UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB/A
                                (Amendment No. 1)

                             (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, 2002             NUMBER 33-23460-LA


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


                  DELAWARE                             04-3683628
          (STATE OF INCORPORATION)        (I.R.S. EMPLOYER IDENTIFICATION NO.)


                        777 SOUTH HIGHWAY 101, SUITE 215
                             SOLANA BEACH, CA 92075
                                 (858) 847-9000
             (ADDRESS AND TELEPHONE OF PRINCIPAL EXECUTIVE OFFICES)

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


         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 is not 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:
$662,072

<PAGE>

         The aggregate market value of the common equity held by non-affiliates
computed by reference to the price at which the common equity was sold as of
January 14, 2003, was $19,417,617.

         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:
Yes  [X]   No  [ ]

         The number of shares outstanding of common stock, as of October 31,
2002, was 388,803,300 shares of Common Stock, $0.0001 par value.

         Documents Incorporated by Reference:  None

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

                                EXPLANATORY NOTE

         This Amendment No. 1 to the annual report on Form 10-KSB/A is being
filed to correct the disclosure of certain Notes Payable that were issued and
repaid subsequent to the end of Mera Pharmaceuticals' fiscal year. The
corrections are made only to the paragraphs relating to the applicable Notes
Payable as follows:

         Paragraph 3 of Note 8 to the audited financial statements (Item 7 of
Part II)

         Paragraph 3 of "Certain Relationships and Related Transactions" (Item
12 of Part III).


                                     Part II

ITEM 7.  FINANCIAL STATEMENTS

Audited balance sheet as of October 31, 2002 and the related statements of
operations and accumulated deficit, cash flows and stockholders' equity
(deficit) for the years ended October 31, 2002 and 2001 together with related
notes and the report of Buttke Bersch & Wanzek, PC, independent auditors, appear
on pages F-1 through F-20 of this Report.


                                    Part III

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 30, 2002, the Company issued 18,181,818 shares of common stock at
$0.11 per share, for an aggregate purchase price of $2,000,000, to a Hawaiian
limited liability company managed in part by Richard D. Propper, MD and Daniel
P. Beharry, both officers and directors of the Company.

On December 30, 2002, the Company issued 325 shares of Series B preferred stock
at $625.00 per share, for aggregate consideration of $203,000, to a limited
liability company managed by Richard D. Propper, MD and Daniel P. Beharry, both
officers and directors of the Company.


<PAGE>

During the months of July through December 2002, the Company issued various
promissory notes totaling $2,805,000 to a limited liability company managed by
Richard D. Propper, MD and Daniel P. Beharry, both officers and directors of the
Company, for investment funds borrowed by the Company. $2,011,000 of such notes
were repaid subsequent to October 31, 2002 and reinvested into the Company. All
three promissory notes were cancelled upon repayment and all accrued interest on
the notes was forgiven. A new promissory note was negotiated by the parties and
issued on December 31, 2002 by the Company for the remaining balance of
$794,000. This promissory note accrues interest at 6% per annum and has a
maturity date of December 31, 2003.

During the month of November 2002, the Company entered into various convertible
promissory notes totaling $185,732 with Richard D. Propper, MD, an officer and
director of the Company. The terms of the notes include interest accruing at 10%
per annum and a maturity date of March 31, 2003. In addition, these convertible
promissory notes carry 5% warrant coverage and call for issuance of common stock
warrants to the lender equal to the face amount of the promissory notes divided
by $0.05, or warrants to purchase up to 3,440,000 shares of common stock. The
exercise price of the warrants is $0.05 per share and the warrants have 5 year
terms. On January 10, 2003 a payment of $13,901 in principal and accrued
interest was made against this obligation.

On August 1, 2002, the Company entered into a month-to-month consulting
agreement with Richard L. Sherman, a director of the Company. Under the
agreement Mr. Sherman is to receive $5,500 per month. Mr. Sherman was paid a
total of $5,500 under this agreement during the year ended October 31, 2002.

During the months June through July 2002, the Company entered into various
promissory notes totaling $117,300 with: Richard D. Propper, MD, an officer and
director of the Company; Daniel P. Beharry, an officer and director of the
Company; and a limited liability company which Richard D. Propper, MD and Daniel
P. Beharry, officers and directors of the Company, are managers, officers and
members. Interest was accrued at 12% per annum. On July 23, 2002 such notes were
repaid in full.

During the two years ended October 31, 2001, Mr. Kowal, a director and
beneficial owner of over 5% of our common stock purchased 7,833,334 shares of
common stock at $0.15 per share. In connection with the purchase, Mr. Kowal
received 1,175,000 warrants with an exercise price of $0.40 per share. All of
these transactions preceeded Mr. Kowal's becoming a director of the Company on
June 17, 2002.


<PAGE>


                              FINANCIAL STATEMENTS

                            Mera Pharmaceuticals, Inc

CONTENTS

Report of Independent Auditors.............................................. F-2

Audited Financial Statements:

Balance Sheets as of October 31, 2002 and 2001.............................. F-3

Statements of Operations for the Periods
November 1, 2001 through September 16,
2002 September 17, 2002 through October 31, 2002
and the Year Ended October 31, 2001......................................... F-4

Statements of Stockholders' Equity
(Deficit) for the Periods
November 1, 2001 through September 16, 2002
September 17, 2002 through October 31, 2002
and the Year Ended October 31, 2001......................................... F-5

Statements of Cash Flows for the Periods
November 1, 2001 through September 16,
2002 September 17, 2002 through October 31, 2002
and the Year Ended October 31, 2001......................................... F-7

Notes to the Financial Statements........................................... F-8





<PAGE>



The Board of Directors
Mera Pharmaceuticals, Inc.


We have audited the accompanying balance sheets of Mera Pharameuticals, Inc. as
of October 31, 2002 (Successor Company) and Aquasearch, Inc, as of October 31,
2001 (Predecessor Company) and the related statements of operations,
stockholder's equity/(deficit) and cash flows for the ten and one-half months
ended September 16, 2002 and the year ended October 31, 2001 (Predecessor
Company) and the month and one-half ended October 31, 2002 (Successor Company).
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 auditing standards generally accepted
in the 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 audits provide a reasonable basis for our
opinion.

As discussed in Note 3, effective September 16, 2002, the Company was
reorganized under a plan confirmed by the United States Bankruptcy Court,
District of Hawaii and adopted a new basis of accounting whereby all remaining
assets and liabilities were adjusted to their estimated fair values.
Accordingly, the financial statements for periods subsequent to the
reorganization are not comparable to the financial statements presented for
prior periods.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mera Pharmaceuticals, Inc. as
of October 31, 2002 (Successor Company) and Aquasearch, Inc, as of October 31,
2001 (Predecessor Company) and the results of their operations and their cash
flows for the ten and one-half months ended September 16, 2002 and the year
ended October 31, 2001 (Predecessor Company) and the month and one-half ended
October 31, 2002 (Successor Company) in conformity with accounting principles
generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's losses from operations and working capital
deficit at October 31, 2002 raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
be Company be unable to continue as a going concern.


/S/ Buttke, Bersch & Wanzek
    --------------------------
    Buttke, Bersch & Wanzek, P.C.
    Lake Havasu City, AZ
    January 24, 2003

                                      F-2

<PAGE>

                           MERA PHARMACEUTICALS, INC.
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                     Successor                Predecessor
                                                                ---------------------      ------------------
                                                                  October 31, 2002         October 31, 2001
                                                                ---------------------      ------------------
                                     ASSETS
Current assets:
<S>                                                             <C>                        <C>
    Cash and cash equivalents                                            $    40,349             $    47,398
    Accounts receivable and accrued sales, net                               611,759                 101,625
    Tax receivable                                                            36,914                       -
    Inventories                                                            1,001,303                 535,461
    Investment receivable                                                    500,000                       -
    Prepaid expenses and other                                                57,893                   4,326
                                                                         -----------             -----------
Total current assets                                                       2,248,218                 688,810
                                                                         -----------             -----------

Plant and equipment, net                                                   3,205,768               3,449,794
Goodwill, net                                                                 66,550                       -
                                                                         -----------             -----------
Total Assets                                                             $ 5,520,536             $ 4,138,604
                                                                         ===========             ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable and accrued expenses                                  $ 879,153             $ 1,940,189
    Due to officer                                                                 -                 297,000
    Notes payable                                                          2,700,000               1,405,000
    Notes payable to officer                                                       -                 954,362
    Deferred notes payable                                                   500,000                       -
    Deferred revenue                                                         800,000                       -
                                                                         -----------             -----------
Total Current Liabilities                                                  4,879,153               4,596,551
                                                                         -----------             -----------

Stockholders' deficit:
    Preferred stock (5,000,000 shares authorized)                                  -                       -
    Common stock, $.0001 par value: 200,000,000
         shares authorized, and 122,134,419 shares issued
         and outstanding at October 31, 2001 (predecessor)                         -                  13,335
    Common stock, $.0001 par value: 500,000,000
         shares authorized, and 388,803,300 shares issued
         and outstanding at October 31, 2002 (successor)                      38,880                       -
    Additional paid-in capital                                             1,503,856              19,976,153
    Accumulated deficit                                                     (901,353)            (20,447,435)
                                                                         -----------             -----------
Total stockholders' equity (deficit)                                         641,383                (457,947)
                                                                         -----------             -----------

Total Liabilities and Stockholders' Equity (Deficit)                     $ 5,520,536             $ 4,138,604
                                                                         ===========             ===========

    See the accompanying notes to the financial statements

</TABLE>


                                      F-3

<PAGE>


          MERA PHARMACEUTICALS, INC.
      Condensed Statements of Operations
<TABLE>
<CAPTION>
                                                     Successor                   Predecessor
                                               -----------------------      --------------------------------------------
                                                 September 17, 2002            November 1, 2001       Twelve Months
                                                      Through                      Through                Ended
                                                  October 31, 2002            September 16, 2002     October 31, 2001
                                               -----------------------      --------------------------------------------
Revenue
<S>                                                       <C>                          <C>                  <C>
   Products                                               $    17,777                  $   323,212          $   547,868
   Contract Services                                           15,443                      245,123              256,607
   Royalties                                                   15,350                       45,167              228,169
                                                          -----------                  -----------          -----------

Total Revenue                                                  48,570                      613,502            1,032,644
                                                          -----------                  -----------          -----------
Costs and Expenses
   Cost of products sold                                       10,627                      145,505              265,316
   Cost of subcontract services                                36,054                      413,051              239,155
   Research and development costs                             158,299                      754,408            1,759,619
   General and administrative                                 302,147                      933,725            2,559,565
   Depreciation                                                68,867                      145,290                    -
                                                          -----------                  -----------          -----------

Total costs and expenses                                      575,994                    2,391,979            4,823,655
                                                          ===========                  ===========          ===========

Operating loss                                               (527,424)                  (1,778,477)          (3,791,011)

Other income (expense):
   Interest income                                                106                          979                    -
   Interest expense                                           (17,891)                     (85,893)            (300,560)
                                                          -----------                  -----------          -----------

Total other income (expense)                                  (17,785)                     (84,914)            (300,560)

Net loss before reorganization items                         (545,209)                  (1,863,391)          (4,091,571)
                                                          -----------                  -----------          -----------

Professional fees related to reorganization                         -                     (192,477)                   -
                                                          -----------                  -----------          -----------

Net loss before income tax provision                         (545,209)                  (2,055,868)          (4,091,571)

Income tax expense                                             (1,400)                      (7,190)                   -
Refundable tax credit                                           4,719                      214,910                    -
                                                          -----------                  -----------          -----------

Net loss                                                   $ (541,890)                $ (1,848,148)        $ (4,091,571)
                                                          ===========                  ===========          ===========

Loss per share - basic and diluted                              (0.00)                       (0.02)               (0.04)
Weighted average shares outstanding                       308,803,300                  122,131,237          113,475,945

</TABLE>

       See the accompanying notes to the financial statements

                                      F-4
<PAGE>


                    Mera Pharmaceuticals, Inc
     Condensed Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
                                             Common                   Additional                                    Stockholders'
                                              Stock                     Paid In          Notes       Accumulated        Equity
                                             Shares        Amount       Capital       Receivable       Deficit        (Deficit)
                                         -----------------------------------------------------------------------------------------
Predecessor
<S>                                       <C>           <C>           <C>              <C>          <C>                 <C>
Balance at October 31, 2000                105,589,076   $    11,679   $16,970,990      $ (29,179)   $ (16,355,821)      $ 597,669

Issuance of stock on conversion
   of convertible notes payable
   ($0.14 to $0.44 per share)                5,470,343           547     1,128,432              -                -       1,128,979

Sales, grants, and issuance of
   stock upon exercise of stock options
   ($0.10 to $0.36 per share)               11,075,000         1,109     1,733,736              -                -       1,734,845

Payment on notes receivable
  issued upon exercise of common
  stock options                                     -            -             -           29,179                -          29,179

Discount on convertible notes payable               -            -         142,995             -                 -         142,995

Loss for the year ended October 31, 2001            -            -             -               -        (4,091,571)     (4,091,571)
                                         ------------------------------------------------------------------------------------------

Balance at October 31, 2001                122,134,419        13,335    19,976,153             -       (20,447,435)       (457,947)
                                         ------------------------------------------------------------------------------------------
Loss from November 1, 2001 through
  September 16, 2002                                -           -             -                -        (1,848,148)     (1,848,148)

Elimination of prior equity               (122,134,419)      (13,335)  (19,976,153)            -        22,295,583       2,306,095

                                         ------------------------------------------------------------------------------------------

Balance September 16, 2002                          -            -             -               -                -              -
                                         ------------------------------------------------------------------------------------------

</TABLE>

                                      F-5



<PAGE>

                            MERA PHARMACEUTICALS, INC
          Condensed Statements of Stockholders' Equity (Deficit) Con't

<TABLE>
<CAPTION>
                                        Common                       Additional                                    Stockholders'
                                        Stock                         Paid In          Notes       Accumulated        Equity
                                        Shares          Amount         Capital       Receivable       Deficit        (Deficit)
                                     ---------------------------------------------------------------------------------------------
<S>                                   <C>              <C>           <C>            <C>            <C>             <C>
SUCCESSOR

Distribution of new common shares -
  September 16, 2002                  388,803,300        38,880       1,503,856              -                -      1,542,736

Loss retained in merger with
  Aqua RM Co., Inc.                            -             -               -               -         (359,463)      (359,463)

Loss from September 17, 2002 through
  October 31, 2002                             -             -               -               -         (541,890)      (541,890)

                                     ---------------------------------------------------------------------------------------------

Balance at October 31, 2002            388,803,300     $ 38,880      $ 1,503,856       $     -       $ (901,353)     $ 641,383
                                     =============================================================================================

</TABLE>




     See the accompanying notes to the financial statements

                                      F-6
<PAGE>

                           MERA PHARMACEUTICALS, INC.
                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                               Successor                           Predecessor
                                                         -----------------------    ----------------------------------------
                                                           September 17, 2002         November 1, 2001      Twelve Months
                                                                 Through                   Through              Ended
                                                            October 31, 2002         September 16, 2002   Ocotber 31, 2001
                                                         -----------------------    ----------------------------------------
Cash Flows from Operating Activities:
<S>                                                        <C>                        <C>                  <C>
Net loss                                                   $ (541,890)                $ (1,848,148)        $ (4,091,571)
Adjustments to reconcile net loss to net cash
used in operating activities:
    Accumulated depreciation                                   20,797                      231,636              266,631
    Allowance on note receivable from officer                       -                            -               50,000
    Expenses paid with common stock                                 -                            -              430,466
   Discount on convertible notes payable                           -                            -              153,582
Changes in assets and liabilities, net of effects
of debt discharge and fresh start adjustments:
    Accounts receivable                                        11,139                       78,727              (89,269)
    Tax receivable                                            177,996                     (214,910)                   -
    Inventories                                               (87,709)                    (378,133)            (535,461)
    Other current assets                                      (23,894)                     (29,672)              10,610
    Accounts payable and accured expenses                     (33,590)                    (217,801)             768,224
    Deferred revenue                                          100,000                       56,810                    -
                                                          -----------                  -----------          -----------
Net cash used by operating activities                        (377,151)                  (2,321,491)          (3,036,788)
                                                          -----------                  -----------          -----------

Cash Flows from Investing Activities:
    Purchases of fixed assets                                    (774)                      (7,633)            (269,156)
                                                          -----------                  -----------          -----------
Net cash used by investing activities                            (774)                      (7,633)            (269,156)
                                                          -----------                  -----------          -----------

Cash Flows from Financing Activities
    Proceeds from issuance of common stock                         -                            -             1,647,087
    Proceeds from short term advances                              -                            -              (500,000)
    Proceeds from notes payable                               350,000                    2,350,000            1,807,087
    Offering costs                                                 -                            -              (110,324)
                                                          -----------                  -----------          -----------
Net cash provided by financing activities                     350,000                    2,350,000            2,843,850
                                                          -----------                  -----------          -----------

Net increase (decrease) in cash and cash equivalents          (27,925)                      20,876             (462,094)
Cash and cash equivalents, beginning of the period             68,274                       47,398              509,492
                                                          -----------                  -----------          -----------
Cash and cash equivalents, end of the period              $    40,349                  $    68,274          $    47,398
                                                          ===========                  ===========          ===========
Supplemental non-cash information
    Conversion of notes payable to common stock           $        -                   $        -           $ 1,112,087
    Increase (reduction) in notes payable to officer and           -                            -               196,943
     related interest for exercise of stock options

 See the accompanying notes to the financial statements
</TABLE>


                                      F-7
<PAGE>


                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION -- Mera Pharmaceuticals, Inc. (the "Company"), 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 and its corporate offices are
located in Solana Beach, California.

         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 microalgae.

         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.

         FRESH START ACCOUNTING -- Upon emergence from bankruptcy, the Company
adopted "fresh start" accounting. As a result, all assets and liabilities were
restated to reflect their respective fair values. The condensed financial
statements after emergence are those of a new reporting entity (the "Successor")
and are not comparable to the financial statements of the pre-confirmation
company (the "Predecessor"). A black line has been drawn in the financial
statements to distinguish Predecessor and Successor Company results. (See Note 3
- "Bankruptcy Proceedings and Fresh Start Accounting.")

         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.

         CREDIT RISK - It is the Company's practice to place its cash
equivalents in high quality money market securities with one major banking
institution. 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
31,2002, inventories consisted of $864,944 of work in process and $136,359 of
finished goods and are stated at cost.


                                       F-8
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001


1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         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 as received. The Company
has adopted Securities and Exchange Commission's Staff Accounting Bulletin (SAB)
No. 101, which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements.

         PLANT AND EQUIPMENT -- Property, plant and equipment 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).

         On September 16, 2002 in connection with the adoption of fresh start
accounting, property, plant and equipment were restated at their fair values and
new useful lives for such assets were estimated (see Note 3).

         IMPAIRMENT OF LONG LIVED ASSETS AND LONG LIVED ASSETS TO BE DISPOSED OF
-- In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets" which supersedes both Statement of Financial
Accounting Standards No. 121 ("SFAS 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 APB Opinion No. 30 ("Opinion 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 144 retains the fundamental provisions of SFAS 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 121. The adoption of SFAS 144 did not
have a material effect on the Company's consolidated financial position or
results of operations.

         INTANGIBLE ASSETS -- The Company accounts for intangible assets in
accordance with SFAS 144. 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.

         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. No
preferred stock has been issued as of October 31, 2002.

                                      F-9
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001


1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         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 COSTS - 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 Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), ACCOUNTING FOR INCOME TAXES. SFAS 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, 2002 and 2001 pursuant to the Statement of Financial
Accounting Standard (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.

         RECLASSIFICATION -- Certain prior year amounts have been reclassified
to conform with the 2001 presentation.

         RECENT AUTHORITATIVE PRONOUNCEMENTS - In June 2001, the Financial
Accounting Standards Board (FASB) issued SFAS No. 141 "Business Combinations."
This statement requires business combinations initiated after June 30, 2001, to
be accounted for using the purchase method of accounting. It also specifies the
types of acquired intangible assets that are required to be recognized and
reported separately from goodwill. The Company adopted SFAS No. 141 as of
January 1, 2002. The statement is not expected to have a material effect on the
Company's financial position or results of operations.

         In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other
Intangible Assets." This statement addresses how intangible assets that are
acquired individually or with a group of other assets should be accounted for
upon their acquisition. This statement also addresses how goodwill and other
intangible assets should be accounted for after they have been initially
recognized in the financial statements. The Company adopted SFAS No. 142 as of
January 1, 2002. The statement is not expected to have a material effect on the
Company's financial position or results of operations.


                                      F-10

<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

         In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 establishes accounting standards
for recognition and measurement of a liability for the costs of asset retirement
obligations. Under SFAS 143, the costs of retiring an asset will be recorded as
a liability when the retirement obligation arises, and will be amortized to
expense over the life of the asset. The statement is not expected to have a
material effect on the Company's financial position or results of operations.

         In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." 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 during the fiscal year
ending October 31, 2002. The statement is not expected to have a material effect
on the Company's financial position or results of operations.

         In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers." This Statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The Company does not expect the adoption to have a material impact
to the Company's financial position or results of operations.

         In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company does not expect the adoption to have a material impact to the Company's
financial position or results of operations.

         In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 addresses the
disclosure requirements of a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
FIN 45 also requires a guarantor to recognize, at the inception of a guarantee,
a liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN 45 are effective for Avnet in its
quarter ended December 27, 2002. The liability recognition requirements will be
applicable prospectively to all guarantees issued or modified after December 31,
2002. Management is assessing the impact of FIN 45.

                                      F-11
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001


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 $901,353 through the year ended
October 31, 2002 and current liabilities exceeded current assets by $2,630,935.
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. BANKRUPTCY PROCEEDINGS AND FRESH START ACCOUNTING

         On October 30, 2001, certain creditors of the Company filed an
involuntary petition under Chapter 11 of the United States Bankruptcy Code
against Aquasearch, Inc. (predecessor to Mera) in United States Bankruptcy Court
for the District of Hawaii. On November 30, 2001, the Company stipulated to an
entry of an Order for Relief, agreeing to the jurisdiction of the Bankruptcy
Court for purposes of resolving the petition. On December 3, 2001, the Company's
motion to the Bankruptcy Court to incur indebtedness was granted, and
Aquasearch, Inc. entered into a Debtor-in-Possession financing arrangement with
certain parties. On June 17, 2002, the Bankruptcy Court confirmed the Company's
Plan of Reorganization (the "Plan"). Under Chapter 11, certain claims against
the Debtor accruing prior to the filing of the petition for relief under the
federal bankruptcy laws were stayed while the Debtor continued to operate. These
claims are identified in the balance sheet as "liabilities subject to
compromise."

         Pursuant to the Plan, on July 25, 2002, Aquasearch, Inc., merged with
Mera Pharmaceuticals, Inc., a Delaware corporation, for the purpose of changing
Aquasearch's name to "Mera Pharmaceuticals, Inc." and reincorporating in
Delaware. Mera Pharmaceuticals, Inc. is the surviving corporation and is
considered the successor issuer to Aquasearch, Inc. under federal securities
laws. Pursuant to this merger, each share of Aquasearch, Inc. common stock,
issued and outstanding immediately prior to July 25, 2002, was changed and
converted into one share of Mera Pharmaceuticals, Inc. common stock.

         Also pursuant to the Plan, Aqua RM Co., Inc. ("Aqua RM") merged with
and into the Company on September 16, 2002 (the "Merger"). A total of
263,992,029 shares of the Company's common stock were issued to Aqua RM
shareholders in consummation of this merger. In addition, 2,661,332 shares of
the Company's common stock were issued pursuant to the Plan to holders of
warrants of Aquasearch, Inc. that were validly issued and outstanding as of
October 31, 2001. Total shares of common stock of Mera Pharmaceuticals, Inc.
issued and outstanding following this Merger are 388,803,300. The merger was the
final outstanding material event to achieve compliance with the requirements of
the Plan, and, as such, the effective date of the Plan (the "Effective Date")
was September 16, 2002, the date of this Merger. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 141, the merger was accounted for
using the purchase method of accounting.

         For reporting purposes the foregoing stock-exchange transaction has
been accounted for as a reverse acquisition in which Mera Pharmaceuticals, Inc.
acquired all the assets and liabilities of Aqua RM, Inc. recording them at their
fair value as if Mera Pharamaceuticals, Inc. remained thereporting entity.
Because Mera Pharamaceuticals, Inc. is the entity for legal purposes, all equity
transactions have been restated in terms of this corporation's capital
structure.

                                      F-12
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001


3. BANKRUPTCY PROCEEDINGS AND FRESH START ACCOUNTING (CONT'D)

         In accounting for the effects of the reorganization, the Company
adopted "fresh start" accounting principles contained in the American Institute
of Certified Public Accountants Statement of Position 90-7 ("SOP 90-7"). The
Company applied principles contained in SOP 90-7 because after the merger with
Aqua RM, existing Mera shareholders owned less than 50% of Mera's total issued
and outstanding common stock and the reorganization value of Mera's assets upon
completion of the Plan was less than the sum of total pre-petition liabilities
allowed plus post-petition liabilities.

         Fresh start accounting principles require that the Company establish a
reorganization value. Management calculated the Company's reorganization value
to be $4,700,000 based on the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
<S>                                                                     <C>
New notes payable                                                       $  2,350,000
Commitment for additional notes                                              850,000
Common stock issued to existing Mera shareholders ($.0001 par value)          13,335
Common stock issued to former Aqua RM shareholders ($.0001 par value)         25,545
Additional paid in capital                                                 1,461,120
-------------------------------------------------------------------------------------
Total                                                                   $  4,700,000
-------------------------------------------------------------------------------------
</TABLE>

         In accordance with fresh start accounting, the Company's tangible and
intangible assets were recorded at their assumed fair value. Other intangible
assets in the amount of $66,550 were established as part of fresh start
accounting. Such assets are accounted for in accordance with SFAS No. 141, and
as such, will be tested annually for impairment.

         The application of fresh start accounting on the Company's September
16, 2002 balance sheet is as follows:







                                      F-13
<PAGE>

<TABLE>
<CAPTION>
                                  Mera                                                                         Mera
                              Pharmaceuticals                            Aqua RM CO.,      Adjustments    Pharmaceuticals
                               Setember 16,        Debt       Fresh           Inc.              For          Reorganized
                                  2002          Discharge     Start    Setember 16, 2002      Merger       Setember 16, 2002
                              ----------------------------------------------------------------------------------------------
<S>                           <C>               <C>          <C>       <C>                 <C>             <C>
 Current assets:
   Cash and cash
   equivalents                    (136,286)                                   204,560(d)                         68,274
   Accounts receivable, net        622,898                                         -                            622,898
   Tax receivable                  214,910                                         -                            214,910
   Notes receivable                336,904                                         -          (336,904)(e)           -
   Investment Receivable
                                                  850,000(a)                                                    850,000
   Inventories                     913,595                                         -                            913,595
   Prepaid expenses and
    other                           33,999                                         -                             33,999
                              ----------------------------------------------------------------------------------------------
 Total current
   assets                        1,986,020        850,000                     204,560(d)      (336,904)       2,703,676
                              ----------------------------------------------------------------------------------------------
 Plant and equipment, net        3,221,780                                      4,009(d)                      3,225,789
 Goodwill                                                      48,310(c)                        18,240(f)        66,550
 Total assets                    5,207,800        850,000      48,310         208,569(d)      (318,664)       5,996,015
                              ==============================================================================================
 Current liabilities:
 Liabilites not subject to
  compromise
    Accounts payable and
    accrued exppenses              629,971         58,948(b)             223,823(d)                             912,742
    Notes payable                2,350,000                               336,904(d)           (336,904)(e)    2,350,000
    Deferred notes payable                        850,000(a)                                                    850,000
                              ----------------------------------------------------------------------------------------------
    Deferred revenue               700,000                                                                      700,000
                              ----------------------------------------------------------------------------------------------
 Liabilites subject to
   compromise                    3,833,925     (3,833,925)(b)


 Total current liabilities       7,513,896     (2,924,977)         -          560,727(d)      (336,904)       4,812,742
                              ----------------------------------------------------------------------------------------------
 Stockholders' deficit:
    Common stock, old               13,335        (13,335)                                                           -
    Common stock, new                              13,335                                       25,545(g)        38,880
    Common stock, ARM                                                           2,640(d)        (2,640)(g)          -
    Additional paid-in
     capital                    19,976,153      1,503,856(b) (19,976,1(c)    191,360(d)      (191,360)(g)    1,503,856
    Accumulated deficit        (22,295,584)     2,271,121(b) 20,024,46(c)  (546,158)(d)      186,695(h)      (359,463)
                              ----------------------------------------------------------------------------------------------
 Total stockholders'
  equity (deficit)              (2,306,096)     3,774,977      48,310        (352,158)(d)       18,240        1,183,273
                              ----------------------------------------------------------------------------------------------
 Total Liabilities and
  Stockholders'Equity
  (Deficit)                      5,207,800        850,000      48,310         208,569(d)      (318,664)       5,996,015
                              ==============================================================================================

</TABLE>

                                      F-14
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001


3. BANKRUPTCY PROCEEDINGS AND FRESH START ACCOUNTING (CONT'D)

(a) Additional loan commitment received.

     (b) Liabilities subject to compromise forgiven as of September 16, 2002
         (the effective date of the Plan) totaled $3,833,925. In accordance with
         SOP 90-7 the discharge of debt was allocated first to the new equity of
         the Company and then as gain from the forgiveness of debt. The
         allocation of the discharge of debt is as follows:

                ---------------------------------------------------------------
                Additional paid in capital                         $ 1,503,856
                Accounts payable (additional claims to be paid)         58,948
                Gain on forgiveness of debt (accumulated deficit)    2,271,121
                ---------------------------------------------------------------
                Total                                               $3,833,925
                ---------------------------------------------------------------

     (c) Fresh start adjustments were made to eliminate Mera's equity and
         accumulated deficit accounts through the Effective Date of the Plan and
         after the discharge of debt. Amounts in excess of these adjustments are
         recorded as goodwill and are accounted for in accordance with SFAS Nos.
         141 and 142 (see Note 2). All other assets are continuing to be carried
         at their net book value as of the Effective Date of the Plan. The
         calculation of the portion of goodwill calculated prior to the Merger
         is as follows:

                ---------------------------------------------------------------
                Elimination of accumulated deficit                $ 20,024,463
                Elimination of additional paid in capital         (19,976,153)
                ---------------------------------------------------------------
                Excess (entered as goodwill)                        $   48,310
                ---------------------------------------------------------------

      (d) Amounts recorded on the Aqua RM balance sheet as of the Merger date.

      (e) Elimination of inter-company loans made between Mera and Aqua RM.

      (f) Additional goodwill created as the result of fresh start adjustments
      in relation to the Merger.

      (g) Elimination of Aqua RM capital as a result of the Merger and
      fresh-start accounting adjustments. All outstanding shares of Aqua RM
      common stock were exchanged for shares of Mera common stock.

      (h) As part of the Plan, Aqua RM acquired certain claims of Mera
      creditors. Aqua RM recorded an expense of $186,695 in relation to such
      claims. As part of the Merger, Aqua RM's accumulated deficit is reduced by
      this amount to more accurately reflect the additional payment as
      satisfaction of liabilities subject to compromise.

5. RELATED PARTY TRANSACTIONS

         During the two years ended October 31, 2001, Mr. Gregory Kowal, a
director and beneficial owner of over 5% of our common stock, purchased
7,833,334 shares of common stock at $0.15 per share. In connection with the
purchase, Mr. Kowal received 1,175,000 warrants with an exercise price of $0.40
per share. All of these transactions preceded Mr. Kowal's becoming a director of
the Company on June 17, 2002.

                                      F-15
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001

5. RELATED PARTY TRANSACTIONS (CONT'D)

         On August 1, 2002, the Company entered into a month-to-month consulting
agreement with Richard L. Sherman, a director of the Company. Under the
agreement Mr. Sherman is to receive $5,500 per month. Mr. Sherman was paid a
total of $5,500 under this agreement during the year ended October 31, 2002.

6. 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.

         Since its formation the Company has incurred net operating losses. As
of October 31, 2002, 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. Current income tax expense is $8,590.

         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, 2002, the Company received $182,715 in QHTB tax credit
refunds. At October 31, 2002, approximately $36,914 in additional QHTB tax
credit refunds were receivable.

7. COMMITMENTS AND MATERIAL AGREEMENTS

         In January 2001 the Company entered into a research and license
agreement with a major university to access, manufacture, use and sell products
from a microalgal collection. Under terms of the research agreement, the
university is to receive reimbursement for its costs incurred in performing the
research. The budget over the initial two-year term for maintenance and research
work on the collection is approximately $550,000. The license agreement provides
for royalties to be paid to the university on income from commercialization of
products developed from the collection. During the year ended October 31, 2002,
a total of $22,675 was paid under the research agreement, and $0 was paid under
the license agreement.

         In June 2002, the Company entered into an Intellectual Property License
and Distribution Rights Agreement with Aqua RM (the "IP License Agreement").
Under the terms of this agreement, Aqua RM is to pay the Company $100,000 for
licensing certain intellectual property rights related to its product(s) to Aqua
RM and $100,000 to for rights to market, distribute and sell ASTAFACTOR(R) in
parts of Asia. This term of this agreement continues for as long as Aqua RM
continues to use an intellectual property of the Company, unless terminated
earlier.


                                      F-16
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001


7. COMMITMENTS AND MATERIAL AGREEMENTS (CONT'D)

            In June 2002, the IP License Agreement was assigned in its entirety
by Aqua RM to Aqua Culture, Inc., an international business company which is
co-owned by an entity which Richard D. Propper, MD and Daniel P. Beharry,
officers and directors of the Company, are members, managers and officers of
("Aqua Culture, Inc."). In August 2002, the IP License Agreement was assigned by
Aqua Culture, Inc. to Hainan Sunshine Bioengineering, Ltd., a joint venture made
up of five separate companies, including Aqua Culture, Inc.

         In June 2002, the Company entered into a lease for an office in San
Diego, California. The lease ends on May 31, 2003. Rent expense for this
facility is $10,578 per month.

8. NOTES PAYABLE

         During the months of December 2001 through April 2002, the Company
received $500,000 in Debtor In Possession financing from Chardan Ventures, of
which Richard D. Propper, MD and Daniel P. Beharry, officers and directors of
the Company, are principals, in connection with the Company's Plan of
Reorganization. Interest accrued at 12% per annum. On July 23, 2002 the Debtor
in Possession obligation was repaid in full.

         During the months June through July 2002, the Company entered into
various promissory notes totaling $117,300 with: Richard D. Propper, MD, an
officer and director of the Company; Daniel P. Beharry, an officer and director
of the Company; and a limited liability company which Richard D. Propper, MD and
Daniel P. Beharry, officers and directors of the Company, are managers, officers
and members. Interest was accrued at 12% per annum. On July 23, 2002 such notes
were repaid in full.

         During the months of July through December 2002, the Company issued
various promissory notes totaling $2,805,000 to a limited liability company
managed by Richard D. Propper, MD and Daniel P. Beharry, both officers and
directors of the Company, for investment funds borrowed by the Company. Of such
promissory notes, $2,700,000 was issued prior to October 31, 2002. $2,011,000 of
such notes were repaid subsequent to October 31, 2002 and reinvested into the
Company. All three promissory notes were cancelled upon repayment and all
accrued interest on the notes was forgiven. A new promissory note was negotiated
by the parties and issued on December 31, 2002 by the Company for the remaining
balance of $794,000. This promissory note accrues interest at 6% per annum and
has a maturity date of December 31, 2003.

         The Company's total interest expense was $103,784 and $300,560 for the
years ended October 31, 2002 and 2001, respectively.

         Notes outstanding prior to the filing of the involuntary Bankruptcy
Petition on October 30, 2001 have been paid in the amounts provided for by the
Plan, and the remaining balances were discharged. These transactions have been
accounted for in conjunction with the Company's adoption of fresh start
accounting (see Note 3).

                                      F-17
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001



9. COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS

         Under the Plan, all common stock outstanding as of October 31, 2001 was
converted, on a one-for-one basis, into common stock in the reorganized Company.
In addition, every five valid warrants to purchase stock in the Company that
were outstanding as of October 31, 2001 were converted into one share of common
stock in the Company. The conversions took place upon the fulfillment of the
Company's obligations under the Plan on September 16, 2002. The conversion of
warrants into common stock resulted in the issuance of an additional
2,661,332shares of the Company's common stock.

         Total shares of common stock of Mera Pharmaceuticals, Inc. issued and
outstanding upon the fulfillment of the of the Company's obligations under the
Plan was 124,811,271. Issuance of stock in these transactions is exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
1145 of the United States Bankruptcy Code. No underwriters were involved in
these transactions, and no commissions were paid to any party in connection with
them.

         In addition, under the Plan and as part of the merger with Aqua RM,
shareholders of Aqua RM were issued 100 shares of the Company's common stock for
each share of Aqua RM stock they held. A total of 263,992,029 shares of the
Company's common stock were issued to Aqua RM shareholders in consummation of
the Merger. The issuance took place upon the fulfillment of the Company's
obligations under the Plan on September 16, 2002. The total shares of the
Company's common stock issued and outstanding after the Aqua RM merger was
388,803,300.

         On June 6, 2002, the Company (as Aquasearch) issued 1,400,000 shares of
common stock to Western Financial Communications, Inc., a consultant, as
compensation for services. The value of the services received was accrued in the
fiscal year ended October 31, 2001 based on management's estimate of the fair
value of the shares issued, and a corresponding expense was recorded. As such,
the amount of shares has been included in the calculation of total shares
outstanding in financial statements starting with and subsequent to October 31,
2001, even though the issuance did not take place until June 2002. This
transaction was exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2). No underwriters were involved in this
transaction, and no commissions were paid to any party in connection with it.
The shares issued to Western Financial Communications, Inc. in this transaction
are among the shares converted into stock in the reorganized Company, as
described in the first paragraph under this item 10.

10. 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 (see
Note 3).

11. CUSTOMER CONCENTRATION

         Sales to the Company's major customers for the year ended October 31,
2002 for customers A, B, C and D amounted to 41%, 18%, 8% and 6%.

                                      F-18
<PAGE>
                           MERA PHARMACEUTICALS, INC.
                        NOTES TO THE FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED OCTOBER 31, 2002 AND 2001


12. PROPERTY, PLANT AND EQUIIPMENT, NET

                           Successor                   Predecessor
                        October 31, 2002    September 16, 2001 October 31, 2001

Plant
                           2,616,604          3,280,474              3,280,475
Equipment
                           609,961            1,105,584              1,097,952

                           3,226,565          4,386,058              4,378,427
Accumulated depreciation
                           (20,797)          (1,160,269)              (928,633)

                           3,205,768          3,225,789              3,449,794

13. DEFERRED REVENUE

         In May 2002, the Company recognized revenue in the amount of $100,000
as the result of a product sale. Pursuant to the Company's revenue recognition
policy, the sale was recognized upon shipment to the customer. In October 2002,
the product was returned from the customer and the revenue deferred. This sale
was made under contract and amounts received are not to be refunded. The
returned product will be reshipped at a later date.

14. LEGAL PROCEEDINGS

         On July 13, 1998, Cyanotech filed a complaint against the Company in
the United States District Court for the District of Hawaii (Case No.
CV98-00600ACK). In the complaint, Cyanotech sought declaratory judgment of
non-infringement of the Company's U.S. Letters Patent No. 5,541,056; invalidity
of the 5,541,056 Patent; and non-misappropriation of the Company's trade secrets
relating to closed culture production of astaxanthin. Cyanotech filed the
complaint after the Company expressed to Cyanotech its concern that Cyanotech
infringed the 5,541,056 Patent and misappropriated the Company's trade secrets.

         On September 11, 1998, the Company filed an answer denying all of
Cyanotech's allegations and a counter claim, alleging infringement of the
5,541,056 Patent; misappropriation of trade secrets; unfair competition; and
breach of contract relative to the parties' 1994 Dissolution Agreement.

         On December 30, 1999, the United States District Court for the District
of Hawaii granted summary judgment on the Company's motion that Cyanotech
infringed the Company's patent, misappropriated the Company's trade secrets and
breached the terms of the parties' 1994 Dissolution Agreement. In its order, the
Court found that the tube process used by Cyanotech for cultivating microalgae
infringed the 5,541,056 Patent. The Court further found that Cyanotech violated
the Uniform Trade Secrets Act and breached the 1994 Dissolution Agreement when
it misappropriated trade secrets relating to the Company's proprietary
closed-system technology for cultivation of microalgae.

         On March 6, 2001, the Company settled the litigation with Cyanotech
without admission of liability by either party. Under the agreement, Cyanotech
agreed to an injunction that prevents it from using any tube system for
microalgae production that infringes our U.S. Patent No. 5,541,056. The Company
agreed that Cyanotech's current proprietary process for producing microalgae,
known as the Phytodome, does not infringe our U.S. Patent No. 5,541,056.
Cyanotech will also pay undisclosed royalties to Aquasearch. The Companies
agreed to dismiss all claims with prejudice that were asserted in the
litigation. The Court entered an order to that effect and that our U.S. Patent
No. 5,541,056 is valid and enforceable.
14. LEGAL PROCEEDINGS (CON'T)

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<PAGE>

         Royalty income received in connection with the Cyanotech settlement for
the year ended October 31, 2002 totaled $60,517.

         On October 11, 2001 a complaint was filed by Kenneth Crowder against
the Company and certain unnamed individuals in the Superior Court of the State
of California, Orange County, alleging breach of contract in connection with
certain monies paid to the Company, and claiming damages in excess of
approximately $75,000. On October 16, 2001, an action was commenced by C&J
Distribution, a purchaser of ASTAFACTOR(TM) product, in the Superior Court of
California, San Bernadino County, against the Company, one of its officers and
unnamed individuals, alleging fraud and breach of contract in connection with an
alleged oral distribution agreement between the Company and plaintiff and
claiming damages in the amount of $35,000. The plaintiff's have withdrawn this
suit, with prejudice, and the Company considers the matter resolved.

         The Company was the debtor in an involuntary Chapter 11 Bankruptcy
proceeding, commenced October 31, 2001, as described in Note 3, above.

15. SUBSEQUENT EVENTS

         During the month of November 2002, the Company entered into various
convertible promissory notes totaling $185,732 with Richard D. Propper, MD, an
officer and director of the Company. The terms of the notes include interest
accruing at 10% per annum and a maturity date of March 31, 2003. In addition,
these convertible promissory notes carry 5% warrant coverage and call for
issuance of common stock warrants to the lender equal to the face amount of the
promissory notes divided by $0.05, or warrants to purchase up to 3,440,000
shares of common stock. The exercise price of the warrants is $0.05 per share
and the warrants have 5 year terms. On January 10, 2003 a payment of $13,901 in
principal and accrued interest was made against this obligation.

         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 $0.11 per share, for an aggregate purchase price of $2,000,000, to a
Hawaiian limited liability company managed in part by Richard D. Propper, MD and
Daniel P. Beharry, both 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).

         On December 30, 2002, the Company issued 325 shares of Series B
preferred stock at $625.00 per share, for aggregate consideration of $203,000,
to a limited liability company managed by Richard D. Propper, MD and Daniel P.
Beharry, both 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).

         On January 3, 2003, the Company entered into a Memorandum of
Understanding ("MOU") setting forth the principal terms of an agreement
governing the merger (the "Merger") between the Company and Ancile
Pharmaceuticals, Inc., a California corporation ("Ancile"). The Company expects
to consummate the Merger during the second quarter of fiscal year 2003.

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