UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
                                   FORM 10-KSB

          (X) ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                      FOR THE FISCAL YEAR COMMISSION FILE

                    ENDED OCTOBER 31, 2004 NUMBER 333-107716

                               ------------------
                           MERA PHARMACEUTICALS, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
                               ------------------

           DELAWARE                         2833                   04-3683628
(STATE OR OTHER JURISDICTION    (PRIMARY STANDARD INDUSTRIAL    (I.R.S. EMPLOYER
OF INCORPORATION OR              CLASSIFICATION CODE NUMBER)     IDENTIFICATION
ORGANIZATION)                                                    NUMBER)

                   73-4460 QUEEN KA'AHUMANU HIGHWAY, SUITE 110
                            KAILUA-KONA, HAWAII 96740
                                 (808) 326-9301
      (ADDRESS AND TELEPHONE OF PRINCIPAL EXECUTIVE AND OPERATIONS OFFICES)
                               ------------------

                            CORPORATION TRUST COMPANY
                               1209 ORANGE STREET
                           WILMINGTON, DELAWARE 19801
                                 (302) 658-7581
           (NAME, ADDRESS AND TELEPHONE NUMBER, OF AGENT FOR SERVICE)
                               ------------------

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              MERA PHARMACEUTICALS, INC. (the "Company" or "Mera")

      Securities registered pursuant to Section 12(b) of the Act: None

      Securities registered pursuant to Section 12(g) of the Act: None

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

      Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

      Mera Pharmaceuticals' revenues for its most recent fiscal year: $909,613.

      The aggregate market value of the common equity held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as reported on the NASD Electronic Bulletin
Board, as of January 27, 2005, is $6,007,017.

      Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by a court: [X] Yes [ ] No

      The number of shares outstanding of common equity, as of October 31, 2004,
was 429,072,628 shares of Common Stock, $0.0001 par value.

      Documents Incorporated by Reference: None

      Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No

      This Amendment No. 1 to the annual report on Form 10-KSB is being filed to
correct a scrivener's error in the amount of $972 made on the Company's income
statement for the twelve months ended October 31, 2003, to add three entries to
the Index of Exhibits and to add the Section 906 certifications inadvertently
omitted from the original filing.

                                     PART I

THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, INCLUDING STATEMENTS THAT INDICATE WHAT WE "BELIEVE", "EXPECT" AND
"ANTICIPATE" OR SIMILAR EXPRESSIONS. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE OUR ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE
INFORMATION CONTAINED UNDER THE CAPTION "PART II, ITEM 6. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS" AND
ELSEWHERE IN THIS ANNUAL REPORT. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH REFLECT OUR MANAGEMENT'S ANALYSIS ONLY AS OF
THE DATE OF THIS ANNUAL REPORT. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISION OF THESE FORWARD-LOOKING STATEMENTS. YOU ARE
STRONGLY URGED TO READ THE INFORMATION SET FORTH UNDER THE CAPTION "PART II,
ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATION - RISK FACTORS" FOR A MORE DETAILED DESCRIPTION OF THESE
SIGNIFICANT RISKS AND UNCERTAINTIES.


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ITEM 1. DESCRIPTION OF THE BUSINESS

HISTORY

Mera Pharmaceuticals, Inc. is the successor issuer to Aquasearch, Inc. (the
"Predecessor"), which was incorporated in Colorado in 1987 for the purpose of
developing useful products from aquatic microorganisms and making their
production economically feasible. On July 25, 2002, the Predecessor merged with
and into Mera Pharmaceuticals, Inc., a Delaware corporation formed in June 2002
for the purpose of changing the corporation's name to Mera Pharmaceuticals, Inc.
and changing its state of incorporation from Colorado to Delaware (the
"Reincorporation Merger"). Mera Pharmaceuticals continues the operations and
business of the Predecessor. Each share of the Predecessor's common stock
outstanding at the time of the Reincorporation Merger was exchanged for one
share of common stock of Mera. Following the Reincorporation Merger, the former
stockholders of the Predecessor continued to own 100% of the Company's issued
and outstanding capital stock.

On September 16, 2002, Aqua RM Co., Inc., a privately-held, non-operating
Delaware corporation established specifically for the purpose of facilitating
the Predecessor's reorganization under Chapter 11 of the U.S. Bankruptcy Code
("Aqua RM"), merged with and into the Company (the "Reorganization Merger"). The
Company was the surviving corporation of the Reorganization Merger. Each share
of Aqua RM common stock outstanding at the time of the Reincorporation Merger
was exchanged for 100 shares of the Company's common stock. Following the
Reorganization Merger, former Aqua RM stockholders held approximately 68% of the
Company's common stock. The Reorganization Merger was the last material event in
the fulfillment of the Company's Chapter 11 Plan of Reorganization.

OVERVIEW OF THE COMPANY'S BUSINESS

The Company develops and commercializes natural products derived principally
from microalgae using our patented photobioreactor technology known as the Mera
Growth Module ("MGM").

Microalgae are a diverse group of microscopic plants estimated to consist of
more than 30,000 species. They have a wide range of physiological and
biochemical characteristics. Microalgae produce many different substances and
bioactive compounds that have existing and potential applications in a variety
of commercial areas, including human nutrition, pharmaceuticals, and other high
value commodities.

The major challenge to commercial exploitation of microalgae has been the
availability of photobioreactors large enough to achieve commercial production
levels at an economic cost. A photobioreactor is a fermentation system that is
used to grow photosynthetic organisms. As late as the mid-1990s, most
photobioreactors were used exclusively for research, and few exceeded more than
50 gallons (180 liters) in capacity. At more than 6,000 gallons (25,000 liters),
our proprietary MGM is one of the largest photobioreactors in existence - and
one of the few photobioreactors used for commercial production of microalgae. In
addition, the MGM incorporates a very high level of computerized process
control, resulting in a higher degree of reproducible performance at high
efficiency levels. This increased reliability is due in large measure to the use
of turbulence to control the exposure of the algae to light and nutrients at a
frequency that improves yields. Mera owns the basic patent for use of turbulence
in this way. Our patents, proprietary process controls and the very low cost of
constructing the MGM make the MGM very advanced, cost-effective and scalable.


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The Company has used its advantage in photobioreactor technology in the
production and marketing of its first commercial product, ASTAFACTOR(R), a
nutraceutical and source of natural astaxanthin. Natural astaxanthin, a
carotenoid found in many species of fish and seafood (it gives wild salmon its
distinctive color), has long been recognized as a valuable nutritional
supplement. The Company's development of the MGM has enabled it to produce
astaxanthin for commercial distribution at an affordable cost and introduce its
newest product, SALMONESSENTIALS, a proprietary combination of astaxanthin and
Omega-3 fatty acids.

The Company's business strategy is to exploit its leading position in microalgae
cultivation technology to expand the sales of ASTAFACTOR(R) AND SALMONESSENTIALS
while preserving margins. We also plan to develop and introduce additional
microalgae-based nutritional products to the marketplace. Should the company
acquire the capital needed to do so, we may elect to go forward with plans to
identify and develop prescription pharmaceutical products based on algal
extracts to treat infectious and proliferative diseases.

We face significant potential competition for ASTAFACTOR(R). We expect that
other nutraceutical products that the Company may launch in the future will face
meaningful competition as well, although at present we are not aware of a
product that combines the same ingredients as SALMONESSENTIALS in a single
product.

Astaxanthin is also widely used in the animal feed industry, primarily as a
coloring agent. We have decided to forego engaging directly in marketing or
distribution of AQUAXAN(R), our animal feed product, due to the low profit
margins that it affords.

More broadly, we do not believe that any commercial entity has developed a
photobioreactor that matches the MGM's combination of large size, low cost and
level of process control or sustained performance for a wide variety of aquatic
species, although a number of other companies are developing closed environment
production systems for marine micro-organisms. We believe that competition in
each of these areas may increase significantly over time as alternatives to the
Company's patented technology are developed. For more information on our
competition, see "Risk Factors; Risks Related to Our Industry."

Mera Pharmaceuticals' patents and intellectual property include issued patents
relating to the MGM and general processes for cultivating microalgae in
photobioreactors. The Company intends to continue efforts to expand its
portfolio of patents and technical know-how and believes that intellectual
property relative to aquatic organism biotechnology will become much more
important, challenging and complex in the future. We intend to develop
intellectual property as a means of maintaining an advantage over our
competitors.

Government regulation and product testing are strong factors in the markets for
the products we are developing and producing. Our products, both current and
future, are subject to regulation by the U.S. Food and Drug Administration or
similar agencies in foreign countries and may require extensive testing for
safety and efficacy before being released for sale.

The Company currently manufactures its products at a four-acre research,
development and production facility at the Hawaii Ocean Science and Technology
Business Park in Kailua-Kona, Hawaii. The facility is ideally located for our
research and development and the commercial production of microalgae. We have
access to large volumes of deep ocean water (used for temperature control) in a
stable tropical climate with plentiful sunlight, conditions that are well suited
to microalgae cultivation. Although Hawaii's distance from many markets
increases certain costs of operation, on balance there are few locations,
domestic or international, that are as well suited to our cultivation processes.


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RATIONALE FOR MICROALGAE AS A SOURCE OF COMMERCIAL PRODUCTS

Microalgae represent approximately half of all plant species. Many of their
characteristics make them attractive for commercial production.

     1)   UNTAPPED RESOURCE

          o    Fewer than 5,000 out of the estimated total of 30,000 species
               have been cultivated in the laboratory
          o    Fewer than 1,000 species have been carefully investigated for new
               substances
          o    Fewer than 10 species have been cultivated at commercial scale

     2)   DEMONSTRATED SOURCE OF NEW SUBSTANCES

          o    Several hundred new bioactive substances have been discovered in
               the small number of microalgae that have been researched to date

     3)   SOURCE OF VALUABLE SUBSTANCES

          o    Many molecules derived from microalgae are already known to be
               valuable for use as enzymes, pigments, vitamins, nutraceuticals,
               pharmaceuticals and the like
          o    Bioactive compounds extracted from microalgae have substantial
               potential value as pharmaceuticals

     4)   RAPID GROWTH RATE

          o    Growth rates for microalgae species range from about 1 to 10
               divisions per day
          o    Growth rates for these plants are, in general, faster than any
               other plants

     5)   LOW COST OF RAW MATERIALS

          o    Water, sunlight, fertilizer and carbon dioxide, the principal raw
               materials used in cultivation, are plentiful and economical

THE COMPANY'S MGM TECHNOLOGY

FEATURES OF MGM TECHNOLOGY. The key features of MGM technology are sterility,
size (25,000 liters) and enhanced control over virtually all environmental
factors affecting growth rates and metabolic activity, such as temperature, pH,
nutrient mix and distribution, light, pests and contaminants.

This combination of size and control has been the goal of international research
efforts for the past several decades. The MGM has achieved that goal. Although
it is among the largest photobioreactors ever operated, the MGM's patented
technology allows a far greater degree of control of the growth environment than
has been possible in systems a tenth, or even one-hundredth, that size.

PROCESS CONTROL SYSTEMS - THE KEY TO REPRODUCIBLE PERFORMANCE. In order to take
greatest advantage of the MGM technology, we have developed proprietary,
computerized process control systems for the MGM that make it possible to
conduct the following operations automatically:

     o    monitoring of key production variables at intervals more frequent than
          one minute;


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     o    data archiving for comprehensive analysis of system performance;
     o    automated control of all operations performed more than once a day
          (both a process control improvement and labor cost saving);
     o    immediate alarm system for any system component not operating within
          parameters; and
     o    automated maintenance for hundreds of system components, reducing
          failures and preventing contamination.

Increasing control over processes has produced several benefits. Product quality
and consistency have gone up, the scale at which processes are controllable has
increased and the amount of capital and labor required to accomplish a given
amount of production has decreased. This combination of effects translates into
enhanced efficiency, which translates into lower cost per unit of production and
higher margins.

COMPETITIVE PRODUCTION SYSTEMS. We are not aware of any closed system
photobioreactor that compares favorably with the MGM. Most photobioreactors are
operated only at an experimental scale.

There are other systems that cultivate microalgae at larger than experimental
scale. However, we believe that the advantages of the MGM over these other
systems include size, versatility, cost-effectiveness and higher yields. We
believe that an important advantage of the MGM over any competing technology is
the ability to achieve a high degree of control over all critical environmental
factors for microalgae, except those species that proliferate under the most
extreme conditions. As a result, it can be used in efficiently cultivating
hundreds, even thousands, of microalgal species at commercial scale. We do not
believe any other large scale system has such flexibility and versatility, which
are important factors in the development of new products from a variety of
microalgal species.

PRODUCTS FROM MICROALGAE

(1) ASTAFACTOR(R) BRAND OF ASTAXANTHIN - OUR FIRST COMMERCIAL PRODUCT

DESCRIPTION AND PROPERTIES. Astaxanthin is a red-orange, carotenoid pigment. It
is closely related to other well-known carotenoids, such as beta-carotene,
lutein and zeaxanthin.

All of these molecules are antioxidants, substances shown by research to protect
health, but astaxanthin is among the strongest. Some studies indicate that it is
ten times more potent than beta-carotene, and more than 500 times more potent
than vitamin E - another well known and commonly used antioxidant.

Astaxanthin is one of the main pigments in aquatic animals. It gives the flesh
of salmon its characteristic color, for example. Yet, it is far more than a
pigment. Astaxanthin has been shown to perform many essential biological
functions, including:

     o    protecting against the harmful effects of UV light;
     o    enhancing the immune response;
     o    protecting against the oxidation of essential polyunsaturated fatty
          acids;
     o    stimulating pro-vitamin A activity and vision;
     o    improving reproductive capacity; and o assisting in communication.

In species like salmon or shrimp, astaxanthin is essential to normal growth and
survival and has been attributed vitamin-like properties. Some of these unique
properties are also effective in mammals. Studies in human and animal models
suggest that astaxanthin may substantially improve human health by virtue of its
antioxidant properties, protecting vision, reducing inflammation (recently shown
to be a major factor in heart attacks) slowing neurodegenerative diseases and
preventing certain cancers.


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THE ASTAFACTOR(R) MARKET. We believe that the market for ASTAFACTOR(R) is likely
to expand rapidly over the next few years. There is growing evidence in the
scientific and medical literature that astaxanthin contributes meaningfully to
the general well-being of humans. Although we face competition in this market,
we believe that our technology will give us significant cost and quality
advantages over our competitors in our effort to capture a significant share of
this growing market.

We began sales of ASTAFACTOR(R) in Hawaii on March 30, 2000, and Longs Drugs
agreed to expand our distribution to San Diego County in the fall of 2001. We
continued to expand our retail distribution, first into Longs Drugs system wide,
and then into approximately 1200 Sav-On and Osco drug stores. However, our
experience has shown that effectively promoting retail sales requires longer
format advertising than can be readily used in typical retail advertising. For
that reason, the Company has returned its focus to the Hawaiian market, which
offers sufficient revenue potential to support the cost of broader domestic
retail distribution. We are also devoting greater energy to international
markets, which our information indicates are generally much more receptive to
these kinds of products. We are also increasing our emphasis on private label
sales. This distribution channel offers lower margins than branded product
sales, but it does not involve advertising and marketing expenses, which are
born by the private label seller. As a result, this channel can contribute
meaningfully to profitability. The Company has also begun to pursue the sale of
raw materials, the extract and beadlet forms of astaxanthin, to end users that
incorporate these materials into products that they make and distribute.

(2) SALMONESSENTIALS

During fiscal year 2004 the Company introduced an extension of its ASTAFACTOR(R)
line, SalmonEssentials. This new product offers a unique combination of
astaxanthin and Omega-3 fatty acids, the two most important nutritional
components available from wild salmon, which is widely recognized as one of
nature's most healthful foods. This product offers all of the health benefits
associated with ASTAFACTOR(R) and adds to them the significant benefits of
including Omega-3 fatty acids in your diet, such as improved cardiac health.
Omega-3s also help reduce inflammation, adding to that important benefit of
ASTAFACTOR(R).

We began marketing SALMONESSENTIALS(TM) near the middle of fiscal year 2004,
launching the product initially through our Hawaiian retail distribution system.
The initial reception was very positive. We have also made SALMONESSENTIALS(TM)
available through our web site, and sales have been growing since the date of
introduction. The Company is currently contemplating a number of strategies to
expand the distribution of what we believe is a product with significant
potential.

(3) PRODUCT LINE EXPANSION

The Company is currently evaluating other product line extensions for its
ASTAFACTOR(R) product and is also exploring additional microalgae sources for
development as nutraceutical products. Among these is zeaxanthin, a carotenoid
accumulated by certain microalgal species (for example, cyanobacteria and
rhodophytes). Subnormal levels of zeaxanthin are associated with macular
degeneration, the most frequent cause of blindness among the elderly.

We believe that many more nutraceutical products could be developed from
microalgae, but they remain unexamined and unexploited because there has been no
feasible way to grow them at a large enough scale. The MGM opens a path to this
untapped resource by combining effective, reproducible control with commercial
scale production.


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(4) PHARMACEUTICAL DRUG DISCOVERY

The Company has always appreciated the potential to discover pharmaceuticals
that are based on bioactive compounds produced by aquatic plants. However, we
are not currently engaged in any drug discovery activity, and we do not
anticipate doing so during fiscal year 2005. We do remain open to the
possibility of collaborations with other companies who may wish to develop
products using our patented technology, and we have had such discussions with a
number of parties, some of which are continuing.

DEPENDENCE ON KEY CUSTOMERS

Our business currently depends heavily on key distribution relationships in
Hawaii. Sales to our largest customer, Longs Drugs, continues to represent a
significant portion of our product sales. However, this percentage is decreasing
as a result of an increase in direct sales, distribution through several
additional retail chains in Hawaii, an increase in private label sales
domestically, the move to distribute internationally and other measures we have
taken to broaden distribution.

OUR STRATEGIES

Our objective is to sustain Mera Pharmaceuticals' global leadership in
microalgae cultivation technology and to identify, optimize and directly
commercialize high-value microalgae products for human healthcare markets
worldwide. We have several strategies to achieve these goals.

     1)   INCREASE SALES OF NUTRACEUTICAL PRODUCTS. The Company intends to
          increase sales of its current products, ASTAFACTOR(R) and
          SALMONESSENTIALS(TM), by expanding distribution within Hawaii as well
          as internationally through a variety of sales channels. It appears
          that awareness of the benefits of astaxanthin is growing in the
          marketplace, and once the benefits of our products are more fully
          understood by the general public, we will re-focus on entering
          national domestic retail chains with the potential for delivering high
          sales volumes at attractive margins and efficient distribution.

          Another element in our strategy to build revenues is to increase our
          level of sales of unbranded product, either in the form of raw
          materials or to private label sellers. We have identified ways to
          increase our production capacity so that the added revenues from these
          additional sources will contribute significantly to revenue and the
          potential to achieve profitability.

          Additionally, the Company expects to continue research activities to
          identify and optimize additional microalgae nutraceutical products. We
          will also utilize the learning gained as a key subcontractor in a $2.4
          million U.S. Department of Energy project to accelerate product
          development.

     2)   CONTINUALLY IMPROVE AND ENHANCE OUR CORE PLATFORM TECHNOLOGY. Our MGM
          technology has led to the production of the first new commercial
          product derived from photosynthetic microalgae in over 25 years. We
          believe that our proprietary technologies and processes provide us
          with a significant competitive advantage over other known microalgae
          cultivation technologies. We intend to devote meaningful resources to
          continue to improve our underlying technology and our automated
          process control systems to increase product quality, yield and
          productivity per employee.


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     3)   EXPAND STRATEGIC ALLIANCES. We intend to develop relationships with
          other companies who have products that will benefit from utilizing our
          technology under license. and develop new ones to accelerate our
          efforts to commercialize microalgae products. We believe that there is
          significant potential revenue associated with the licensing of our
          technology to other companies or in performing contract work for them
          utilizing our facilities or expanded facilities if justified.

MANUFACTURING

Our Kona facility has sufficient capacity to meet our current demand for
product. However, we have recently completed negotiations with our landlord that
will enable us to increase our production capacity by a factor of two. We have
also engaged in an optimization effort that will enable us to produce greater
amounts of product from the same land area. Still further capacity is available
from cycle time reductions that can be achieved with modest capital investment.
This ability to expand our production is sufficient to meet our projected needs
for the foreseeable future. However, further expansion of the Kona facility is
feasible, if demand for our products justifies doing so.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs include salaries, development materials, plant
and equipment depreciation and costs associated with operating our five-acre
research and development/production facility. During the last two fiscal years,
the Company has spent approximately $445,000 on research and development
activities, none of which was borne directly by our customers.

MARKETING AND SALES

The Company's marketing strategy for its nutraceutical products may vary
depending on the specific product being sold and its target market, but that
strategy is generally built on two fundamental tenets:

     1)   CREATE ALLIANCES WITH EFFICIENT, HIGH-QUALITY DISTRIBUTORS IN KEY U.S.
          REGIONAL AND INTERNATIONAL MARKETS AND SUPPORT THOSE DISTRIBUTORS WITH
          EFFECTIVE ADVERTISING AND PROMOTION TO THE CONSUMER. The Company
          currently markets ASTAFACTOR(R) AND SALMONESSENTIALS(TM) to mass
          retail outlets in Hawaii through distribution arrangements with
          established companies. We are also expanding our efforts to distribute
          internationally through existing distributors and outlets in Pacific
          Asian and other countries.

     2)   SELL ASTAFACTOR(R) AND SALMONESSENTIALS(TM) DIRECTLY TO THE CONSUMER.
          This approach allows us to reach consumers throughout the domestic
          market at the most attractive margins, since it eliminates distributor
          and retailer profits. Web-based and specialty media promotion are also
          used to reinforce our marketing efforts and product visibility to all
          consumers. We are building a customer data base that will enhance our
          ability to reach regular customers with new products as they are
          developed and come to market.

COMPETITION

The Company believes that its proprietary technology and process control systems
and software give it a significant advantage relative to its competitors.
However, there are a number of companies that are engaged in efforts to develop
microalgae-based products that compete with ours, either directly or indirectly.


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We believe that original MGM technology was the first closed-system,
process-controlled photobioreactor to be operated at commercial scales larger
than 2,750 gallons (10,000 liters). We are now operating at a scale more than
twice that (25,000 liters). We are aware of only three other companies in the
world - Biotechna of Australia, Algatechnologies of Israel and MicroGaia of
Hawaii - that claim to possess proprietary photobioreactor technology. Our
information regarding these other systems is that they suffer from one or more
disadvantages relative to the MGM. However, given that these organizations
control the release of proprietary information regarding their systems, we are
not in a position to confirm that assessment of our competitors' systems.

COMPETITORS FOR ASTAFACTOR.(R) Producers of astaxanthin that compete with
ASTAFACTOR(R), our nutraceutical astaxanthin product, include: MicroGaia, Inc.;
Cyanotech Corporation; Algatechnologies and Minapro. MicroGaia, Inc. is a
Hawaii-based subsidiary of Fuji Chemical Industries, Inc. that has established a
market for its product in Japan. Cyanotech Corporation, Algatechnologies and
Minapro also make astaxanthin-based nutraceutical products. Competition also
comes from non-producers who acquire raw materials from the producers for
distribution in the nutraceuticals market.

Potential competitors include producers of the synthetic material as well.
However, to our knowledge neither BASF, a large German chemical company, nor
Hoffman-LaRoche, a large Swiss pharmaceutical company, both large global
producers of synthetic astaxanthin, has indicated an interest in this market.
Furthermore, we believe that consumers of nutraceuticals prefer products from
natural sources to those from synthetic sources and will not pay premium prices
for synthetics, even if they are available. We are aware of other companies that
are interested in or are actually marketing nutraceutical astaxanthin which use
a fermentation process. However, to our knowledge, only MicroGaia, , Cyanotech,
Algatechnologies and Minapro produce the product from HAEMATOCOCCUS. We believe
our production process has cost or quality advantages or both over all of those
companies.

PATENTS, LICENSES AND PROPRIETARY TECHNOLOGY

We rely upon a combination of patents, copyrights, trade secrets, know-how,
continuing technological innovation and licensing opportunities to develop and
maintain our competitive position. Our future prospects depend in part on our
ability to obtain patent protection for our products and processes. We need to
preserve our copyrights, trademarks and trade secrets. We also need to operate
without infringing the proprietary rights of third parties.

PATENTS. We have been awarded or have filed applications for roughly a dozen
patents relating to various processes, including, but not limited to, the
process and apparatus for the production of photosynthetic microbes and the
method of control of microorganism growth processes. These patents are active in
the United States, the People's Republic of China, Europe, Hong Kong and South
Korea. The original duration of these patents varied from fifteen to twenty
years from the date of filing or issuance, and the Company's current patents
will be active for six to ten years, provided the maintenance fees associated
with such patents are timely paid. The Company reassesses the value of each
patent it holds at the time maintenance fees are due, and in cases where
maintaining a patent is judged to be of no significant strategic value, we do
not renew the patent.

Other companies may have filed and in the future are likely to file patent
applications that are similar or identical to ours. To determine the priority of
inventions, we may have to participate in interference proceedings declared by
the United States Patent and Trademark Office. Such proceedings could result in
substantial costs to us. We cannot ensure that any such third-party patent
application will not have priority over ours. Additionally, the laws of certain
foreign countries may not protect our patent and other intellectual property
rights to the same extent as the laws of the United States.


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<PAGE>

Our future prospects also depend in part on our neither infringing on patents or
proprietary rights of third parties nor breaching any licenses that may relate
to our technologies and products. We cannot guarantee that we will not infringe
on the patents, licenses or other proprietary rights of third parties. We have
not conducted an exhaustive patent search, and we cannot ensure that patents do
not exist or could not be filed that would have a material adverse effect on our
ability to develop and market our products. There are many United States and
foreign patents and patent applications in our area of interest.

We attempt to control the disclosure and use of our proprietary technology,
know-how and trade secrets under agreements with the parties involved. However,
we cannot ensure that others will honor all confidentiality agreements. We
cannot prevent others from independently developing similar or superior
technology, nor can we prevent disputes that could arise concerning the
ownership of intellectual property.

TRADEMARKS AND SERVICE MARKS. The following trademarks and service marks have
been registered or are claimed marks that the Company has not registered but as
to which it believes it has established a common law right of use and as to
which it has no information to the contrary. The registered trademark on
ASTAFACTOR(R) is valid through March 2012 and the following other claimed marks
that the Company believes it has established a common law right of use are valid
for the standard period of duration, as provided in applicable common law:

            ASTAFACTOR(R)
            SALMONESSENTIALS(TM)
            AQUAXAN(R)
            MERA PHARMACEUTICALS(TM)
            MERA GROWTH MODULE(TM) (MGM)
            MERA PROCESS CONTROL SYSTEM(TM) (MPCS)
            MERA REMOTE DATA WEB ACCESS(TM) (RDWA)
            DRUGS FROM THE SEA(TM)
            ZEAFACTOR(TM)
            BETAFACTOR(TM)

GOVERNMENT REGULATION AND PRODUCT TESTING

Our current and potential products and our manufacturing and research activities
are or may become subject to varying degrees of regulation by many government
authorities in the United States and other countries. Such regulatory
authorities could include the State of Hawaii Department of Health or
Agriculture Department, the FDA, and comparable authorities in foreign
countries. Each existing or potential microalgae product intended for human use
that we develop or market, either directly or through licensees or strategic
partners, may present unique regulatory problems and risks. Relevant regulations
depend on product type, use and method of manufacture. The FDA regulates, in
varying degrees and in different ways, dietary supplements, other food products,
medical devices and pharmaceutical products. Regulations govern manufacture,
testing, exporting, labeling and advertising.

Prescription pharmaceuticals and certain types of medical devices are regulated
more vigorously than dietary supplements. Any products we develop for use in
human nutrition, pharmaceuticals or cosmetics could require that we develop and
adhere to Good Manufacturing Practices ("GMP"), as suggested by the FDA,
European standards and any other applicable standards mandated by federal,
state, local or foreign laws, regulations and policies. Our current cultivation
and processing facilities and procedures are not yet required to comply with GMP
or ISO standards, although our contract extraction and encapsulation facilities
must meet GMP standards, and they do. We believe we are prepared to meet these
requirements more broadly when necessary.


                                       11
<PAGE>

The Company currently distributes ASTAFACTOR(R) AND SALMONESSENTIALS(TM) in the
United States, and in certain foreign countries, including Korea and Malaysia.
We also intend to expand our distribution internationally to include China, the
European Union, Japan, Canada and Australia, as well as others. Regulatory
approval requirements vary by country. We believe the approval process for
ASTAFACTOR(R) in most countries will come under their "natural" status and that
it will be approved relatively quickly; however, we can provide no assurances in
this regard.

EMPLOYEES. As of October 31, 2004, the Company had fourteen (14) full-time
employees. We consider relations with our employees to be good. None of our
employees is covered by a collective bargaining agreement.

Item 2. Description of Properties.

Our research, development and production facilities are located in the Hawaii
Ocean Science and Technology (HOST) Business Park in Kailua-Kona, Hawaii. Our
facility currently consists of approximately four acres containing a number of
MGMs, finishing ponds, a processing facility, several laboratories,
administrative offices and additional space for production and research and
development. All our products are currently produced at this facility. We have
recently completed negotiations to acquire additional acreage adjacent to our
facility, which will enable us to increase our production capacity as demand for
our products and services increases.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently a party to any pending legal proceedings, nor is
any of its property the subject of a pending legal proceeding.

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

There were no matters submitted during fiscal year 2004 to a vote of security
holders, at a meeting or otherwise. The Board of Directors of the Company has
adopted a stock option plan that will need to be approved by the Company's
security holders in order to take effect, but that has not yet occurred.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded in the over-the-counter market on the NASD
"Electronic Bulletin Board" (Symbol: "MRPI"). The following table shows for the
periods indicated the high and low bid quotations for our common stock, as
reported by financial reporting services. These quotations are believed to
represent inter-dealer quotations without adjustment for retail mark-up,
mark-down or commissions, and may not represent actual transactions.


                                       12
<PAGE>

PERIOD                              HIGH BID                   LOW BID
------                              --------                   -------

FISCAL 2002
  First Quarter                     $0.16                      $0.05
  Second Quarter                    $0.07                      $0.05
  Third Quarter                     $0.16                      $0.04
  Fourth Quarter                    $0.15                      $0.06

FISCAL 2003
  First Quarter                     $0.08                      $0.03
  Second Quarter                    $0.05                      $0.03
  Third Quarter                     $0.10                      $0.05
  Fourth Quarter                    $0.10                      $0.04

FISCAL 2004
  First Quarter                     $0.05                      $0.029
  Second Quarter                    $0.035                     $0.029
  Third Quarter                     $0.032                     $0.023
  Fourth Quarter                    $0.03                      $0.016

As of October 31, 2004, we had approximately 700 record holders of our
429,072,628 outstanding shares of common stock.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The Company's 1996 Stock Option Plan was terminated during the Company's
reorganization proceedings. The Company's Board of Directors adopted a Stock
Option Plan on December 30, 2003, but it has since rescinded that plan and
adopted a replacement plan, which has not yet received the approval of the
Company's shareholders required for it to take effect. The plan calls for
reserving 60,000,000 shares of the Company's common stock for issuance.

DIVIDEND POLICY

We have never paid cash dividends on our capital stock. We currently intend to
retain all available funds to operate and expand our business. We do not
anticipate paying any cash dividends in the foreseeable future.

                     RECENT SALES OF UNREGISTERED SECURITIES

In December 2003 the Company issued 18,181,818 shares of common stock at a price
of $0.11 per share to a Delaware limited liability company. That company is
managed in part by persons who, at the time of the investment, were
shareholders, officers and directors of the Company, and one of them continues
to be. This transaction was exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2).


                                       13
<PAGE>

In October 2004 the Company issued a note for $20,000 to a director who loaned
the Company that amount. The terms of the note included interest payable at the
rate of 6% and a maturity date of December 31, 2004. That loan has since been
repaid in full. As a part of the compensation payable by the Company to the
lender, the Company issued warrants to purchase 100,000 shares of the Company's
common stock. The warrants have an exercise price of $0.02 per share and a term
of five years. This transaction was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2).

In November 2004 the Company issued a promissory note to a director of the
Company, in consideration for a loan of $17,000 to the Company. As part of the
compensation for the loan, the Company issued to the lender detachable warrants
to purchase 85,000 shares of the Company's common stock at a price of $0.02 per
share, which warrants have a term of five years. This transaction was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2).

In November 2004 the Company issued a promissory note to a director of the
Company, in consideration for a loan of $10,000 to the Company. As part of the
compensation for the loan, the Company issued to the lender detachable warrants
to purchase 50,000 shares of the Company's common stock at a price of $0.02 per
share, which warrants have a term of five years. This transaction was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2).

In November 2004 the Company issued a promissory note to an investor, in
consideration for a loan of $30,000 to the Company. As part of the compensation
for the loan, the Company issued to the lender detachable warrants to purchase
150,000 shares of the Company's common stock at a price of $0.02 per share,
which warrants have a term of five years. This transaction was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).

In December 2004 the Company issued 7,954,545 shares of its common stock at a
price of $0.11 per share to a limited liability company in fulfillment of an
earlier subscription to purchase stock. This transaction was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).

In December 2004, the Company issued 1,008,798 shares of its common stock to an
investor at a price of $0.11 per share. This transaction was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).

In December 2004, the Company issued 945,748 shares of its common stock to an
investor at a price of $0.11 per share. This transaction was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

OVERVIEW

      Since inception, our primary operating activities have consisted of basic
research and development and production process development, recruiting
personnel, purchasing operating assets and raising capital. From September 16,
2002, the effective date of our reorganization, through October 31, 2004, we had
an accumulated deficit of $3,837,761. Our losses to date have resulted primarily
from costs incurred in research and development and from general and
administrative expenses associated with operations. We expect to continue to
incur operating losses for at least the 2005 fiscal year and perhaps beyond. We
expect to have quarter-to-quarter and year-to-year fluctuations in revenues,
expenses and losses, some of which could be significant.


                                       14
<PAGE>

      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 and expanding our
product offering while increasing our efforts to expand sales internationally
and improving our production efficiencies and minimizing our overhead. However,
our best efforts cannot guarantee that we will overcome these risks in a timely
manner, if at all.

CRITICAL ACCOUNTING POLICIES

This discussion and analysis of the Company's financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates. The
Company bases its estimates on historical experience and on other assumptions
that it believes to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt securities purchased with original
or remaining maturities of three months or less to be cash equivalents.

INVENTORIES

Inventories are stated at the lower of cost or market. The Company determines
cost on a first-in, first-out basis. On an ongoing basis, the company tests its
inventory for obsolescence. During 2004 the Company began recording an allowance
for excess inventory, reflecting the fact that we may not be able to sell all of
the inventory that we have on hand if we do not increase our rate of sales.

REVENUE RECOGNITION

Product revenue is recognized upon shipment to customers. Contract services
revenue is recognized as services are performed on a cost reimbursement basis.

PLANT AND EQUIPMENT

Plant and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets.


                                       15
<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

      In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supersedes both SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting and reporting provisions of Accounting
Practice Bulletin ("APB") Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment of a business (as previously defined in that opinion).

      This statement establishes the accounting model for long-lived assets to
be disposed of by sale and applies to all long-lived assets, including
discontinued operations. This statement requires those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or discontinued operations. Therefore,
discontinued operations will no longer be measured at net realizable value or
include amounts for operating losses that have not yet occurred. The Company
adopted SFAS No. 144 in the fiscal year ending October 31, 2002.

      SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for
recognizing and measuring impairment losses on long-lived assets held for use
and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS No. 121. The Company
adopted SFAS No. 144 in its evaluation of the fair value of certain assets in
connection with the adoption of fresh-start accounting.

STOCK ISSUED FOR SERVICES

The value of stock issued for services is based on management's estimate of the
fair value of the Company's stock at the date of issue or the fair value of the
services received, whichever is more reliably measurable.

RESEARCH AND DEVELOPMENT

Research and Development costs are expensed as incurred.

INCOME TAXES

The Company uses the asset and liability method of accounting for income taxes
as required by SFAS No. 109 "Accounting for Income Taxes". SFAS No. 109 requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax basis of certain assets and liabilities. Since its inception, the Company
has incurred net operating losses. Accordingly, no provision has been made for
income taxes.

FRESH START ACCOUNTING

On September 16, 2002, the Company adopted "fresh start" accounting as a result
of the completion of bankruptcy proceedings. Accordingly, all assets and
liabilities were restated to reflect their respective fair values as of that
date.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Company accounts for intangible assets in accordance with SFAS 142.
Generally, intangible assets with indefinite lives, and goodwill, are no longer
amortized; they are carried at lower of cost or market and subject to annual
impairment evaluation, or interim impairment evaluation if an interim triggering
event occurs, using a new fair market value method. Intangible assets with
finite lives are amortized over those lives, with no stipulated maximum, and an
impairment test is performed only when a triggering event occurs. Such assets
are amortized on a straight-line basis over the estimated useful life of the
asset. Intangible assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. If
the fair value is less than the carrying amount of the asset, an impairment loss
is then recognized.


                                       16
<PAGE>

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, notes receivable, accounts payable and notes payable are
deemed to approximate fair value due to their short-term nature.

RESULTS OF OPERATIONS

The following discussion and analysis provides information that the Company's
management believes is relevant to an assessment and understanding of our
results of operations and financial condition. This discussion should be read in
conjunction with the financial statements and footnotes, which appear elsewhere
in this prospectus.

        RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED OCTOBER 31, 2004
               COMPARED TO THE FISCAL YEAR ENDED OCTOBER 31, 2003

      REVENUES. During the years ended October 31, 2004 and 2003, product sales
totaled $672,000 and $377,000, respectively. During fiscal 2004, these sales
were generated principally through distribution in Hawaii and through direct
sales, and a growing percentage of sales resulted from international
distribution of our products. $200,000 of the product revenue for 2004 resulted
from the elimination of an entry for deferred revenue that we had carried
previously. That adjustment was based on a determination that the Company would
not be required to deliver additional product in order to recognize that
revenue. Even without the elimination of the deferred revenue entry, product
revenue increased year-over-year by about 25%. This increase was due to a number
of factors. They include the revenue derived from the introduction of our new
product, SalmonEssentials, and an increase in international sales.

      We earned revenues of $181,000 and $243,000 for the years ended October
31, 2004 and 2003, respectively, from contract work. The majority of this
revenue came from a subcontract for work on a U.S. Department of Energy ("DOE")
project. The changes in revenues under this research agreement relate to changes
in the number of personnel assigned to perform work under this project at
various times. A small portion of the 2004 revenues came from other contract
work that the Company performed during the year. This DOE project will end in
the second quarter of 2005, but the Company is in discussions with other parties
to replace that revenue stream.

      Royalty revenues for the years ended October 31, 2004 and 2003 were
$56,000 and $156,000, respectively. Royalty revenues included amounts received
from another company based on sales of its products. The royalties ended during
the first quarter of 2004.

      EXPENSES. Overall operating expenses were $2,270,000 in 2004 compared with
$2,809,000 in fiscal 2003, a decline of nearly 20%. This reduction resulted
principally from continuing efforts to control costs and despite instituting a
provision for excess and obsolete inventory, an item that the Company did not
carry prior to fiscal 2004, without which the decrease in expenses in 2004
compared with 2003 would have been approximately 30%.


                                       17
<PAGE>

      COST OF PRODUCTS SOLD. Cost of products sold include manufacturing and
production costs associated with ASTAFACTOR(R) and SALMONESSENTIALS, as well as
the cost of sales of raw materials and certain other products. Expenses
increased in the categories of cost of products sold, due principally to the
increase in product revenues discussed above, to $675,000 in 2004 versus
$336,000 in 2003.

      COST OF CONTRACT SERVICES. Cost of contract services includes costs
associated with the U.S. Department of Energy project and other contract work
that the Company performs. During the years ended October 31, 2004 and 2003, the
cost of contract services was $330,000 and $390,000 respectively. The changes in
costs under this category relate to changes in the number of personnel assigned
to perform contract work for the Company at various times.

      RESEARCH AND DEVELOPMENT COSTS. Research and development costs include
salaries, research supplies and materials and other expenses related to product
development, exclusive of those costs for which the company is reimbursed.
Research and development costs for the year ended October 31, 2004 were $111,000
as compared to $389,000 for 2003. The decrease in costs in fiscal year 2003
resulted from a shifting of resources to the U.S. Department of Energy project,
which is not included in this figure, and from general cost control measures
instituted by the Company.

      GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist principally of salaries, fees for professional services and promotional
and marketing expenses related to ASTAFACTOR(R). General and administrative
expenses for the fiscal year 2004 were $673,000 versus $1,555,000 in 2003, a
decline of nearly 57%. This large decrease was due, in part, to the company's
discontinuation of its drug discovery activities and the institution of cost
control measures.

      INTEREST EXPENSE. For the years ended October 31, 2004 and 2003, interest
expense was $14,000 and $110,000, respectively. The amount of interest expense
incurred in any particular period varies with the amount of debt outstanding and
the rate of interest payable on that debt.

      PROVISION FOR EXCESS AND OBSOLETE INVENTORY. During fiscal 2004, the
Company began to carry a new expense item, a provision for excess and obsolete
inventory totaling $323,000. This item reflects the possibility that the Company
may not be able to sell its entire current inventory if it does not appreciably
increase its rate of product sales.

LIQUIDITY AND CAPITAL RESOURCES

      We have financed our operations until now through public and private sales
of debt and equity securities and debt instruments, together with revenues from
product sales, contract work and royalties. During the years ended October 31,
2004 and 2003, we raised approximately $2.15 million and $2.7 million,
respectively, of net proceeds from the sale of shares of common stock and/or the
issuance of debt in private placement transactions. In 2004 the Company reduced
the amount of notes payable outstanding by approximately $880,000.

      During fiscal 2004, cash used in operating activities was approximately
$1.25 million compared with $1.1 million for fiscal 2003. The increase in cash
used resulted from conducting production operations at a higher level and the
accumulation of additional raw materials inventory.


                                       18
<PAGE>

      In fiscal year 2004, the Company received total equity investment of
$2,145,000. Of that amount, $1,500,000 was net proceeds, including the
fulfillment of the $285,000 conditional commitment we had received in connection
with another investment during fiscal 2003. $645,000 of the proceeds from that
investment was used to repay a note. The balance was used to support the
Company's operations during fiscal 2004. In addition, the Company received a
loan for $20,000 in fiscal year 2004 from a director of the Company, which
amount has since been repaid.

      Subsequent to the end of fiscal year 2004, the Company received additional
equity investment of $215,000 pursuant to a conditional commitment related to an
equity investment it had received during fiscal 2003.

                                  RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, IN ADDITION TO ALL
OTHER INFORMATION INCLUDED IN THIS REPORT, BEFORE YOU DECIDE TO INVEST IN OUR
COMMON STOCK. IF ANY OF THE FOLLOWING RISKS OCCURS, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THE FOLLOWING
RISKS OR OTHERS NOT YET IDENTIFIED BY MANAGEMENT, AND YOU COULD LOSE ALL OR PART
OF YOUR INVESTMENT.

RISKS RELATED TO OUR BUSINESS

We have incurred substantial operating losses and expect to incur future losses.
Our future financial results are uncertain, and we may never become a profitable
company.

From September 16, 2002 (the date that we completed our reorganization
proceedings and adopted "fresh-start accounting") through October 31, 2004 we
had an accumulated deficit of $3,837,761. Our losses to date are primarily due
to the costs of research and development, and the general and administrative
costs associated with our operations. We expect to continue to incur operating
losses through at least fiscal year 2005. We expect to have quarter-to-quarter
and year-to-year fluctuations in revenues and expenses. As a result, our losses
may increase in the future, even if we achieve our revenue goals, and some of
those losses could be significant.

Should we achieve profitability, we may be unable to sustain or increase
profitability on a quarterly or annual basis. Many factors could affect our
ability to achieve and maintain profitability, including:

     o    our ability to complete successfully the commercialization and
          production cost optimization of our products;
     o    our ability to manage production costs and yield issues associated
          with increased production of our products;
     o    the progress of our research and development programs for developing
          other microalgal products;
     o    the time and costs associated with obtaining regulatory approvals for
          our products;
     o    our ability to protect our proprietary rights, or the expense of doing
          so;
     o    the costs of filing, maintaining, protecting and enforcing our
          patents;
     o    competing technological and market developments;
     o    changes in our pricing policies or the pricing policies of our
          competitors;
     o    the costs of commercializing and marketing our existing and potential
          products; and


                                       19
<PAGE>

     o    the inability to achieve a level of sales of our products necessary to
          generate sufficient revenues to cover research, development and
          operating costs.

If our revenues grow more slowly than we anticipate, or if our operating
expenses exceed our expectations and cannot be reduced, our losses could
continue beyond our present expectations, and we may never become a profitable
company.

WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE CAPITAL NECESSARY
TO SUPPORT OUR PLANNED LEVEL OF RESEARCH AND DEVELOPMENT ACTIVITIES AND TO
MANUFACTURE AND MARKET OUR PRODUCTS.

We will require expenditures to support our research and development activities
and to manufacture and market our products. Over the next twelve months, we
project expenditures of approximately $1 million in operating capital, not
including any capital expenditures that may be necessary or desirable. Many
factors will determine our future capital requirements, including:

     o    market acceptance of our products;
     o    our ability to manufacture our products cost-effectively in quantities
          needed to sustain growing sales of ASTAFACTOR(R);
     o    the extent and progress of our research and development programs;
     o    the time and costs of obtaining regulatory clearances for some of our
          products;
     o    the progress and success of pre-clinical and clinical studies, where
          applicable;
     o    the costs of filing, maintaining, protecting and enforcing patent
          claims;
     o    the need to address competing technological and market developments;
     o    the cost of developing and/or operating production facilities for our
          existing and potential products; and
     o    the costs of commercializing our products.

Revenue from product sales and other sources pay some of our operating costs,
but to date that revenue has not been sufficient to cover our operating costs
fully. We are seeking investment from various sources to help sustain our
operations until we can increase revenues to the point that they can sustain our
operations indefinitely. However, additional financing may not be available on
favorable terms, if at all. If we do not have adequate funds, we may have to
curtail operations significantly. In addition, we may have to enter into
unfavorable agreements that could force us to relinquish certain technology or
product rights, including patent and other intellectual property rights. If we
cannot raise enough capital, then we may have to curtail production, limit our
product development activities, reduce marketing activities or delay other plans
intended to increase revenue and help us achieve profitability.

IF WE CANNOT OVERCOME THE CHALLENGES OF PRODUCING MICROALGAE ON A COMMERCIAL
SCALE, WE MAY NOT ACHIEVE ECONOMIC PRODUCTION COSTS.

To be successful, we must produce products at acceptable costs while ensuring
that the quantity and quality of our products comply with contractual and
regulatory requirements and regulations. Many factors complicate the production
of microalgal products, and they could limit production at any time. These
include:

     o    microbial contamination;
     o    variability in production cycle times due to technical, environmental
          and biological factors; and
     o    losses of final product due to inefficient processing.


                                       20
<PAGE>

We currently have sufficient inventory to meet the foreseeable requirements of
our existing customers. However, we are engaged in efforts to increase sales in
order to achieve profitability, potentially beyond the capacity of our existing
facility to produce. We have prepared to meet that increased demand, should it
occur, by acquiring additional space at our Kona, Hawaii facility.

IF THE DEMAND FOR NATURAL ASTAXANTHIN OR OUR OTHER PRODUCTS EXCEEEDS OUR CURRENT
PRODUCTION CAPABILITIES, AND IF WE ARE UNABLE TO EXPAND OUR PRODUCTION CAPACITY
IN A TIMELY MANNER, WE MAY EXPERIENCE SIGNIFICANT FINANCIAL, TECHNICAL AND
COMMERCIAL CHALLENGES.

The capacity of our existing production facility in Hawaii is sufficient to meet
current demand for our products. However, demand for our natural astaxanthin
product may eventually exceed the current capacity of our Hawaiian production
facility. To address this capacity question, we have initiated efforts to
increase our production efficiency and to prepare for expansion of our Hawaiian
facility, if needed. However, our efforts are focused on generating a level of
sales that would make it difficult to meet our total demand from our Hawaiian
facility, especially if we develop additional products. We believe that our
inventory plus our existing production capacity is sufficient to meet demand for
the foreseeable future. In the event that sales increase to a level that we
cannot meet with our existing capacity, we have planned for the expansion of our
Hawaiian facility. If we are unable to expand our current production facility,
we may be unable to meet demand for product and could lose the opportunity to
increase our revenues. We could also lose customers, both current and potential,
who may not do business with us absent an assurance of the ability to deliver
product in sufficient quantities.

OUR CUSTOMER BASE IS CONCENTRATED AMONG RELATIVELY FEW CUSTOMERS, AND THE LOSS
OF ANY OF THESE CUSTOMERS WOULD MATERIALLY ADVERSELY AFFECT OUR REVENUES.

Our business currently depends on key distribution relationships in Hawaii.
These customers currently purchase approximately 50% of the natural astaxanthin
products we sell, with the remainder being sold to smaller retail accounts,
directly to consumers or internationally. If we lose one or more of these
customers, or if they do not continue buying our products at the current and
anticipated purchase levels, then our revenues could decrease. In addition, the
loss of one or more of these customers may adversely affect our reputation, and
we could have difficulty attracting new customers as a result.

IF WE FAIL TO ATTRACT AND RETAIN KEY PERSONNEL WE WILL BE UNABLE TO EXECUTE OUR
BUSINESS PLAN, AND OUR BUSINESS WILL SUFFER.

Our success depends on the continued efforts of the principal members of our
management team. The Company presently has the key members of that team that it
needs to retain to execute its plans fully. Success in doing so cannot be
assured.

OUR BUSINESS WILL NOT OPERATE EFFICIENTLY AND OUR RESULTS OF OPERATIONS WILL BE
NEGATIVELY AFFECTED IF WE ARE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.

Until 2002 we focused almost exclusively on product research and technology
development. As we moved toward commercial production of microalgal products we
had to initiate or expand many activities, including outsourcing, customer
relations, engineering, construction, recruiting and training. During this
transition, the size of our organization increased rapidly. During the Company's
reorganization, the size of our organization decreased again. We experienced a
meaningful increase in employment during fiscal 2004 as we resumed production.
If revenues do not increase to offset these additional expenses, we may not have
the financial resources needed to sustain operations.


                                       21
<PAGE>

We expect demands on our financial and management control systems to increase
this year. If we fail to upgrade our financial and management control systems,
or if we encounter difficulties during upgrades of these systems, then we may
not be able to manage our human and financial resources effectively. Such
ineffectiveness could make it difficult to retain or attract employees and could
directly or indirectly create unnecessary expenses or lead to incorrect
decisions by management.

AS WE EXPAND OUR PRODUCT LINE AND ATTEMPT TO PENETRATE ADDITIONAL MARKETS, WE
MAY FACE SIGNIFICANT CHALLENGES TO SUCCESS.

We are exploring expanding our nutraceuticals product line. The success of our
nutraceuticals product line will depend on our ability to implement our
marketing strategy and comply with the standards of Good Manufacturing Practice,
or GMP, as and when applicable. We believe the prospects for nutraceutical
astaxanthin will depend, in the short term, on product quality and education of
consumers regarding its benefits. Our ability to penetrate new markets for
natural astaxanthin products will, we believe, depend strongly on regulatory
approval in several major markets outside the United States. We expect the
success of our products to depend primarily on our ability to develop and market
these new products and, if applicable, to finance clinical trials and obtain
regulatory approval for such products.

We cannot assure successful development of any potential products, nor can we
guarantee market acceptance of any of our products, existing or future. We have
limited marketing experience in nutraceutical and pharmaceutical markets. We
have less than four years of experience in electronic marketing and direct
retail sales. We cannot assure you that we or our consultants or contractors
will be successful in our marketing efforts, nor can we prevent them from
competing with us or assisting our competitors. If we are unable to develop or
commercialize any of our product lines successfully, then our revenues will fail
to grow.

IF WE DECIDE TO PURSUE RESEARCH AND DEVELOPMENT EFFORTS ON PHARMACEUTICAL
PRODUCTS IN ADDITION TO THOSE FOCUSED ON OUR NUTRACEUTICAL PRODUCTS, WE WILL
INCUR SIGNIFICANT EXPENSES AND WILL BE EXPOSED TO RISKS ASSOCIATED WITH THE
DEVELOPMENT AND COMMERCIALIZATION OF PHARMACEUTICAL PRODUCTS.

We are not currently involved in research and development for pharmaceutical
candidates, and we do not have any plans to commence those activities during
fiscal 2005. However, the Company's management may decide to pursue this line of
business in the future, either independently or in collaboration with other
parties. If the Company does pursue this line of business, there will be certain
risks associated with it. The nature of those risks will depend to a great
extent on exactly how the Company chooses to pursue this business. There are
many uncertainties, complexities and delays inherent in the research and
development, manufacturing, marketing and sale of pharmaceutical products,
including: (i) large upfront and continuing capital requirements, (ii) efficacy
and safety concerns, (iii) delays in the receipt of or the inability to obtain
required approvals, (iv) the suspension or revocation of the authority necessary
for manufacture, marketing or sale, (v) the imposition of additional or
different regulatory requirements, such as those affecting labeling, (vi)
seizure or recall of products, (vii) the failure to obtain, the imposition of
limitations on the use of, or the loss of patent and other intellectual property
rights and (viii) manufacturing or distribution problems. Pursuing this business
in collaboration with another company would help to mitigate those risks.

OUR PRODUCTS AND PRODUCTION ACTIVITIES ARE SUBJECT TO GOVERNMENT REGULATION AND
ACTION, WHICH ARE SUBJECT TO CHANGE.


                                       22
<PAGE>

We are affected by changes in or the imposition of governmental regulations and
actions, including: (i) new laws, regulations and judicial decisions related to
the production, marketing and sale of pharmaceutical and nutraceutical products,
(ii) changes in the United States Food and Drug Administration and foreign
regulatory approval processes that may delay or prevent the approval of new
products and result in lost market opportunity, (iii) new laws, regulations and
judicial decisions affecting pricing or marketing of our products and (iv)
changes in the tax laws relating to Mera Pharmaceuticals' operations.

WE MAY BE UNABLE TO PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
ADEQUATELY, AND OUR EFFORTS TO DO SO COULD BE TIME CONSUMING AND EXPENSIVE AND
COULD DIVERT MANAGEMENT ATTENTION FROM EXECUTING OUR BUSINESS STRATEGY.

We regard the protection of our patents, copyrights, trade secrets and know-how
(collectively intellectual property) as critical to our success. We rely on a
combination of patent, copyright and trade secret laws and contractual
restrictions to protect our intellectual property and maintain our competitive
position. Our future prospects depend in part on our ability to protect our
intellectual property while operating without infringing the intellectual
property rights of third parties.

We may be unable to develop any additional patentable technologies. We cannot be
certain that any patents issued to us or available to us through a license
arrangement will establish the means to produce or provide us with any
competitive advantage for any product or products. Third parties could challenge
our patents or could obtain patents that have a material adverse effect on our
ability to do business efficiently and effectively.

The patent positions of nutraceutical, pharmaceutical, biopharmaceutical and
biotechnology companies, including ours, are generally uncertain and involve
complex legal and factual questions. Patent law continues to evolve in the scope
of claims in the technology area in which we operate. Therefore, the degree of
future protection for our proprietary rights is uncertain. We cannot guarantee
that others will not independently develop similar or alternative technologies.
Other parties may duplicate our technologies, or, if patents are issued to us,
they may design around those patented technologies. Other parties may have filed
or could file patent applications that are similar or identical to some of ours.
These patent applications could have priority over ours. To determine the
priority of inventions, we may have to participate in interference proceedings
declared by the United States Patent and Trademark Office, which could be very
costly. In addition, the laws of some foreign countries may not protect our
patents and other intellectual property rights to the same extent as the laws of
the United States.

We could incur substantial costs in litigation if we need to defend ourselves
against patent infringement claims brought by third parties, or if we choose to
initiate claims against others. We have in the past, and we may in the future,
be required to dedicate significant management time and financial resources to
prosecute or defend infringement actions. In addition, a finding of
non-infringement or declaration of invalidity of our patents could reduce or
eliminate the exclusivity of our proprietary technology. Present and potential
collaborators may terminate or decide not to enter into relationships with us if
our intellectual property position is weakened. In addition, a finding of
non-infringement or declaration of invalidity of our patents could reduce our
ability to obtain future financing.

There could be significant litigation in our industry regarding patent and other
intellectual property rights. For example, third parties may bring infringement
or other claims against us for using intellectual property that we internally
developed or license from third parties. In addition, although nondisclosure
agreements generally control the disclosure and use of our proprietary
technology, know-how and trade secrets, we cannot guarantee that all
confidentiality agreements will be honored or that our proprietary technology,
know-how and trade secrets will not be disseminated, or that any party
responsible for doing so will be able to compensate us adequately for such loss.


                                       23
<PAGE>

We may not prevail in the prosecution or defense of any action, nor can we
predict whether third parties will license necessary intellectual property
rights to us on commercially acceptable terms, if at all. Any of these outcomes
could be very costly and could diminish our ability to develop and commercialize
future products.

OUR PRODUCTION CAPABILITY IS HIGHLY DEPENDENT ON ENVIRONMENTAL AND CLIMATIC
FACTORS BEYOND OUR CONTROL.

All of our current production capacity is located at a single facility in Kona,
Hawaii. We currently have an ample inventory to meet our foreseeable demand, but
any future event that causes a long-term disruption in production at our
facility could significantly impair our ability to meet customer demand. These
events could include fires, volcanic eruptions, earthquakes, tidal waves,
hurricanes or other natural disasters. In addition, consistent sunlight, high
ambient temperatures and an ample supply of fresh water are necessary for
microalgal growth. If we experience any significant or unusual change in
climate, or should our water supplies be threatened by microbial contamination
we cannot control, there could be an adverse impact on our production. If we
cease production for any significant period, the success of our business would
be threatened from a resulting loss of customers, revenues and valuable
employees.

CURRENCY FLUCTUATIONS AND DIFFERENT STANDARDS, REGULATIONS AND LAWS RELATING TO
INTERNATIONAL OPERATIONS MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

We expect to sell our products on a global scale due to projected international
market demand. International business is generally more difficult than domestic
business and can create additional costs and delays not associated with business
conducted solely within the United States. Factors related to doing business
internationally that could impact us include: foreign government controls and
regulations, economic conditions, currency fluctuations, duties and taxes,
political and economic instability or unrest, imposition of or increases in
tariffs, disruptions or delays in shipments and other trade restrictions. These
factors, among others, can all lead to interference with or increased costs of
operation and the ability to sell products in international markets. If any such
factors were to render the conduct of business in a particular country
undesirable or impracticable, there could be a material adverse effect on our
business, our financial condition and the results of operations. There can be no
assurance that our products or marketing efforts will be successful in foreign
markets.

In addition, fluctuations in currency exchange rates could make our products
more expensive in some countries, resulting in the loss of customers in those
markets.

WE MAY BE SUBJECT TO PRODUCT LIABILITY LAWSUITS, AND OUR INSURANCE MAY BE
INADEQUATE TO COVER DAMAGES.

Clinical trials or marketing of any of our current or potential products may
expose us to liability claims arising from the use of these products. Even the
most thorough of clinical trials could fail to detect a significant side effect
associated with long-term use of a product, and it is possible that liabilities
will arise even after our products receive any required regulatory approvals.
Even if such claims are not well-founded, defending them will be very costly and
consume substantial management attention and energy. We cannot ensure that our


                                       24
<PAGE>

current product liability insurance, together with indemnification rights under
our existing or future licenses and collaborative arrangements, will be adequate
to protect us against any claims and resulting liabilities. As we expand our
business, we may be unable to obtain additional insurance on commercially
reasonable terms. We could suffer harm to our financial condition and our
reputation if a product liability claim or recall exceeds the limits of our
insurance coverage.

BECAUSE OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT CONTROL OF OUR MANAGEMENT
AND AFFAIRS, THESE STOCKHOLDERS MAY BE ABLE TO CONTROL US AND ALSO PREVENT
POTENTIALLY BENEFICIAL ACQUISITIONS OF OUR COMPANY BY OTHERS.

As of October 31, 2004, our current directors and executive officers, as a
group, beneficially owned approximately 14% of the approximately 429,000,000
shares of our common stock outstanding as of October 31, 2004. As a result, our
officers and directors may be able to exert considerable influence over the
actions of the Board of Directors and matters requiring approval of our
stockholders. This concentration of ownership could delay or prevent a change in
control and may adversely affect the ability of other stockholders to adopt a
position in opposition to these directors and officers. Our principal
stockholders may have interests that differ from our other stockholders,
particularly in the context of potentially beneficial acquisitions of our
Company by others, and they may legitimately vote as stockholders in a manner
that protects their interests.

RISKS RELATED TO OUR INDUSTRY

IF WE FAIL TO COMPETE EFFECTIVELY AGAINST LARGER, MORE ESTABLISHED COMPANIES
WITH GREATER RESOURCES, OUR BUSINESS WOULD SUFFER.

Competition in the nutraceutical and pharmaceutical markets is intense. Factors
affecting competition include financial resources, research and development
capabilities and manufacturing and marketing experience and resources.

Our nutraceutical astaxanthin product will compete directly with the products of
several companies that sell a similar nutraceutical product. Three of these
companies have a product that, like ours, is based on astaxanthin derived from
HAEMATOCOCCUS PLUVIALIS. MicroGaia, Inc., Cyanotech and AlgaTechnologies also
sell competing nutraceutical astaxanthin products, as do parties that purchase
products from them. We expect that our nutraceutical astaxanthin product will
compete on the basis of product quality, price, efficiencies derived from our
intellectual property and an effective marketing strategy. However, if our
competitors develop a proprietary position that inhibits our ability to compete,
or if our marketing strategy is not successful, then our revenues may not
increase.

There are various companies using microalgae cultivation technology processes
that compete with our processes. We are aware of two U.S. companies, Martek of
Maryland and Omega-Tech of Colorado, that produce commercial quantities of
microalgae using modified fermentation processes. We are also aware of one
company, Cell Tech of Oregon, which harvests microalgae from natural
environmental sources. There are three other companies in the world - Biotechna
of Australia, AlgaTechnologies of Israel and MicroGaia of Hawaii - that claim to
possess proprietary photobioreactor technology and use it for commercial
purposes. While there are many other photobioreactors in operation besides
those, to our knowledge, they are all operated by universities or research
institutes and are not used for commercial purposes. It is possible that
competing photobioreactor technologies that could adversely affect our perceived
technical and competitive advantages already exist or may emerge in the future.


                                       25
<PAGE>

We also anticipate that the competition to develop microalgal-based products
other than natural astaxanthin will increase. We expect competitors to include
major pharmaceutical, food processing, chemical and specialized biotechnology
companies. Many of these companies will have financial, technical and marketing
resources significantly greater than ours. There are also other emerging marine
biotechnology companies that could form collaborations with large established
companies to support research, development and commercialization of products
that may compete with our current and future products. Also, academic
institutions, governmental agencies and other public and private research
organizations are conducting research activities and seeking patent protection
for microalgal products and may commercialize products that compete with ours on
their own or through joint ventures. In addition, there may be technologies we
are unaware of, or technologies that may be developed in the future, that could
adversely affect our perceived technical and competitive advantage.

INCREASED COMPETITION MAY SIGNIFICANTLY REDUCE THE MARKET PRICE OF NATURAL
ASTAXANTHIN.

Astaxanthin can be produced either naturally from Haematococcus pluvialis, as we
do, from a yeast by fermentation, as Igene Biotechnology, Inc. does, or through
synthesis of chemical compounds. We are not aware that synthetic astaxanthin is
approved for direct human consumption in any jurisdiction, although the FDA
approved the Hoffman-LaRoche, Ltd. synthetic astaxanthin product as a food
additive in fish feed in 1995. The Igene yeast-based product is also not
approved for regular human consumption. We believe that the cost of producing
synthetic astaxanthin is significantly lower than that for natural astaxanthin.
We are not able to determine how production costs for the yeast-based product
compares with ours. If we succeed in commercializing natural astaxanthin to the
extent we project, producers of yeast-based and synthetic astaxanthin may
increase their efforts to obtain approval of their product for human
consumption. Studies have shown that natural astaxanthin is more effective than
synthetic astaxanthin when used with various fish and shellfish populations.
However, we have not determined that to be the case in human applications. The
introduction of yeast-based or synthetic astaxanthin into the human
nutraceutical marketplace could adversely affect the price at which we sell our
product and the market share that we can obtain. While we believe that there are
substantial hurdles to the approval of yeast-based and synthetic astaxanthin for
human consumption in the U.S. and other major markets, we cannot be certain that
such approval will not occur. A single producer, Hoffman-LaRoche, Inc.,
currently dominates the synthetic astaxanthin market. Hoffman-LaRoche has
maintained the market price of its synthetic astaxanthin, which is derived from
petrochemicals, at approximately $1,800 - $2,500 per kilogram. That is below the
price at which we would be able to sell astaxanthin in comparable form.

IF WE ARE UNABLE TO COMPLY WITH GOVERNMENT REGULATION OF OUR PRODUCTS AND
PRODUCTION ACTIVITIES, WE MAY BE FORCED TO DISCONTINUE PRODUCTION OF CURRENT OR
FUTURE PRODUCTS.

We are subject to federal, state, local and foreign laws and regulations
governing our products and production activities. This makes us vulnerable to:
(i) the imposition of new laws, regulations and judicial decisions related to
pharmaceutical and nutraceutical products, (ii) changes in the United States
Food and Drug Administration and foreign regulatory approval processes that may
delay or prevent the approval of new products and result in lost market
opportunity, (iii) delays in the receipt of or the inability to obtain required
approvals, (iv) new laws, regulations and judicial decisions affecting pricing
or marketing of pharmaceutical and nutraceutical products, (v) the suspension or
revocation of the authority necessary for manufacture, marketing or sale of our
products, (vi) the imposition of additional or different regulatory
requirements, such as those affecting labeling, (vii) seizure or recall of
products, and (viii) the failure to obtain, the imposition of limitations on the
use of, or the loss of patent and other intellectual property rights. While we
do not consider our products to be "herbal" supplements (i.e., products that are
made from drying and grinding entire plant parts), increased regulatory scrutiny
of herbal products as the result of health issues (e.g., with ephedra) may also
lead to more stringent regulation of our products.


                                       26
<PAGE>

Each existing or potential product that we develop, produce, market or license
presents unique regulatory problems and risks. Relevant regulations depend on
product type, use and method of manufacture. The FDA regulates, in varying
degrees and in different ways, dietary supplements, other food products, medical
devices and pharmaceutical products. Regulations govern manufacture, testing,
exportation and labeling, while the Federal Trade Commission (FTC) regulates
advertising.

We are or may become subject to other federal, state and foreign laws,
regulations and policies with respect to labeling of products, importation of
organisms and occupational safety, among others. Federal, state and foreign
laws, regulations and policies are always subject to change and depend heavily
on administrative policies and interpretations. We cannot ensure that any of our
products will satisfy applicable regulatory requirements. Changes could occur in
federal, state and foreign laws, regulations and policies and, particularly with
respect to the FDA or other such regulatory bodies, such changes could be
retroactive. Such changes could have a material adverse effect on our business,
financial condition, results of operations and relationships with corporate
partners.

Nutraceutical products that we develop will be viewed as human dietary
supplements. The FDA requires pre-market clearance in the United States, as do
other countries where these nutraceutical products are marketed, if they are
intended for human consumption. The process of obtaining FDA clearance for
either a food additive or a human dietary supplement can be expensive and time
consuming, although significantly less expensive than the process for obtaining
clearances for a new pharmaceutical. With natural products such as ours there is
often only a brief and inexpensive waiting period before marketing of a
nutraceutical can begin. Extensive information is required on the toxicity of
the additive, including carcinogenicity studies and other animal testing. FDA
clearance to market dietary supplements is obtained by notifying the FDA in
writing of the intention to market a certain product and providing supporting
documentation regarding toxicity. If the FDA does not object within a specified
period of time, approval is deemed granted.

Mera's corporate predecessor received FDA clearance for the ASTAFACTOR(R) in
early 2000. We similarly notified the FDA of our intention to market
SalmonEssentials in 2004, without objection. While we believe that the natural
products on which we are focused will be subject to few objections in this
approval process, we cannot ensure that any of our future products, on which we
may have expended substantial development effort, will be cleared by the FDA on
a timely basis, if at all.

The ASTAFACTOR(R) AND SALMONESSENTIALS(TM), our nutraceutical astaxanthin
products, are being distributed internationally already and are likely to be
distributed in others. Regulatory approvals in foreign markets vary by country.
We believe the approval process for these products will generally come under
their "natural product" status and be approved relatively quickly. However, we
can provide no assurances in this regard.

THE PRICE OF OUR COMMON STOCK MAY BE HIGHLY VOLATILE.

The trading price of our common stock has been, and is likely to continue to be,
highly volatile. We could be subject to wide fluctuations in price in response
to various factors, many of which are beyond our control, including:

     o    announcements of technological innovations or new commercial products
          by us or our competitors;
     o    developments concerning proprietary rights, including patents, by us
          or our competitors;
     o    publicity regarding actual or potential benefits or drawbacks relating
          to products under development by us or our competitors;


                                       27
<PAGE>

     o    conditions or trends in the life sciences, nutraceutical or
          pharmaceutical markets;
     o    changes in the market valuations of biotechnology and life sciences
          companies in general; and
     o    general regulatory developments affecting our products in both the
          United States and foreign countries.

In addition, technology companies have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of those companies. There has been particular volatility in the
market prices of securities of life science companies. These broad market and
industry factors may seriously harm the market price of our common stock,
regardless of our operating performance.

RISKS RELATED TO THE SECURITIES MARKETS AND OUR COMMON STOCK

OUR COMMON STOCK IS TRADED IN THE OVER-THE-COUNTER MARKET, WHICH MAY MAKE THE
STOCK MORE DIFFICULT TO TRADE ON THE OPEN MARKET.

Our common stock is currently traded in the over-the-counter market on the NASD
Electronic Bulletin Board. Securities on the NASD Electronic Bulletin Board are
generally more difficult to trade than those on the Nasdaq National Market, the
Nasdaq SmallCap Market or the major stock exchanges. Since the initial public
offering of our common stock in January 1989, the average daily trading volume
of our common stock has been relatively low. We cannot ensure that a more active
public trading market will ever develop for our common stock. In addition,
accurate price quotations can be difficult to obtain and price volatility is
common for companies whose securities trade on the NASD Electronic Bulletin
Board.

THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK BY STOCKHOLDERS
COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE.

As of January 27, 2004 we had 438,981,719 shares of common stock outstanding. Of
these shares, approximately 375,000,000 have either been registered under the
Securities Act of 1933, as amended (the "Securities Act"), are freely tradable
without volume limitations under Rule 144 of the Securities Act or are exempt
from registration under 11 U.S.C. 1145 as a result of the reorganization of our
predecessor issuer, Aquasearch, Inc.

We cannot predict the effect, if any, that sales of shares of our common stock
or the availability of these shares being offered for sale will have on
prevailing market prices. However, if substantial amounts of our common stock
were sold in the public market, then market prices for our common stock could
decrease so much that we may not be able to raise additional capital through the
sale of equity securities.

We may need additional funding for capital expenditures and operating capital.
If we raise additional funds by selling equity securities, the share ownership
of our existing investors could be diluted. In addition, new equity purchasers
may obtain rights, preferences or privileges that are superior to those of our
existing stockholders.

THE ABILITY OF OUR BOARD OF DIRECTORS TO ISSUE PREFERRED STOCK COULD ADVERSELY
AFFECT THE INTERESTS OF OUR STOCKHOLDERS.

Our Certificate of Incorporation authorizes the issuance of up to 10,000 shares
of "blank check" preferred stock, of which only slightly more than 1,000 have
been issued to date. Our Board of Directors has the power to determine all
designations, rights, preferences, privileges and restrictions of this preferred
stock. In addition, our Board of Directors is not required to obtain stockholder
approval to issue preferred stock with dividend, liquidation, conversion, voting
or other rights that could adversely affect the voting power or other rights of
the holders of our common stock. The Board of Directors could issue the
preferred stock in order to raise needed capital, or to discourage, delay or
prevent a change in control of our Company, even if a change of control would be
beneficial to our stockholders.


                                       28
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

      Audited balance sheet as of October 31, 2004 and the related statements of
operations, cash flows and stockholders' equity (deficit) for the years ended
October 31, 2004 and 2003, together with related notes and the report of Jewett,
Schwartz & Associates, our independent auditors, appear on pages F-1 through
F-18 of this Report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

      There were no disagreements with accountants on accounting and financial
disclosure during fiscal 2004 or 2003.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding our current
directors and executive officers.

--------------------------------------------------------------------------------
NAME                               AGE    POSITION
--------------------------------------------------------------------------------

Daniel P. Beharry...............   52     Chief Executive Officer, Secretary
                                          and Director

Kenneth Crowder.................   66     Director

Gregory F. Kowal ...............   56     Director

Laurence Sombardier ............   36     Vice-President and General Manager of
                                          the Operations and Production Facility

Terry Bridges ..................   59     Facilities Engineer and Processing
                                          Manager

Miguel Olaizola, PhD ...........   42     Research Manager


                                       29
<PAGE>

DANIEL BEHARRY, CHIEF EXECUTIVE OFFICER, SECRETARY AND DIRECTOR, has served as a
director of our company since June 2002 and Chief Operating Officer and
Secretary since August 2002. He was named Chief Executive Officer on July 16,
2003. He received his undergraduate degree from Yale College and his law degree
from the University of Southern California. After 17 years in private legal
practice, Mr. Beharry joined the legal and management staff of Caradon Inc. (now
Novar, Inc.), the North American corporate headquarters of Caradon (now Novar)
plc, a $3 billion per year British industrial and building materials
conglomerate. His responsibilities at Caradon included implementation of a
quality improvement process in more than 30 North American operations. Mr.
Beharry began working on development stage companies in 1997, and he
participated in the founding of medibuy, Inc. in 1998, and numerous other
businesses.

GREGORY F. KOWAL, DIRECTOR, has served as a director of our Company since June
2002. Mr. Kowal is co-founder of First Honolulu Securities, Inc. and has been
continuously associated with it since 1979. He currently is Chairman of the
Board and Portfolio Manager of First Honolulu Asset management and is on the
financial advisory board of Concordia Financial, a California truck leasing
servicing firm. He was also President of Hawaii Tsunami Pro Soccer Incorporated.
Prior to founding First Honolulu, he was associated with a large west coast
regional brokerage firm from 1973 until 1979. Mr. Kowal received his BSBA from
Roosevelt University (Chicago, IL) in 1972. His area of concentration at
Roosevelt included management and finance.

KENNETH CROWDER, DIRECTOR, has served as a director of the Company since
September 16, 2003. Mr. Crowder is the founder and Chief Executive officer of
Concordia Finance, which participates in the financing of big rig (Class 8)
trucks. Prior to that, he spent more than two decades as an engineer for
Northrup corporation, working on a number of products. He began his engineering
career with the U.S. Naval Ordnance Lab in Corona, California. Mr. Crowder
received a BA in physics from University of California Riverside in 1960 and a
Masters in physics from California State University at Long Beach in 1966.

LAURENCE SOMBARDIER, VICE PRESIDENT AND GENERAL MANAGER OF THE OPERATIONS AND
PRODUCTION FACILITY, has served as Vice President and General Manager of the
Company's Operations and Production Facility in Hawaii since October 2002. Mrs.
Sombardier joined the Company in October 1997. She was instrumental in expanding
the initial pilot plant to a production facility as well as setting up the
process control system for the patented Mera Growth Module. Mrs. Sombardier has
also led all Information Technology-related efforts for the Company since 1997.
She received a MS in Physical Oceanography from Scripps Institution of
Oceanography. After receiving her degree, she managed the Global Drifter Center,
a world wide scientific effort out of Scripps Institution of Oceanography to
measure the world's ocean surface currents.

TERRY L. BRIDGES, FACILITIES ENGINEER AND PROCESSING MANAGER, joined the Company
as a facilities engineer and processing manager in August of 1997. After
receiving formal education at the University of California Santa Barbara, he
attended Crawford's School of Navigation and Marine Engineering in Wilmington,
California. Following graduation from Crawford's in 1971, Mr. Bridges entered a
career in commercial fishing where he developed extensive process and mechanical
engineering skills while serving as Chief Engineer on American fishing trawlers.
From 1981 to 1995 he participated in international joint fishing ventures with
Taiyo International and Nippon Suisan, serving as Captain on two large American
fishing trawlers operating in the Bering Sea and Gulf of Alaska. His primary
responsibilities also included the implementation of mechanical systems and
processes on new American factory ships entering the fishery. Since joining
Mera, Mr. Bridges has been instrumental in the development of production
processes and implementing the automated algal growth systems and infrastructure
at the operations and production facility in Hawaii.


                                       30
<PAGE>

DR. MIGUEL OLAIZOLA received his Ph.D. in Biological Oceanography from the State
University of New York at Stony Brook in 1993. Dr. Olaizola has led research in
pigment biosynthesis, microalgal physiology and productivity since joining
Aquasearch in 1996. He also administers our internship program and manages our
quality control laboratory. Dr. Olaizola devoted his graduate and post-graduate
research to the study of carotenoid biosynthesis in microalgae, primarily
diatoms and cyanobacteria, the latter being a principal area of focus for Mera.
During 1993 to 1995, Dr. Olaizola was a Post-Doctoral Fellow at the Joint
Research Center of the European Commission in Italy. During 1995 and 1996, Dr.
Olaizola was a Post-Doctoral Researcher at Scripps Institution of Oceanography,
University of California, San Diego, where he studied microalgal growth and
physiology. He was recently appointed as an Affiliate Professor of Aquaculture
at the University of Hawaii at Hilo and Adjunct Associate Researcher at the
University of Hawaii at Manoa.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION

The following table sets forth the information, on an accrual basis, with
respect to the compensation of our executive officers for the three fiscal years
ended October 31, 2004.

                                                                     RESTRICTED
                                   YEAR ENDED                          STOCK
NAME AND PRINCIPAL POSITION        OCTOBER 31,        SALARY ($)     AWARD(S)($)
---------------------------        -----------       -----------     -----------
Daniel P. Beharry, Chief               2004          $118,450            $ 0
Executive Officer                      2003          $116,250(1)         $ 0
                                       2002          $ 37,500            $ 0

Richard D. Propper, M.D.,              2004          $      0            $ 0
Chief Executive Officer                2003          $ 62,375(2)         $ 0
                                       2002          $ 37,500            $ 0


(1) Mr. Beharry assumed the role of Chief Executive Officer effective July 16,
2003. The compensation stated for 2003 includes that paid to him in his role as
Chief Operating Officer prior to July 16, 2003. The compensation stated for 2002
reflects his salary for the period August 1, 2002 through October 31, 2002 in
his capacity as Chief Operating Officer, during which time his annual salary
rate was $150,000.

(2) Dr. Propper stepped down as Chief Executive Officer effective July 16, 2003.
The 2003 figure stated for him sets forth the salary he was paid from November
1, 2002 through July 16, 2003. Dr. Propper's compensation for 2002 reflects the
amounts paid to him as Chief Executive Officer of the Company from the period
August 1, 2002 through October 31, 2002, during which time his annual salary
rate was $150,000.

OPTION GRANTS IN FISCAL 2004

No stock options were granted to our named executive officers during the fiscal
year ended October 31, 2002. The Company's 1996 Stock Option Plan was terminated
during the Company's reorganization proceedings. The board of directors adopted
a new stock option plan during fiscal year 2003. However, that plan was not
submitted to a vote of the shareholders, and the Board of Directors has
rescinded that plan. It was replaced by the Company's 2004 Stock Option Plan,
adopted November 7, 2004.


                                       31
<PAGE>

STOCK OPTIONS EXERCISED DURING FISCAL 2004

No stock options were exercised by the named executive officers of the Company
during fiscal 2004.

FISCAL YEAR-END OPTION VALUES

There were no outstanding stock options held as of October 31, 2004.

LTIP AWARDS DURING FISCAL YEAR

We did not make any long-term incentive plan awards to any executive officers or
directors during the fiscal year ended October 31, 2004.

DIRECTOR COMPENSATION

Our directors do not receive compensation for services they provide as
directors, although they are reimbursed their expenses for attendance at board
meetings and those otherwise incurred in connection with their duties. From time
to time, certain directors who are not our employees have served as consultants
to us for which they have been paid customary fees based on the value of the
services rendered and/or received grants of options to purchase shares of our
common stock. We do not provide additional compensation for committee
participation or special assignments of the Board of Directors.

EMPLOYMENT CONTRACTS

We currently do not have employment contracts with our named executive officers.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information known to us about the beneficial
ownership of our common stock as of January 27,2005 for: (1) each person, entity
or group that is known by us to beneficially own five percent or more of our
common stock; (2) each of our directors (and former directors, as applicable);
(3) each of our named executive officers (and former officers, as applicable) as
defined in Item 402(a)(2) of Regulation S-B; and (4) our directors and executive
officers as a group. To the best of our knowledge, each stockholder identified
below has voting and investment power with respect to all shares of common stock
shown, unless community property laws or footnotes to this table are applicable.

<TABLE>
<CAPTION>
                                                                                           PERCENTAGE OF
                                                        NATURE OF                              SHARES
                                                       BENEFICIAL      NUMBER OF SHARES     BENEFICIALLY
DIRECTORS AND OFFICERS (1)                              OWNERSHIP     BENEFICIALLY OWNED     OWNED (1)
---------------------------------------------------    -----------    ------------------   -------------
<S>                                                    <C>                <C>                   <C>
Kenneth Crowder
c/o Mera Pharmaceuticals, Inc.
73-4460 Queen Ka'ahumanu Highway, Suite 110
Kailua-Kona, Hawaii 96740..........................      Direct            1,594,608              *
</TABLE>


                                       33
<PAGE>

<TABLE>
<CAPTION>
                                                                                           PERCENTAGE OF
                                                        NATURE OF                              SHARES
                                                       BENEFICIAL      NUMBER OF SHARES     BENEFICIALLY
DIRECTORS AND OFFICERS (1)                              OWNERSHIP     BENEFICIALLY OWNED     OWNED (1)
---------------------------------------------------    -----------    ------------------   -------------
<S>                                                    <C>                <C>                   <C>
Richard D. Propper, MD
c/o Chardan Capital, LLC
625 Broadway, Suite 1111                               Direct and
San Diego, CA  92101...............................     Indirect          33,943,623 (2)        7.9%

Daniel P. Beharry
c/o Mera Pharmaceuticals, Inc.
73-4460 Queen Ka'Ahumanu Highway, Suite 110            Direct and
Kailua-Kona, HI  96740 ............................     Indirect          32,514,065 (3)        7.6%

Gregory F. Kowal
First Honolulu Securities
900 Fort Street Mall, Suite 90                         Direct and
Honolulu, Hawaii  96813............................     Indirect          26,180,103 (4)        6.1%

All directors and executive officers as a group        Direct and
   (4 persons) ....................................     Indirect                                 22%
</TABLE>

*     Less than one percent

5% STOCKHOLDERS

The Company is not aware of any persons or groups who own 5% or more of the
Company's stock, except for those officers and directors listed above.

(1) Applicable percentage of beneficial ownership is based on shares outstanding
as of January 27, 2005. Beneficial ownership is determined in accordance with
rules and regulations of the Securities and Exchange Commission. In computing
the number of shares beneficially owned by a person and the percentage ownership
of that person, shares of common stock subject to options or warrants held by
that person that are currently exercisable or exercisable within 60 days after
January 31, 2005 are deemed outstanding, but are not deemed outstanding for
computing the percentage of any other person.

(2) This amount includes 17,023,372 shares held by Dr. Propper's spouse
(directly or indirectly).

(3) This amount includes 13,381,121 shares held by Mr. Beharry's spouse
(directly or indirectly), plus 170,000 shares that Mr. Beharry has the right to
acquire within sixty days from the date of this report on Form 10-KSB by
exercising common stock warrants that he holds.

(4) These shares held indirectly are in the name of Aquasearch Investment
Partners, of which Mr. Kowal is a general partner. This figure also includes
warrants to acquire 1,660,000 shares of common stock which were issued to
Aquasearch Investment Partners and Gregory F. Kowal.


                                       33
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      On December 27, 2003, the Company issued 16,909,091 shares of common stock
at $0.11 per share, for an aggregate purchase price of $1,860,000 to a Delaware
limited liability company. A person who is a shareholder, officer and director
of the Company manages that limited liability company in part but does not have
an ownership interest in that limited liability company. This transaction was
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2).

      During the month of October 2004 the Company issued a promissory note in
the amount of $20,000 to an individual who was at the time, and continues to be,
a director of the Company.

      In December 2002 the Company issued 18,181,818 shares of common stock at a
price of $0.11 per share, for aggregate consideration of $2,000,000, to a
Hawaiian limited liability company. Certain parties who at the time were
officers and directors of the Company, one of whom continues to be, manage that
limited liability company in part, but do not have an ownership interest in it.
This transaction was exempt from registration under the Securities Act of 1933,
as amended, pursuant to Section 4(2).

      In December 2002 the Company issued 974 shares of Series B preferred stock
at a price of $625.00 per share, for aggregate consideration of $609,000, to a
limited liability company. That company is managed in part by certain parties
who at the time were officers and directors of the Company, one of whom
continues to be. Each share of Series B preferred stock is convertible into
8,929 shares of common stock. This transaction was exempt from registration
under the Securities Act of 1933, as amended, pursuant to Section 4(2).

      In March 2003 the Company entered into an agreement with a partnership of
which a director of the Company is a general partner. Under the terms of the
agreement the Company sold certain inventory for $76,000 to the partnership and
has the right to resell the inventory, and upon doing so is obligated to repay
the partnership the price it paid for the inventory plus 10%. Revenue from the
sale of the inventory to the partnership is deferred until such time as the
Company resells the inventory. That deferred revenue represents a portion of
"Other current liabilities" on our balance sheet.

      In April 2003 the Company entered into a line of credit agreement with a
partnership of which a director of the Company is a general partner. The line of
credit was established to fund operations, and the Company was permitted to
borrow up to $125,000 at an annual interest rate of 10%. Under the terms of the
agreement the outstanding principal and interest is convertible into common
stock. Additionally, the lender received detachable stock purchase warrants, as
defined, at price of $0.05 per common share in consideration for the extension
of credit under this arrangement. The principal balance on this line of credit
was repaid in full during fiscal year 2004

      In May 2003 the Company's board of directors agreed to compensate one of
its members for his successful efforts in assisting the Company in raising
capital during fiscal 2003. The compensation is in the form of issuance of
common stock of the Company equal to 7% of the total amount raised in each
offering divided by the per share price of such offering. This transaction was
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2).


                                       34
<PAGE>

      In July 2003 the Company issued 6,428,571 shares of common stock at a
price of $0.035 per share, to a Delaware limited liability company. That company
is managed in part by a person who is a shareholder and an officer and director
of the Company. This transaction was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2).

      In July 2003 a promissory was issued to a limited liability company
managed by a person who is a shareholder and an officer and director of the
Company. The note accrued interest at an annual rate of 6% and was due and
payable on December 31, 2003. The balance outstanding was $644,000 as of October
31, 2003 and the note was paid in full subsequent to year-end.

      In December 2003 the Company issued 18,181,818 shares of common stock at a
price of $0.11 per share to a Delaware limited liability company. That company
is managed in part by persons who, at the time of the investment, were
shareholders, officers and directors of the Company, and one of them continues
to be. This transaction was exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2).

      In October 2004 the Company issued a note for $20,000 to a director who
loaned the Company that amount. The terms of the note included interest payable
at the rate of 6% and a maturity date of December 31, 2004. That loan has since
been repaid in full. As a part of the compensation payable by the Company to the
lender, the Company issued warrants to purchase 100,000 shares of the Company's
common stock. The warrants have an exercise price of $0.02 per share and a term
of five years. This transaction was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2).

      In November 2004 the Company issued a promissory note to a director of the
Company, in consideration for a loan of $17,000 to the Company. As part of the
compensation for the loan, the Company issued to the lender detachable warrants
to purchase 85,000 shares of the Company's common stock at a price of $0.02 per
share, which warrants have a term of five years. This transaction was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2).

      In November 2004 the Company issued a promissory note to a director of the
Company, in consideration for a loan of $10,000 to the Company. As part of the
compensation for the loan, the Company issued to the lender detachable warrants
to purchase 50,000 shares of the Company's common stock at a price of $0.02 per
share, which warrants have a term of five years. This transaction was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2).

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

                                INDEX OF EXHIBITS

2.1*        Plan Confirmation Hearing and Debtor's Plan of Reorganization
2.2**       Certificate of Merger Merging Aquasearch, Inc., a Colorado
            Corporation, into Mera Pharmaceuticals, Inc., a Delaware Corporation
2.3**       Certificate of Merger Merging Aqua RM Co, Inc. into Mera
            Pharmaceuticals, Inc.
3.1**       Certificate of Incorporation
3.2###      Certificate of Designation of Series A Preferred Stock of Mera
            Pharmaceuticals, Inc. and the Express Terms Thereof.
3.3###      Certificate of Designation of Series B Preferred Stock of Mera
            Pharmaceuticals, Inc. and the Express Terms Thereof


                                       35
<PAGE>

3.4**       Bylaws
4.1+        Form of 1996 Bridge Loan Note
4.2+        Form of 1997 Warrant
4.3++       Form of Convertible Note
4.4++       Form of Warrant
4.5++       Form of Note and Warrant Purchase Agreement
4.6#        Form of Promissory Note
10.1#       Distribution and Development Agreement between Cultor Ltd. and
            Aquasearch, dated May 14, 1996 (terminated)
10.2#       Stock Subscription Agreement between Cultor Ltd. and Aquasearch,
            dated May 14, 1996
10.3+       The Amended Keahole Point Facilities Use Agreement dated August 22,
            1996 by and between The National Energy Laboratory of Hawaii
            Authority and Aquasearch, Inc.
10.4$       Letter of Intent between C. Brewer and Company Limited and
            Aquasearch, Inc.
10.5##      Amendment to Distribution and Development Agreement between Cultor
            Ltd. and Aquasearch, Inc., dated June 14, 1999
10.6$$      Common Stock Purchase Agreement (including Form of Warrant) between
            Alpha Venture Capital, Inc. and Aquasearch, Inc., dated June 14,
            2000
10.7$$      Registration Rights Agreement between Alpha Venture Capital, Inc.
            and Aquasearch, Inc., dated June 14, 2000
10.8###     Sublease between the Company and Ancile Pharmaceuticals, Inc., dated
            July 31, 2002.
10.9$$$     Technical Services Contract, dated November 9, 2002, between the
            Company and Hainan Sunshine Marine Bioengineering Co., Ltd.
16.1***     Letter Regarding Change in Certifying Accountant. Ernst & Young
            Letter, dated January 24, 2002
16.2***     Letter Regarding Change in Certifying Accountant. Company Letter,
            dated January 16, 2002
16.3****    Letter Regarding Change in Certifying Accountant. Buttke, Bersch &
            Wanzek letter dated September 9, 2003
16.4*****   Letter Regarding Change in Certifying Accountant. Buttke, Bersch &
            Wanzek letter dated October 29, 2003

23.1###     Consent of Buttke, Bersch & Wanzek, P.C., independent auditors
23.2        Consent of Buttke, Bersch & Wanzek, P.C., independent auditors
31.1        Certification of Chief Executive Officer pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002
31.2        Certification of the Principal and Accounting Financial Officer
            pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32          Certification of Chief Executive Officer and Principal Financial and
            Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act
            of 2002

*           Incorporated by reference to the exhibit filed with our Current
            Report on Form 8-K, dated July 3, 2002
**          Incorporated by reference to the exhibits filed to the exhibits of
            our Current Report on Form 8-K, dated July 30, 2002.
***         Incorporated by reference to the exhibit filed with out Current
            Report on Form 8-K, dated January 24, 2002
****        Incorporated by reference to the exhibit filed with our Current
            Report on Form 8-K dated September 5, 2003.
*****       Incorporated by reference to the exhibit filed with the amendment to
            our Current Report on Form 8-K A filed on November 13. 2003.
+           Incorporated by reference to the exhibit filed with our Annual
            Report on Form 10-KSB for the fiscal year ended October 31, 1996
++          Incorporated by reference to the exhibit filed with Amendment No. 1
            to our Registration Statement on Form S-B filed October 28, 1998
+++         Previously filed


                                       36
<PAGE>

#           Incorporated by reference to the exhibit filed with our Current
            Report on Form 8-K filed September 13, 1996
##          Incorporated by reference to the exhibit filed with Amendment No. 1
            to the Company's Registration Statement on Form SB-2 filed November
            9, 1999
$           Incorporated by reference to the exhibit filed with our Current
            Report on Form 8-K, dated November 13, 1996
$$          Incorporated by reference to the exhibit filed with our Registration
            Statement on Form SB-2 filed July 13, 2000
$$$         Incorporated by reference to the exhibit filed with our Report on
            Form 10-QSB filed March 24, 2003
###         Incorporated by reference to the exhibit filed with our registration
            statement filed on Form SB-2/A dated December 11, 2003.

                                    EXHIBITS

REPORTS ON FORM 8-K

The Company filed a report on Form 8-KA on December 11, 2003, amending previous
filings regarding the change in certifying accountants from Butke, Bersch and
Wanzek to Jewett, Schwartz and Associates.

ITEM 14. CONTROLS AND PROCEDURES

(a) Under the supervision and with the participation of our management,
including our Chief Executive Officer and Principal Financial and Accounting
Officer, we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures, as such terms is defined under rule
13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended,
within the 90-day period prior to the filing date of this 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.


                                   SIGNATURES

In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements of filing on Form 10--KSB and authorized this Form 10-KSB to be
signed on its behalf by the undersigned, in the City of San Diego, State of
California, on January 31, 2004.

                                                MERA PHARMACEUTICALS, INC.


                                                /s/ Daniel P. Beharry
                                                --------------------------
                                                Daniel P. Beharry
                                                Chief Executive Officer


                                       37
<PAGE>

In accordance with the requirements of the Securities Act, this Registration
Statement on Form 10-KSB was signed by the following persons in the capacities
and on the dates stated:

SIGNATURE                      TITLE                            DATE


/s/ Daniel P. Beharry          Chief Executive Officer,         January 31, 2005
---------------------          Secretary and Director
Daniel P. Beharry


/s/ Anthony Applebaum          Principal Financial and          January 31, 2005
---------------------          Accounting Officer
Anthony Applebaum


Kenneth Crowder                Director                         January 31, 2005


Gregory F. Kowal               Director                         January 31, 2005
<PAGE>

                              FINANCIAL STATEMENTS

                           Mera Pharmaceuticals, Inc.

                                Table of Contents

Report of Registered Public Accounting Firm............................ F-2

Balance Sheet.......................................................... F-3

Statements of Operations............................................... F-4

Statements of Changes in Stockholders' Equity.......................... F-5

Statements of Cash Flows .............................................. F-6

Notes to Financial Statements.......................................... F-7 - 14
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Mera Pharmaceuticals, Inc.

We have audited the accompanying balance sheet of Mera Pharmaceuticals, Inc. as
of October 31, 2004 and the related statements of operations, changes in
shareholders' deficiency, and cash flows for the years ended October 31, 2004
and 2003. 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). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mera
Pharmaceuticals, Inc. as of October 31, 2004 and the results of its operations
and its cash flows for the years then ended 2004 and 2003 in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 2, the Company's need to seek new sources or methods of
financing or revenue to pursue its business strategy, raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
as to these matters are also described in Note 2. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.


JEWETT, SCHWARTZ & ASSOCIATES
Hollywood, Florida,
January 25, 2005


                                      F-2
<PAGE>

MERA PHARMACEUTICALS, INC.
       BALANCE SHEET

                                                               October 31, 2004
                                                               ----------------

                                     ASSETS
Current assets:
    Cash and cash equivalents                                  $          4,401
    Accounts receivable, net                                             20,031
    Inventories, net                                                    349,032
    Prepaid expenses and other                                           41,998
                                                               ----------------
Total current assets                                                    415,462

Plant and equipment, net                                              2,818,352
Other assets, net of accumulated amortization of $18,720                 43,680
                                                               ----------------

Total Assets                                                   $      3,277,494
                                                               ================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, accrued liabilities and customer credits $        245,983
    Notes payable - related parties                                      61,936
    Other current liabilities                                            29,071
                                                               ----------------
Total current liabilities                                               336,990
                                                               ----------------

Commitments and contingencies

Stockholders' equity:
    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
    Common stock, $.0001 par value: 500,000,000
          shares authorized, 429,072,628 shares issued
          and outstanding                                                42,908
    Additional paid-in capital                                        6,735,355
    Accumulated deficit                                              (3,837,761)
                                                               ----------------
Total stockholders' equity                                            2,940,504
                                                               ----------------

Total Liabilities and Stockholders' Equity                     $      3,277,494
                                                               ================

             See the accompanying notes to the financial statements


                                      F-3
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                          ----------------    ----------------
                                                           Twelve Months       Twelve Months
                                                                Ended               Ended
                                                          October 31, 2004    October 31, 2003
                                                          ----------------    ----------------
<S>                                                       <C>                 <C>
Revenue
   Products                                               $        672,204    $        377,589
   Contract services                                               181,383             242,868
   Royalties                                                        56,026             155,652
                                                          ----------------    ----------------

Total Revenue                                                      909,613             776,109
                                                          ----------------    ----------------

Costs and Expenses
   Cost of products sold                                           675,399             200,986
   Cost of contract services                                       330,203             389,721
   Research and development costs                                  110,924             333,794
   General and administrative                                      672,750           1,555,029
   Depreciation                                                    135,032             112,697
   Amortization                                                     22,796              16,560
   Provision for excess and obsolete inventory                     323,000             135,000
   Impairment loss                                                      --              66,550
                                                          ----------------    ----------------

Total costs and expenses                                         2,270,104           2,809,365
                                                          ----------------    ----------------

Operating loss                                                  (1,360,491)         (2,034,256)

Other income (expense):
   Interest income                                                      --                 319
   Other income                                                    227,535             186,609
   Interest expense                                                (13,993)           (109,779)
                                                          ----------------    ----------------

Total other income (expense)                                       213,542              77,149
                                                          ----------------    ----------------

Net loss before extraordinary items                             (1,146,949)         (1,956,107)

Gain on discharge of debt                                           12,880             109,234
                                                          ----------------    ----------------

Net loss before income tax provision                            (1,134,069)         (1,846,873)

Tax expense                                                             --                  --
Refundable tax credit                                               29,518              15,988
                                                          ----------------    ----------------

Net loss                                                  $     (1,104,551)   $     (1,830,885)
                                                          ================    ================

Loss per share - basic and diluted                                  (0.003)             (0.005)
Weighted average shares outstanding - basic and diluted        426,547,939         398,055,825
</TABLE>

             See the accompanying notes to the financial statements


                                      F-4
<PAGE>

                            MERA PHARMACEUTICALS, INC.
             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                               Stock
                                                                  --------------------------------------------------------------
                                                                      Convertible Preferred
                                                                      ---------------------                    Common
                                                                  Series A    Series B                         ------
                                                                   Shares      Shares     Amount       Shares          Amount
                                                                  --------------------------------------------------------------
<S>                                                                  <C>        <C>         <C>      <C>            <C>
PREDECESSOR

Balance at October 31, 2002                                          --          --         $--      388,803,300    $     38,880

Issuance of preferred Series A shares at $625 per share              80          --           1               --              --
Issuance of common shares at $0.11 per share                         --          --          --       18,181,818           1,818
Issuance of preferred Series B shares at $625 per share              --         974           1               --              --
Cancellation of common shares at par value                           --          --          --      (11,884,800)         (1,187)
Issuance of common shares in exchange for consulting services        --          --          --        3,703,704             370
Issuance of common shares at $0.035 per share                        --          --          --        6,428,571             643
Discount on notes payable connected with warrant issuances                       --          --               --              --
Issuance of common shares in exchange for consulting services        --          --          --          411,333              41
Loss for the year ended October 31, 2003                             --          --          --               --              --
                                                                  --------------------------------------------------------------

Balance at October 31, 2003                                          80         974         $ 2      405,643,926    $     40,565
                                                                  --------------------------------------------------------------

Shares returned and cancelled from a former employee of the
  company at par value                                                                               (12,209,000)         (1,221)
Shares re-issued to a former employee of the company at
  par value                                                                                            5,341,437             534
Issuance of common shares at $0.11 per share                                                           2,590,909             259
Issuance of common shares at $0.11 per share                                                           8,955,356             896
Issuance of common shares at $0.04 per share                                                           7,954,545             795
Shares issuable at $0.04 per share                                                                    10,795,455           1,080
Cancellation of discount on notes payable in connection
  with warrant issuances
Loss for the year ended Ocober 31, 2004
                                                                  --------------------------------------------------------------

Balance at October 31, 2004                                          80         974         $ 2      429,072,628    $     42,908
                                                                  ==============================================================

<CAPTION>
                                                                   Additional                     Stockholders'
                                                                     Paid-In       Accumulated       Equity
                                                                     Capital        (Deficit)       (Deficit)
                                                                  --------------------------------------------
<S>                                                               <C>             <C>             <C>
PREDECESSOR

Balance at October 31, 2002                                       $  1,503,856    $   (901,353)   $    641,383

Issuance of preferred Series A shares at $625 per share                 49,999              --          50,000
Issuance of common shares at $0.11 per share                         1,998,182              --       2,000,000
Issuance of preferred Series B shares at $625 per share                608,999              --         609,000
Cancellation of common shares at par value                                  --              --          (1,187)
Issuance of common shares in exchange for consulting services           99,630              --         100,000
Issuance of common shares at $0.035 per share                          224,357              --         225,000
Discount on notes payable connected with warrant issuances                  --         165,600         165,600
Issuance of common shares in exchange for consulting services           24,639              --          24,680
Loss for the year ended October 31, 2003                                    --      (1,831,857)     (1,831,857)
                                                                  --------------------------------------------

Balance at October 31, 2003                                       $  4,675,262    $ (2,733,210)   $  1,982,619
                                                                  --------------------------------------------

Shares returned and cancelled from a former employee of the
  company at par value                                                   1,221                              --
Shares re-issued to a former employee of the company at
  par value                                                               (534)                             --
Issuance of common shares at $0.11 per share                           284,741                         285,000
Issuance of common shares at $0.11 per share                         1,109,104                       1,110,000
Issuance of common shares at $0.04 per share                           749,205                         750,000
Shares issuable at $0.04 per share                                      (1,080)                             --
Cancellation of discount on notes payable in connection
  with warrant issuances                                               (82,564)                        (82,564)
Loss for the year ended Ocober 31, 2004                                             (1,104,551)     (1,104,551)
                                                                  --------------------------------------------

Balance at October 31, 2004                                       $  6,735,355    $ (3,837,761)   $  2,940,504
                                                                  ============================================
</TABLE>

              See the accomanying notes to the financial statements


                                      F-5
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       ------------------------------------
                                                                         Twelve Months       Twelve Months
                                                                             Ended               Ended
                                                                       October 31, 2004    October 31, 2003
                                                                       ------------------------------------
<S>                                                                    <C>                 <C>
Cash Flows from Operating Activities:
Net loss                                                               $     (1,104,551)   $     (1,831,857)
Adjustments to reconcile net loss to net cash
used in operating activities:
    Accumulated depreciation and amortization                                   274,074             241,580
    Provision for excess and obsolete inventory                                 323,000
    Impairment loss                                                                  --              66,550
    Common stock issued in exchange for services                                     --             124,680
Changes in operating assets and liabilities:
    Accounts receivable                                                          31,873             (40,159)
    Inventories                                                                 305,470              23,801
    Other current assets                                                         (9,738)             62,560
    Accounts payable, accured expenses,                                        (792,288)            163,720
      and customer credits
    Deferred revenue                                                           (248,232)             43,632
    Other current liabilities                                                   (28,689)             57,760
                                                                       ------------------------------------
Net cash used by operating activities                                        (1,249,081)         (1,087,733)
                                                                       ------------------------------------

Cash Flows from Investing Activities:
    Purchases of fixed assets                                                   (14,592)            (74,290)
                                                                       ------------------------------------
Net cash used by investing activities                                           (14,592)            (74,290)
                                                                       ------------------------------------

Cash Flows from Financing Activities
    Proceeds from issuance of common stock                                    2,145,000           2,223,812
    Proceeds from issuance of preferred stock                                        --             659,000
    Proceeds from notes payable                                                      --             574,232
    Payment of notes payable                                                   (878,075)         (2,334,221)

                                                                       ------------------------------------
Net cash provided by financing activities                                     1,266,925           1,122,823
                                                                       ------------------------------------

Net increase (decrease) in cash and cash equivalents                              3,252             (39,200)
Cash and cash equivalents, beginning of the period                                1,149              40,349
                                                                       ------------------------------------
Cash and cash equivalents, end of the period                           $          4,401    $          1,149
                                                                       ====================================

Supplemental non-cash information
    Non cash financing activities
    Stock issued to a related party exchange for consulting services   $             --    $        124,680
                                                                       ====================================
    Warrants cancelled                                                 $         82,564    $             --
                                                                       ====================================
</TABLE>

             See the accompanying notes to the financial statements


                                      F-6
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

      ORGANIZATION -- Mera Pharmaceuticals, Inc. (the "Company" or "Mera"), is
the successor company to Aquasearch, Inc. Aquasearch was founded in February
1988. The Company develops and commercializes natural products from microalgae
using its proprietary, large-scale photobioreactor technology. The Company's
operations are located in Kailua-Kona, Hawaii.

      Microalgae are a diverse group of microscopic plants comprising an
estimated 30,000 species that display a wide range of physiological and
biochemical characteristics. Many of these organisms are known to contain
valuable substances that have identified and potential commercial applications
in such fields as animal and human nutrition, food colorings, cosmetics,
diagnostic products, pharmaceuticals, research grade chemicals, pigments and
dyes. Microalgae grow ten times faster than the fastest growing land-based crops
and represent a largely unexploited and renewable natural resource with a
biodiversity comparable to that of land-based plants.

      Mera Pharmaceuticals' first commercial product, AstaFactor(R), is a
nutritional supplement based on astaxanthin, a naturally occurring red pigment
derived from a freshwater microalga.

      The Company has devoted most of its efforts since inception to research
and development, and accordingly was considered a development stage company
until fiscal 2001.

      CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid debt
securities purchased with original or remaining maturities of three months or
less to be cash equivalents. The carrying value of cash equivalents approximates
fair value.

      FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate fair market value because of the short maturity of those
instruments. Notes payable approximate fair value.

      ACCOUNTS RECEIVABLE - The Company performs ongoing credit evaluations of
customers, and generally does not require collateral. Allowances are maintained
for potential credit losses and returns and such losses have been within
management's expectations.

      CREDIT RISK - It is the Company's practice to place its cash equivalents
in high quality money market securities with two major banking institutions.
Certain amounts of such funds are not insured by the Federal Deposit Insurance
Corporation. However, the Company considers its credit risk associated with cash
and cash equivalents to be minimal.

      INVENTORIES -- Inventories are stated at the lower of cost or market. The
Company intends to determine cost on a first-in, first-out basis. At October 31,
2004, inventories consisted of $742,736 of work in process and $64,296 of
finished goods, less an allowance for obsolescence of $458,000.


                                      F-7
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

      REVENUE RECOGNITION -- 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. The Company
has adopted Securities and Exchange Commission's Staff Accounting Bulletin
("SAB") No. 104, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements.

      PLANT AND EQUIPMENT, NET -- Plant and equipment, net are stated at cost
less accumulated depreciation. Depreciation is recorded principally using the
straight-line method, based on the estimated useful lives of the assets
(property and plant, 10-30 years; machinery and equipment, 3-10 years). When
applicable, leasehold improvements and capital leases are amortized over the
lives of respective leases, or the service lives of the improvements, whichever
is less. Expenditures for renewals and improvements that significantly extend
the useful life of an asset are capitalized. The costs of software used in the
business operations are capitalized and amortized over their expected useful
lives. Expenditures for maintenance and repairs are charged to operations when
incurred. When assets are sold or retired, the cost of the asset and the related
accumulated depreciation are removed from the accounts and any gain or loss is
recognized at such time.

      IMPAIRMENT OF LONG LIVED ASSETS AND LONG LIVED ASSETS TO BE DISPOSED OF --
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supersedes both SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and the accounting and reporting provisions of Accounting
Practice Bulletin ("APB") Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment of a business (as previously defined in that opinion).

      This statement establishes the accounting model for long-lived assets to
be disposed of by sale and applies to all long-lived assets, including
discontinued operations. This statement requires those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or discontinued operations. Therefore,
discontinued operations will no longer be measured at net realizable value or
include amounts for operating losses that have not yet occurred.

      INTANGIBLE ASSETS -- The Company accounts for intangible assets in
accordance with SFAS 142. Generally, intangible assets with indefinite lives,
and goodwill, are no longer amortized; they are carried at lower of cost or
market and subject to annual impairment evaluation, or interim impairment
evaluation if an interim triggering event occurs, using a new fair market value
method. Intangible assets with finite lives are amortized over those lives, with
no stipulated maximum, and an impairment test is performed only when a
triggering event occurs. Such assets are amortized on a straight-line basis over
the estimated useful life of the asset. Intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the fair value is less than the
carrying amount of the asset, an impairment loss is then recognized.


                                      F-8
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

      STOCK ISSUED FOR SERVICES -- The value of stock issued for services is
based on management's estimate of the fair value of the Company's stock at the
date of issue or the fair value of the services received, whichever is more
reliably measurable.

      PREFERRED STOCK -- The Company has authorized 10,000 shares of "blank
check" preferred stock, with such designations, rights, preferences, privileges
and restrictions to be determined by the Company's Board of Directors. As of
October 31, 2004, 1,054 shares of preferred stock were issued and outstanding.

      RESEARCH AND DEVELOPMENT COSTS Generally accepted accounting principles
state that costs that provide no discernible future benefits, or allocating
costs on the basis of association with revenues or among several accounting
periods that serve no useful purpose, should be charged to expense in the period
occurred. SFAS No. 2 "Accounting for Research and Development Costs" requires
that certain costs be charged to current operations including, but not limited
to: salaries and benefits; contract labor; consulting and professional fees;
depreciation; repairs and maintenance on operational assets used in the
production of prototypes; testing and modifying product and service capabilities
and design; and, other similar costs.

      INCOME TAXES -- The Company uses the asset and liability method of
accounting for income taxes as required by SFAS No. 109 "Accounting for Income
Taxes". SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of certain assets and
liabilities. Since its inception, the Company has incurred net operating losses.
Accordingly, no provision has been made for income taxes.

      LOSS PER SHARE -- The Company computed basic and diluted loss per share
amounts for October 31, 2004 and 2003 pursuant to the SFAS No. 128, "Earnings
per Share." The assumed effects of the exercise of outstanding stock options,
warrants, and conversion of notes were anti-dilutive and, accordingly, dilutive
per share amounts have not been presented in the accompanying statements of
operations.

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

      RECLASSIFICATIONS - Certain reclassifications have been made in the 2003
financial statements for presentation purposes to conform to the 2004
presentation.

RECENT AUTHORITATIVE PRONOUNCEMENTS

The FASB has recently issued several new accounting pronouncements which may
apply to the Company.

In May 2003, the FASB issued Statement No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
Statement requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances). Many of those


                                      F-9
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

instruments were previously classified as equity. The Company is currently
classifying financial instruments within the scope of this Statement in
accordance with this Statement. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. Management does not believe that this Statement will have a material
impact on the Company's financial statements.

2. GOING CONCERN

      These financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has operating and liquidity
concerns, has incurred an accumulated deficit of approximately $3,800,000
through the year ended October 31, 2003. The Company anticipates that future
revenue will be sufficient to cover certain operating expenditures, and, in the
interim, will continue to pursue additional capital investment. However, there
can be no assurance that the Company will be able to successfully acquire the
necessary capital to continue their on-going development efforts and bring
products to the commercial market. These factors, among others, create an
uncertainty about the Company's ability to continue as a going concern.

3. RELATED PARTY TRANSACTIONS

      In August 2002, the Company entered into a consulting agreement with a
former director of the Company. This agreement was terminated in February 2003.
Under the terms of the agreement the former director received $5,500 during the
year ended October 31, 2003. The company subsequently settled all amounts due
that director in exchange for an agreement to repay outstanding expenses
incurred by him.

      In March 2003 the Company entered into an agreement with a partnership of
which a director of the Company is a general partner. Under the terms of the
agreement the Company sold certain inventory for $76,000 to the partnership and
has the right to resell the inventory, and upon doing so is obligated to repay
the partnership the price it paid for the inventory plus 10%. Revenue from the
sale of the inventory to the partnership is deferred until such time as the
Company resells the inventory. The Company has deferred revenue of approximately
$18,000 as of October 31, 2004 associated with this agreement. This amount is
included in other current liabilities on the balance sheet.

      In July 2003 a promissory note was issued to a limited liability company
managed by a shareholder and an officer and director of the Company. The note
accrued interest at an annual rate of 6% and was due and payable on December 31,
2003. The balance outstanding was $644,000 as of October 31, 2003 and the note
was paid in full during the year ended October 31, 2004.

      In December 2003 the Board agreed to pay one of its members a commission
of 4.0% of sales made to a Hawaiian distributor. The commission amount to be
paid is based on sales consummated retroactive to May 2003 and approximately
$9,400 was payable under this agreement as of October 31, 2004.

      In February 2004, the Company agreed to pay $55,000 cash plus certain
inventory amounts to a shareholder and former officer. The payment is in
satisfaction of a debt of $125,000 plus accrued interest owed to the individual.

4. INCOME TAXES

      The Company provides for income taxes in accordance with SFAS No. 109
using an asset and liability based approach. Deferred income tax assets and
liabilities are recorded to reflect the tax consequences on future years of
temporary differences of revenue and expense items for financial statement and
income tax purposes.


                                      F-10
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

      Since its formation the Company has incurred net operating losses. As of
October 31, 2004, the Company had a net operating loss carryforward available to
offset future taxable income for federal and state income tax purposes.

      SFAS No. 109 requires the Company to recognize income tax benefits for
loss carryforwards that have not previously been recorded. The tax benefits
recognized must be reduced by a valuation allowance if it is more likely than
not that loss carryforwards will expire before the Company is able to realize
their benefit, or that future deductibility is uncertain. For financial
statement purposes, the deferred tax asset for loss carryforwards has been fully
offset by a valuation allowance since it is uncertain whether any future benefit
will be realized.

      At October 31, 2004, the Company has available net operating loss carry
forwards of approximately $18,700,000 that expire in various years through 2024.

      Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant component
of the Company's deferred income tax asset would result from the net operating
losses amounted to approximately $18,700,000.

      A valuation allowance is required to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a full valuation allowance at October 31, 2004 was necessary.
The increase in the valuation allowance for the year ended October 31, 2004 was
approximately $400,000.

      The Company is a Qualified High Tech Business ("QHTB") in the State of
Hawaii. QHTBs qualify for certain refundable state tax credits as they relate to
research and development activities ("QHTB tax credit refunds"). During the year
ended October 31, 2004, the Company has approximately $39,000 in QHTB tax credit
refunds receivable.

6. NOTES PAYABLE - RELATED PARTIES

Notes payable - related parties consists of the following as of October 31,
2004:

     Unsecured notes payable - shareholder notes bearing an
     annual interest rate of 10% due on various dates through
     March 31, 2004. These notes contained detachable stock
     purchase warrants further described in Note 7.              $     61,936
                                                                 ============

      Total interest expense on notes payable - related parties was $13,993 and
$109,779 for the years ended October 31, 2004 and 2003, respectively.

7. COMMON STOCK, PREFERRED STOCK AND COMMON STOCK PURCHASE WARRANTS

      During 2003, the Company issued detachable stock purchase warrants in
connection with notes payable issued to certain directors and shareholders of
the Company. These warrants grant the right to purchase up to an aggregate of
5,520,000 shares of common stock at $0.05 per share and the warrants have 5-year
terms that expire during the fiscal year ended 2008. These transactions were


                                      F-11
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2). The fair market value of the stock purchase warrants at the
time of issuance was approximately $165,600. This amount has been recorded as
additional paid-in capital and will be amortized over the 5 year term or until
exercised. During 2004, 3,440,000 warrants with a value of $103,000 were
cancelled.

      On December 2, 2002, the Company issued 80 shares of Series A preferred
stock at a price of $625.00 per share, for aggregate consideration of $50,000,
to an individual investor. Each share of Series A preferred stock is convertible
into 10,417 shares of common stock. This transaction was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).

      On December 30, 2002, the Company issued 18,181,818 shares of common stock
at a price of $0.11 per share, for aggregate consideration of $2,000,000, to a
Hawaiian limited liability company. That company is managed in part by certain
parties who at the time were officers and directors of the Company, one of whom
continues to be. This transaction was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2).

      On December 30, 2002, the Company issued 974 shares of Series B preferred
stock at a price of $625.00 per share, for aggregate consideration of $609,000,
to a limited liability company. That company is managed in part by certain
parties who at the time were officers and directors of the Company, one of whom
continues to be. Each share of Series B preferred stock is convertible into
8,929 shares of common stock. This transaction was exempt from registration
under the Securities Act of 1933, as amended, pursuant to Section 4(2).

      In May 2003 the Company's board of directors agreed to compensate one of
its members for his successful efforts in assisting the Company in raising
capital during fiscal 2003. The compensation is in the form of issuance of
common stock of the Company equal to 7% of the total amount raised in each
offering divided by the per share price of such offering. This transaction was
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2).

      On July 9, 2003, the Company agreed to accept assignment of a $100,000
promissory note made by Ancile Pharmaceuticals and held by Ancile Opportunity
Partners in exchange for the issuance of 3,703,704 shares of its common stock to
the partners in Ancile Opportunity Partners. Among the partners of Ancile
Opportunity Partners are certain shareholders, officers and directors of the
Company at the time of the assignment. The assigned note reflected an investment
by Ancile Opportunity Partners into Ancile Pharmaceuticals as required under the
memorandum of understanding by which Mera was to acquire Ancile through a
reverse triangular merger. This transaction was exempt from registration under
the Securities Act of 1933, as amended, pursuant to Section 4(2). As of October
31, 2003 the Company determined that the note was worthless and, as such,
recorded an expense of $100,000 charged to consulting fees.

      On July 11, 2003, the Company issued 6,428,571 shares of common stock at a
price of $0.035 per share, for aggregate consideration of $225,000, to a
Delaware limited liability company. $150,000 of that consideration was the
result of the conversion of debt to equity. The company to whom the stock was
issued is managed in part by certain parties who at the time were shareholders,
officers and directors of the Company, one of whom continues to be. This
transaction was exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2).


                                      F-12
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

      In December 2003, the Company issued 16,909,901 shares of common stock at
a price of $0.11 per share, for aggregate consideration of $1,860,000, to a
limited liability company. That company is managed in part by certain
stockholders, officers and directors of the Company. This transaction was exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4(2).

      In December 2003, the Company issued 2,590,909 shares of its common stock
to an investor at a per share price of $0.11 and aggregate consideration of
$285,000. This investment was made in fulfillment of the conditional
subscription agreement referred to in previous financial statements of the
Company.

      The following is a summary of the Company's outstanding common stock
purchase warrants as of October 31, 2004:

--------------------------------------------------------------------------------
Exercise Price    Outstanding at      Issued      Exercised    Outstanding at
                  October 31, 2003                             October 31,  2004
--------------------------------------------------------------------------------
$0.05             --                  2,080,000   --           2,080,000

                  --------------------------------------------------------------
                  --                  2,080,000   --           2,080,000
                  --------------------------------------------------------------

      The Company has reserved a sufficient number of shares of its authorized
common stock for issuance upon exercise of the outstanding warrants.

8. STOCK OPTION PLANS

      In March 1996, the Board of Directors adopted the 1996 Stock Option Plan.
The 1996 Stock Option Plan provided for the grant of incentive stock options to
employees, and for nonstatutory stock options and stock purchase rights to
employees and consultants. The 1996 Stock Option Plan was terminated on June 17,
2002 upon confirmation of the Company's Plan of Reorganization.

      Subsequent to October 31, 2003 a new Stock Option Plan was approved by the
Board of Directors. However, the Board of Directors decided not to take that
plan to shareholders for approval, and subsequently rescinded that plan. It has
adopted the 2004 Stock Option Plan in its place. Further details on the new plan
are contained in Note 11.

9. CUSTOMER CONCENTRATION

      Sales to the Company's major customers for the year ended October 31, 2004
for customers A and B amounted to 32% and 22% respectively.

10. PROPERTY, PLANT AND EQUIIPMENT, NET

      At October 31, Property, Plant and Equipment is as follows:

                -------------------------------------------------
                                                 October 31, 2004
                -------------------------------------------------
                Plant                            2,621,164
                Equipment                          697,587
                -------------------------------------------------
                                                 3,333,793

                Accumulated depreciation          -515,441

                -------------------------------------------------
                                                 2,818,352
                -------------------------------------------------


                                      F-13
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

11. SUBSEQUENT EVENTS

      On or about December 29, 2004 the Company received additional equity
financing in the amount of $215,000 in exchange for common stock issued at a per
share price of $0.11. This additional financing was the fulfillment of a
conditional subscription agreement entered into by the purchasers during fiscal
2004.

      Between October 31, 2004 and December 31, 2004 the company borrowed
approximately $57,000 from various individuals at an interest rate of 6%. The
borrowed funds were used as operating capital. Those loans have since been
repaid.

      On November 7, 2004 the Board of Directors rescinded the 2003 Stock Option
Plan and adopted in its place the 2004 Stock Option Plan, authorizing issuance
of options on up to 60 million shares of the Company's common stock. Subsequent
to that date, the Board approved issuance of options to purchase approximately
47,000,000 shares to existing officers, directors and employees, subject to
shareholder approval of the plan. Of the options to be granted, approximately
28,000,000 were deemed vested based on length of service with the Company since
the date the Company's Plan of Reorganization was approved.

12. INTANGIBLE ASSETS

      The Company issued detachable stock purchase warrants with an aggregate
fair market value of $165,600 that expire in 2008. During the year ended October
31, 2004, 3,440,000 warrants were cancelled with an aggregate value of $103,000.
For the year ended October 31, 2004 the Company recognized amortization expense
of $22,800. Estimated amortization expense for each of the years ended October
31, is as follows:

     2005:    $12,480
     2006:    $12,480
     2007:    $12,480
     2008:    $ 6,240


                                      F-14