   - 

 

 

 

 

 

 

Total Assets

$

                2,153 

 

$

                   280 

 

 

 

 

 

 

Liabilities and Stockholders' Deficit:

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

$

              33,736 

 

$

                29,305 

Related party payable

 

                         - 

 

 

                         - 

Related party note payable

 

                24,211 

 

 

              23,211 

Related party interest payable

 

               9,758 

 

 

                 4,919 

Total Current Liabilities

 

               67,705 

 

 

                 57,435 

 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

 

Preferred stock, $1.00 par value, 1 share authorized,

 

 

 

 

 

0 shares issued and outstanding

 

                         - 

 

 

                         - 

Common stock, $0.001 par value, 100,000,000 shares

 

 

 

 

 

authorized, 2,186,692 and 1,686,692 shares issued

   and outstanding at December 31, 2010 and 2009

 

 

 

 

 

           Respectively

 

                2,186 

 

 

                 1,686 

Paid in capital

 

          3,341,079 

 

 

          3,331,579 

Deficit accumulated during the development stage

 

         (3,408,817)

 

 

        (3,390,420)

Total Stockholders' Deficit

 

             (65,552)

 

 

             (57,155)

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficit

$

                2,153 

 

$

                    280 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

F - 2

Merilus, Inc.

( a development stage enterprise )

Statements of Operations

 

 

 

 

 

 

 

From the date

 

 

 

 

 

 

 

of inception

 

 

 

 

(May 7, 1985)

 

For the Years Ended December 31,

 

through

 

2010

 

2009

 

December 31, 2010

 

 

 

 

 

 

 

 

 

Revenue

$ 

                   - 

 

$ 

                  - 

 

$ 

                                - 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

General and administrative

 

             13,558 

 

 

             35,488 

 

 

                 215,625 

Total Operating Expense

 

             13,558 

 

 

             35,488 

 

 

              215,625 

 

 

 

 

 

 

 

 

 

Net Operating Loss

$ 

        (13,558)

 

$ 

         (35,488)

 

$ 

             (215,625)

 

 

 

 

 

 

 

 

 

Other Expense

 

 

 

 

 

 

 

 

   Conversion feature of note payable

 

-

 

 

-

 

 

57,387

   Loss on investment

 

-

 

 

-

 

 

3,121,853

   Interest expense

 

4,839

 

 

3,547

 

 

13,952

Total Other Expense

 

4,839

 

 

3,547

 

 

3,193,192

 

 

 

 

 

 

 

 

 

Net Operating Loss

$ 

        (18,397)

 

$ 

         (39,035)

 

$ 

             (3,408,817)

Net loss per share

 

 

 

 

 

 

 

 

of common stock

$ 

             (0.01)

 

$ 

             (0.02)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per fully diluted share

 

 

 

 

 

 

 

 

of common stock

$ 

            (0.01)

 

$ 

            (0.02)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number

 

 

 

 

 

 

 

 

of common shares outstanding

 

        1,767,514 

 

 

        1,632,445 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of fully

 

 

 

 

 

 

 

 

diluted common shares outstanding

 

        1,767,514 

 

 

        1,632,445 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

F - 3

Merilus, Inc.

(a development stage enterprise )

Statements of Changes in Stockholders' (Deficit)

From the date of inception (May 7, 1985) through December 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 Deficit 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated 

 

 

 

 

 

 

 

 

 

 

 

 

 

 During the 

 

Total

 

Preferred

 

Common

 

 Paid in 

 

Development 

 

Equity

 

Shares

 

Amount 

 

Shares

 

 Amount 

 

 Capital 

 

 Stage 

 

(Deficit)

Balance, May 7, 1985 - date of inception

       - 

 

 $         - 

 

          - 

 

 $          - 

 

 $             - 

 

                   - 

 

$              -

Common Stock issued for cash through

 

 

 

 

 

 

 

 

 

 

 

 

 

December 1991 ($0.12 / share)

        - 

 

          - 

 

    187,500 

 

        188 

 

      22,312 

 

                  - 

 

22,500

Common Stock issued for cash through

 

 

 

 

 

 

 

 

 

 

 

 

 

December 1992 ($0.10 / share)

        - 

 

           - 

 

   50,000 

 

          50 

 

        4,950 

 

                   - 

 

5,000

Common Stock issued for cash through

 

 

 

 

 

 

 

 

 

 

 

 

 

December 1999 ($0.18 / share)

        - 

 

           - 

 

  100,000 

 

        100 

 

      17,400 

 

                  - 

 

17,500

Net Operating Loss from the date of inception

 

 

 

 

 

 

 

 

 

 

 

 

 

through December 31, 1999

       - 

 

          - 

 

          - 

 

             - 

 

             - 

 

   (45,500)

 

(45,500)

Balance, December 31, 1999

       - 

 

          - 

 

 337,500 

 

        338 

 

      44,662 

 

      (45,500)

 

(500)

Issuance and exercise of warrants for the

 

 

 

 

 

 

 

 

 

 

 

 

 

purchase of common stock, November 2000

 

 

 

 

 

 

 

 

 

 

 

 

 

($20.00 / share)

        - 

 

           - 

 

 100,000 

 

      100 

 

  1,999,900 

 

                    - 

 

2,000,000

Issuance of preferred stock in trust in

 

 

 

 

 

 

 

 

 

 

 

 

 

contemplation of acquiring shares of Merilus

 

 

 

 

 

 

 

 

 

 

 

 

 

Technologies, Inc., December 2000

        1 

 

         1 

 

          - 

 

             - 

 

         (1)

 

               - 

 

-

Net operating loss for the year

       - 

 

         - 

 

          - 

 

             - 

 

             - 

 

        (7,775)

 

(7,775)

Balance, December 31, 2000

       1 

 

         1 

 

 437,500 

 

        438 

 

  2,044,561 

 

       (53,275)

 

1,991,725

Shares of common stock issued for cash,

 

 

 

 

 

 

 

 

 

 

 

 

 

June 2001 ($20.00 / share)

         - 

 

          - 

 

    30,000 

 

        30 

 

    599,970 

 

                   - 

 

600,000

Shares of common stock issued for cash, 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 2001 ($17.00 / share)

        - 

 

           - 

 

       9,125 

 

            9 

 

     155,119 

 

                   - 

 

155,128

Shares of common stock issued for legal 

 

 

 

 

 

 

 

 

 

 

 

 

 

services, November 2001 ($17.00 / share)

       - 

 

          - 

 

       1,750 

 

            2 

 

       29,748 

 

                   - 

 

29,750

Shares of common stock issued for cash, 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 2001 ($10.00 / share)

        - 

 

          - 

 

   37,500 

 

          38 

 

     374,962 

 

                   - 

 

375,000

Issuance of shares of common stock pursuant 

 

 

 

 

 

 

 

 

 

 

 

 

 

to an exchange agreement, December 2001 

 

 

 

 

 

 

 

 

 

 

 

 

 

($0.02 / share)

        - 

 

           - 

 

    41,415 

 

          41 

 

           (41)

 

                   - 

 

-

Issuance of shares of common stock for 

 

 

 

 

 

 

 

 

 

 

 

 

 

services, December 2001 ($5.10 / share)

       - 

 

           - 

 

       1,250 

 

            1 

 

        6,374 

 

                  - 

 

6,375

Termination of trust agreement

    (1)

 

       (1)

 

               - 

 

             - 

 

               1 

 

                   - 

 

 

Net operating loss for the year

        - 

 

           - 

 

               - 

 

             - 

 

                - 

 

  (3,157,978)

 

-

Balance, December 31, 2001

          - 

 

            - 

 

   558,540 

 

        559 

 

  3,210,694 

 

  (3,211,253)

 

(3,157,978)

Net operating loss for the years 2002, 2003 

          - 

 

           - 

 

             - 

 

             - 

 

                - 

 

                   - 

 

-

and 2004

        - 

 

           - 

 

            - 

 

             - 

 

               - 

 

         (2,723)

 

(2,723)

Balance, December 31, 2004

         - 

 

           - 

 

  558,540 

 

        559 

 

 3,210,694 

 

  (3,213,976)

 

(2,723)

Payment of accounts payable by stockholder

         - 

 

           - 

 

             - 

 

             - 

 

            375 

 

                   - 

 

375

Net operating loss for the year

         - 

 

            - 

 

             - 

 

             - 

 

                - 

 

         (7,803)

 

(7,803)

Balance, December 31, 2005

         - 

 

            - 

 

   558,540 

 

        559 

 

  3,211,069 

 

  (3,221,779)

 

(10,151)

Issuance of shares of common stock for 

 

 

 

 

 

 

 

 

 

 

 

 

 

services, February 2006, ($0.06 / share)

          - 

 

            - 

 

    37,500 

 

          37 

 

         2,213 

 

                    - 

 

2,250

Net operating loss for the year

         - 

 

            - 

 

            - 

 

             - 

 

                - 

 

       (23,365)

 

(23,365)

Balance, December 31, 2006

         - 

 

            - 

 

   596,040 

 

        596 

 

  3,213,282 

 

  (3,245,144)

 

(31,266)

Issuance of shares resulting from a 1 for 20

 

 

 

 

 

 

 

 

 

 

 

 

 

reverse split whereby stockholders owning

 

 

 

 

 

 

 

 

 

 

 

 

 

100 shares or more would not be diluted 

 

 

 

 

 

 

 

 

 

 

 

 

 

below 100 shares, May 2007

         - 

 

            - 

 

      90,652 

 

          90 

 

           (90)

 

                   - 

 

-

Effect of convertible note payable to

 stockholder

 

 

 

 

 

 

 

 

       57,387 

 

 

 

57,387

Net operating loss for the year

         - 

 

            - 

 

             - 

 

             - 

 

                - 

 

       (86,364)

 

(86,364)

Balance, December 31, 2007

         - 

 

           - 

 

   686,692 

 

        686 

 

  3,270,579 

 

  (3,331,508)

 

(60,243)

Issuance of shares of common stock for note 

 

 

 

 

 

 

 

 

 

 

 

 

 

and accrued interest, March 2008, ($0.05 / share)

         - 

 

            - 

 

   600,000 

 

        600 

 

       29,400 

 

                   - 

 

30,000

Issuance of shares of common stock for 

 

 

 

 

 

 

 

 

 

 

 

 

 

accounts payable, October 2008, ($0.05 / share)

         - 

 

            - 

 

   200,000 

 

        200 

 

         9,800 

 

                    - 

 

10,000

Net operating loss for the year

         - 

 

           - 

 

               - 

 

            - 

 

- 

 

       (19,877)

 

(19,877)

Balance, December 31, 2008

          - 

 

           - 

 

1,486,692 

 

     1,486 

 

  3,309,779 

 

  (3,351,385)

 

(40,120)

Issuance of shares of common stock for 

 

 

 

 

 

 

 

 

 

 

 

 

 

services, April 2009, ($0.11 / share)

         - 

 

           - 

 

   200,000 

 

        200 

 

       21,800 

 

                   - 

 

22,000

Net operating loss for the year

         - 

 

           - 

 

               - 

 

             - 

 

                - 

 

       (39,035)

 

(39,035)

Balance, December 31, 2009

         - 

 

            - 

 

1,686,692 

 

      1,686 

 

  3,331,579 

 

  (3,390,420)

 

(57,155)

  Issuance of shares of common stock for note, November 2010, ($0.02)

-

 

-

 

500,000

 

500

 

9,500

 

-

 

10,000

Net operating loss for the year

         - 

 

           - 

 

               - 

 

             - 

 

               - 

 

      (18,397)

 

(18,397)

Balance, December 31, 2010

         - 

 

  $        - 

 

2,186,692 

 

 $   2,186 

 

$3,341,079 

 

$(3,408,817)

 

$  (65,552)

The accompanying notes are an integral part of these financial statements.

F - 5

Merilus, Inc.

( a development stage enterprise )

Statements of Cash Flows

 

 

 

 

 

 

 

From the Date of inception (May 7, 1985)

 

For the Year Ended December 31,

 

Through

 

2010

 

2009

 

December 31, 2010

Operating Activities:

 

 

 

 

 

 

 

 

Net loss from operations

$

        (18,397)

 

$ 

        (39,035)

 

$ 

                (3,408,817)

Stock issued for services

 

                     - 

 

 

           22,000

 

 

                       60,375 

Effect of convertible note

 

 

 

 

 

 

 

 

payable to stockholder

 

                    - 

 

 

                    - 

 

 

                       57,387 

Adjustment to reconcile net loss

 

 

 

 

 

 

 

 

to net cash position:

 

 

 

 

 

 

 

 

Accounts payable

 

            4,431 

 

 

             4,499

 

 

                       33,736 

Payable to related party

 

            4,839 

 

 

            3,486 

 

 

                       23,909 

Loss on investments

 

                    - 

 

 

                    - 

 

 

                  3,121,853 

Net cash used for operating

 

 

 

 

 

 

 

 

Activities

 

          (9,127)

 

 

           (9,050)

 

 

                   (111,557)

Investing Activities:

 

 

 

 

 

 

 

 

Investment in Merilus

 

 

 

 

 

 

 

 

Technologies, Inc.

 

                    - 

 

 

                    - 

 

 

                (3,130,128)

        Other receivables – related party

 

(500)

 

 

-

 

 

(500)

Net cash used for investing

 

 

 

 

 

 

 

 

Activities

 

             (500) 

 

 

                    - 

 

 

                (3,130,628)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of

 

 

 

 

 

 

 

 

common stock

 

                    - 

 

 

                    - 

 

 

                  3,175,128 

Loans from stockholder

 

         11,000 

 

 

             8,366 

 

 

                       60,060 

Donation of capital

 

                    - 

 

 

                    - 

 

 

                         8,650 

Net cash provided from

 

 

 

 

 

 

 

 

financing activities

 

          11,000 

 

 

             8,366 

 

 

                  3,243,838 

Net increase (decrease) in cash

 

            1,373 

 

 

           (684)

 

 

                         1,653 

Net cash position at start of period

 

               280 

 

 

               964 

 

 

                                - 

Net cash position at end of period

$

            1,653 

 

$ 

          280

 

$ 

                         1,653 

Supplemental Schedule of Noncash

 

 

 

 

 

 

 

 

Investing and Financing Transactions

 

 

 

 

 

 

 

 

Conversion of related party note

 

 

 

 

 

 

 

 

payable into common stock

$

          10,000 

 

$

          30,000 

 

$

                       40,000 

Conversion of accounts payable

 

 

 

 

 

 

 

 

into common stock

$

             - 

 

$

          10,000 

 

$

                       30,000 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

F - 6

Merilus, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

December 31, 2010

Note 1 – Organization and Summary of Significant Accounting Policies

Development stage enterprise – Merilus, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on May 7, 1985. During the year 2000 the Company entered into a reorganization agreement (“Agreement”) with the intent to acquire all of the issued and outstanding shares of a development stage enterprise, Merilus Technologies, Inc. (“MTI”), a British Columbia corporation. This transaction was not consummated as contemplated and in 2003 MTI filed for bankruptcy which has been closed. Since its inception the Company has not been engaged in profitable operations and is considered a development stage enterprise as defined by ASC Topic 915. The Company’s current business plan is to acquire an operating entity through a reverse acquisition.

Basis of presentation – During 1999 the Company forward split its outstanding shares of common stock on a basis of 200 for 1 and during the year 2000 the Company again forward split its common stock on a basis of 10 for 1. During May 2007 the Company reverse split its common stock on a basis of 1 for 20 with the provision that no stockholder shall receive less than 100 shares. As a result, 90,652 shares of post-split common stock were issued to existing stockholders. The accompanying financial statements retroactively reflect the effects of the forward and reverse splits of the Company’s common stock. 

These financial statements have been prepared in contemplation of the Company continuing as a going concern. The Company has not generated any revenue from operations in each of the last two fiscal years and has not, since its inception, undertaken any profitable operations. The Company's ability to meet its ongoing financial requirements has been dependent on loans from a stockholder. On March 28, 2008, the Company issued 600,000 shares of its common stock in payment of $30,000 of principal and accrued interest. Additionally, during 2010, the Company issued 500,000 shares of its common stock in settlement of $10,000 in debt owed to a stockholder. The Company continues to be obligated to this stockholder in the amount of $24,211 as of December 31, 2010 and assumes that an ongoing loan arrangement will continue into the future; however, no assurance thereof can be given. Furthermore, the Company is dependent on the services of its sole officer and director without compensation. A change in these circumstances would have a material adverse effect on the Company's plan of operations.

Use of estimates – These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and require that management make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. The use of estimates and assumptions may also affect the reported amounts of revenues and expenses. Actual results could differ from those estimates or assumptions.

Net loss per share of common stock – The loss per share of common stock is computed by dividing the net loss during the periods presented by the weighted average number of shares outstanding during those same periods. The net loss per fully diluted share of common stock is computed by dividing the net loss during the periods presented by the weighted average number of shares outstanding.   

Income taxes –The Company has no deferred taxes arising from temporary differences between income for financial reporting and for income tax purposes. The Company has a net operating loss carry forward of approximately $251,000 that expires if unused through 2030. A deferred tax asset in the amount of $38,000 is fully offset by a valuation allowance in the same amount. The change in the valuation allowance was $3,000 and $6,000 for the year ended December 31, 2010 and 2009, respectively. The Company follows the provisions of uncertain tax positions as addressed in FASB ASC 740-10-65-1. The Company recognized approximately no increase in the liability for unrecognized tax benefits.

The Company has no tax positions at December 31, 2010 and 2009 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

F - 7

Merilus, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

December 31, 2010

Note 1 – Organization and Summary of Significant Accounting Policies (continued)

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the years ended December 31, 2010 and 2009, the Company recognized no interest and penalties.  The Company had no accruals for interest and penalties at December 31, 2010 and 2009.  

Recently enacted accounting pronouncements – Accounting Standards Update (ASU) No 2010-09 amends Topic 855 “Subsequent Events” to remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements.  It was determined that the requirements to disclose the date that the financial statements are issued potentially conflicted with some of the Securities and Exchange Commission’s (SEC) guidance.  The amendment is effective for interim or annual periods ending after June 15, 2010.  Certain Revenue Arrangements that include Software Elements, and various other ASU’s No. 2009-2 through ASU No.2011-02 contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued.  These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows.  Based on that review, the Company believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.

Note 2 – Capital Stock

Preferred stock – One share of preferred stock was authorized and issued in conjunction with the Agreement. Pursuant to the terms of the Agreement, the preferred share represented 3,767,500 shares of the Company’s common stock (“Exchangeable Shares”) to be issued upon surrender of MTI common stock by the MTI stockholders. By the end of 2001, MTI stockholders had surrendered sufficient MTI common stock to allow the Company to issue 828,300 (pre reverse split) shares of its common stock, which represented approximately 22% of the Exchangeable Shares. At December 31, 2010, the preferred share remains authorized but is not outstanding. The preferred shares represented the ability to convert into shares of our common stock.  It was held by MTI which was liquidated.  To date, no additional shareholders have indicated they are converting.  Under the original terms of the escrow the preferred stock was held under, up to an additional 146,060 shares of common stock could be issued.

Common stock – During May 2007, stockholders of the Company authorized a 1 for 20 reverse split of the Company’s outstanding common stock with the provision that no stockholder shall receive less than 100 shares. As a result, 90,652 shares of post-split common stock were issued to existing stockholders, which represented an increase of 15.2% in the total number of common shares outstanding. These shares of common stock were valued at par value because the Company received no consideration from the issuance thereof. The total number of authorized shares of common stock and the par value of the common stock did not change.  

Note 3 – Related Party Transactions

The Company entered into an unsecured convertible promissory note bearing interest at 6% per annum with a stockholder. On November 5, 2007, the Company renegotiated the terms and entered into a new unsecured convertible note and letter of credit (“Convertible Note”) with this stockholder in an amount of up to $30,000, bearing interest at 18% per annum. The negotiation of the Convertible Note was not at arm’s length and the Company recognized an expense of $57,387 at the time that this note was issued relating to the beneficial conversion feature, which allowed the holder to convert the principal sum and accrued interest into shares of common stock. On March 28, 2008, the Convertible Note was converted into 600,000 shares of the Company’s common stock at a price of $0.05 per share, which represented a reduction of $25,880 of principal and $4,120 of interest. On March 31, 2008, the Company entered into an unsecured note payable (“Unsecured Note”) with this stockholder that contained no conversion provision, in the amount of $6,855 bearing interest at 18% per annum with a due date of May 31, 2008.  In 2010, the shareholder settled $10,000 of the note for 500,000 shares of common stock at a rate of $0.02 per share. Subsequently, additional cash was provided to the Company by the stockholder and at December 31, 2010, the Unsecured Note remains unpaid and a total of $24,211 in principal and $9,758 in accrued interest is due the stockholder.

On October 10, 2008, a $10,000 account payable to a former officer and director, and stockholder of the Company was satisfied by the issuance of 200,000 shares of the Company’s common stock ($0.05 per share). At the same time, this individual entered into an engagement letter with the Company to provide accounting and record keeping services.

In April 2009, the Company issued 200,000 shares of common stock to its sole officer and director for services rendered. These shares were valued at the prevailing bid price for the Company’s common stock as reflected on the OTCBB of $0.11, or a total of $22,000.

F - 8

Merilus, Inc.

(A Development Stage Enterprise)

Notes to Financial Statements

December 31, 2010

Note 3 – Related Party Transactions (continued)

During 2010, the President of the Company deposited $500 of his personal money in error into the Company’s bank account and then mistakenly withdrew the $500 two separate times.  The error was not discovered until subsequent to year end when it was corrected. The $500 has been shown as an other receivable on the balance sheet. 

Note 4 – Contingent Liabilities

To the extent that the Company was a party to any financial transactions that were not discharged through MTI’s bankruptcy proceedings, including the obligations associated with the issuance of the one share of preferred stock, or that may not have been listed as part of MTI’s bankruptcy, the Company may have contingent liabilities. To the best of management's knowledge and belief the accompanying financial statements accurately reflect the financial position of the Company as of the dates presented and no contingent liabilities exist.

Note 5 – Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued, and determined there are no material transactions that have not been disclosed.
 
F - 9 |
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