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, 2003          NUMBER 333-107716

                               ------------------
                           MERA PHARMACEUTICALS, INC.
                           (FORMERLY AQUASEARCH, 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)

                        777 SOUTH HIGHWAY 101, SUITE 215
                             SOLANA BEACH, CA 92075
                                 (858) 847-0747
          (ADDRESS AND TELEPHONE NUMBER 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)
                               ------------------

                            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 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:
$776,109.

         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 15, 2004, was $10,064,044.

         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,
2003, was 410,749,930 shares of Common Stock, $0.0001 par value.

         Documents Incorporated by Reference: None

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

                                     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


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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.

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 to change 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 (the "Plan"), discussed below.

SUMMARY OF REORGANIZATION PROCEEDINGS

The Company underwent reorganization pursuant to Chapter 11 of the U.S.
Bankruptcy Code during its fiscal year 2002. The following summarizes the
material events of the reorganization.

The Company was the subject of an involuntary bankruptcy petition filed on
October 30, 2001 by certain of its creditors. On March 27, 2002 the Company
filed its Motion to Approve Disclosure Statement and Schedule Hearing to Confirm
Plan of Reorganization with the Court. On May 20, 2002, the Court approved the
Company's Disclosure Statement. On June 17, 2002, after approval of the Plan by
all voting classes, the Court entered an order confirming the Plan. As of
September 16, 2002, the effective date of the Plan, the Company had materially
complied with all of the obligations and conditions of the Plan, then emerged
from reorganization as an operating company.

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").


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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
technology.

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.

The Company's business strategy is to exploit its leading position in microalgae
cultivation technology to expand the sales of ASTAFACTOR(R) 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 for infectious and proliferative diseases.

The Company currently manufactures its products at a four-acre research,
development and production facility in Kailua-Kona, Hawaii. The design of the
Chinese Facility, a large-scale cultivation and production facility in China, is
ongoing. Construction of the Chinese Facility will be coordinated to meet demand
for our product as it increases, both in the U.S. and in international markets.
The Chinese Facility will be owned and operated by a third party entity that
will utilize the Company's intellectual property under license for the
production of ASTAFACTOR(R). In return, the Company will receive a license fee
and is guaranteed favorable pricing on all of its ASTAFACTOR(R) requirements.
Domestic marketing and sales activities for ASTAFACTOR(R) currently include
sales to third party distributors and direct sales utilizing links to the
Company's website and toll-free ordering number. Marketing rights in China have
been reserved for the party that will construct and operate the Chinese
Facility. That party is to pay Mera a royalty for bottles of AstaFactor(R) sold
in the Chinese market. Initial distribution of ASTAFACTOR(R) in China was
expected to commence during calendar 2003, but the required regulatory approval
for doing so has not yet been obtained.

Competition varies according to product area. In nutraceuticals, 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. In the drug-discovery market, which we may enter in the
future, many biopharmaceutical companies are involved in searching for sources


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of new drugs. However, we believe that there are relatively few companies
currently exploring microalgae as their principal drug-discovery source, due to
their lack of access to the technology needed to cultivate the organisms in
sufficient quantity and with adequate control over environmental factors. In the
pharmaceuticals market, which we may also enter into in the future, we also
could face significant competition from large global pharmaceutical companies
that have greater resources than we. 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. However, we have licensed rights to
AQUAXAN(R) to the entity developing the Chinese Facility, and we are entitled to
receive a royalty on any product that they sell in this market.

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.

Our leased facility at the Hawaii Ocean Science and Technology Business Park 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, 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.
The location of the Chinese Facility, on Hainan Island, was chosen specifically
because of its similarities to our Hawaii location.

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



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     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;
          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.



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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, 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 other 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 related by research to the
protection of health, but astaxanthin has by far the strongest antioxidant
activity among them. 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.

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, combined with the cost advantages associated
with the Chinese Facility, when built, 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 Fall 2001. We continued
to expand our retail distribution, first into Longs Drugs system wide, and then


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into approximately 1200 Sav-On and Osco drug stores. However, our experience has
shown that effectively promoting retail sales requires longer format advertising
that 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 suggests 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.

(2) PRODUCT LINE EXPANSION

The Company is currently evaluating several 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.

(3) PHARMACEUTICAL DRUG DISCOVERY

Although the Company is not currently pursuing the pharmaceutical drug discovery
area, it has always appreciated the potential to discover pharmaceuticals that
are based on bioactive compounds produced by aquatic plants, and we may place a
greater emphasis on this aspect of our business in the future.

The likelihood of finding significant lead pharmaceutical compounds among
microalgae is substantial. More than 50% of all current prescription drugs are
of biological origin, but nearly all of these products have been derived from
terrestrial plants, such as fungi and bacteria. Although their bio-diversity is
comparable to that of land-based plants, microalgae have been nearly ignored as
a source of drug candidates, not because they lack medical value, but because
they could not be grown in sufficient quantities with the necessary quality. As
is the case with nutraceuticals, the MGM opens the way to exploitation of this
unexploited drug discovery resource.

If we expend efforts on pharmaceutical drug discovery, to the extent we are
successful in developing compound libraries containing large numbers of
bioactive compounds we believe that many pharmaceutical and biotechnology
companies will be interested in collaborating with us in the profiling and
characterization process.

While we believe that our focus on microalgae and the highly automated,
high-volume screening process that we may put in place significantly increases
the probability of identifying lead compounds that will ultimately prove
successful relative to more traditional means of doing so, our efforts to
develop pharmaceutical products from microalgae involve many significant risks
and uncertainties, and our efforts in this area may ultimately prove
unsuccessful.




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DEPENDENCE ON KEY CUSTOMERS

Our business currently depends heavily on key distribution relationships in
Hawaii. Sales to our largest customer, Longs Drugs, currently represents
approximately 30% of our ASTAFACTOR(R) sales. However, we are expecting this
percentage to decrease as a result of an increase in direct sales, distribution
through several additional retail chains in Hawaii, the move to distribute
internationally and other measures we are taking 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 product, ASTAFACTOR(R), 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
         product 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 to an extent that the added revenues
         from these additional sources will contribute significantly to revenue.
         Sales of these unbranded products would become an even more significant
         driver of profitability once demand reaches the point that justifies
         constructing the Chinese Facility.

         Another key element of our ASTAFACTOR(R) sales expansion efforts is the
         distribution agreement with the Chinese joint venture that is
         developing the Chinese Facility. China is a hospitable marketplace for
         the natural products the Company sells. We believe that the royalty
         revenue potential from Chinese sales is substantial, once the Chinese
         Facility is in production. The Company is also contemplating strategic
         third-party relationships to expand distribution of ASTAFACTOR(R) into
         other Asia-Pacific markets, which we also judge to be very receptive to
         both astaxanthin as a product and ASTAFACTOR(R) as a brand.

         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)       LICENSE WORLDWIDE RIGHTS TO ASTAXANTHIN ANIMAL FEEDS. Because the
         market for animal feed supplements, including AQUAXAN(R), is extremely
         price competitive, Mera Pharmaceuticals has licensed the worldwide
         right to make and distribute AQUAXAN(R) to the entity developing the
         Chinese Facility. Doing so allows the Company to focus its attention
         and resources on the higher value, higher margin nutraceutical market
         and potentially the pharmaceutical market.

3)       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 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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<PAGE>


4)       EXPAND STRATEGIC ALLIANCES. We intend to strengthen existing
         relationships and develop new ones to accelerate our efforts to
         commercialize microalgae products. When appropriate, we will
         collaborate with biopharmaceutical companies that possess world-class
         expertise in the optimization, development, marketing, sales and/or
         distribution of ethical pharmaceutical products, as well as the
         financial resources to conduct such programs on a worldwide basis, in
         order to accelerate the commercialization of future Mera
         Pharmaceuticals' discoveries.


MANUFACTURING

There is a substantial difference between the scale of our Kona facility and the
scale of the planned Chinese facility. In order to ease the transition of
production from one facility to the next, we are implementing improvements to
our production processes and facilities in Kona, with the expectation that we
can increase the total capacity of our plant by greater than 40%. These
modifications will require only modest capital expenditures. We are also able to
expand our production systems at Kona to an extent that would double our
capacity. At the point where production shifts to the Chinese Facility, we
intend to devote the Kona facility principally to high-value research and
development activity.

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 $1.24 million 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) 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) 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.




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<PAGE>

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.

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, compared to the MGM, 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, based in Hawaii, and
Algatechnologies and Minapro, both based in Israel, 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,
such as US Nutraceuticals of Eustis, Florida.

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 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, such as
Igene, which uses a fermentation process. However, to our knowledge, only
MicroGaia, AstaCarotene, 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. That cost advantage will
increase with the start of operations at the Chinese Facility.

PHARMACEUTICALS AND DRUG DISCOVERY PROGRAMS

Competition in the search for new pharmaceuticals is more intense than it has
ever been, particularly in the areas of anti-infectives, where multiple drug
resistance is rendering many old products ineffective, and cancer, where
extended life expectancies result in a greater incidence rate in a population
that is growing proportionately older. The majority of new drugs originate from
natural sources, and bacteria, fungi, plants and animal reservoirs continue to
be a principal target of drug discovery efforts by companies worldwide.

While there are a great number of companies seeking to develop pharmaceutical
products using a variety of processes, we believe the number of companies that
have targeted aquatic microorganisms as a source of lead compounds is relatively
few. That is because, even though this source is believed to contain a large
number of candidates, until Mera's recent technological innovations they could
not be developed, even if discovered.


                                       12




<PAGE>


Although we do not currently have any potential pharmaceutical products under
development and have curtailed our efforts and focus in this area, we may decide
in the future to place greater emphasis on it when resources become available.
Any potential competitor seeking to discover and develop pharmaceuticals from
microalgae-derived compounds must have access to the ability to cultivate
kilogram quantities of raw material under controlled conditions that assure
acceptable quality. We believe that our MGM technology makes this possible, and
we are aware of no other existing system that can accomplish the same level of
results with the same degree of reliability. In the future, if we choose to
pursue pharmaceutical discovery and development, the pharmaceuticals that we
derive from natural products screening libraries would compete with products
under development at various biotechnology companies based in North America and
elsewhere that also focus efforts on natural product pharmacology.

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 fifteen 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 process. These patents are active in the United
States, the People's Republic of China, Europe, Hong Kong, Japan and South
Korea. The original duration of these patents varies 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.

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.


                                       13



<PAGE>


LICENSE AND ROYALTY AGREEMENTS. We have licensed production of ASTAFACTOR(R) and
its distribution in China to Hainan Sunshine Marine Bioengineering Corporation,
Ltd., the entity that is developing the Chinese Facility. By doing so, the
Company will be able to realize increased production capabilities to meet
increased demand and establish a potential source of royalty revenues while
allowing us to focus our efforts on the higher margin activities of discovery,
development and commercialization of human nutraceutical and pharmaceutical
products. We have also licensed the production and worldwide distribution rights
to our AQUAXAN(R) animal feed supplement to Hainan Sunshine Marine
Bioengineering Corporation, Ltd. The terms of both of these licenses continue as
long as Hainan Sunshine Marine Bioengineering, Ltd. continues to utilize the
Company's intellectual property and meets certain conditions in the agreements.
We do not anticipate that revenues will be generated under these agreements
until construction of the Chinese Facility begins.

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)
                  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 extraction and encapsulation facilities must meet
GMP standards, and they do. We believe we are prepared to meet these
requirements more broadly when needed. The contract with the Chinese production
facility requires that it operate in accordance with GMP standards.



                                       14



<PAGE>


The Company currently distributes ASTAFACTOR(R) in the United States and it
intends to distribute it in certain foreign countries, including China, the
European Union, Japan, Canada and Australia. Regulatory approval requirements
vary by country. We believe the approval process for ASTAFACTOR(R) in China,
Australia, Japan and certain other Asian countries will come under their
"natural" status and be approved relatively quickly; however, we can provide no
assurances in this regard.

EMPLOYEES. As of October 31, 2003, the Company had ten (10) full-time employees.
We have begun hiring additional personnel in order to support the resumption of
production operations, which we are putting in place to meet anticipated
additional demand. 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. In
addition, the design of a large-scale cultivation facility in China has begun.
The Company has licensed its patented technology to the joint venture developing
the facility.

The Company is currently negotiating the terms of a sublease covering our
current parcel with the Natural Energy Laboratory of Hawaii Authority (NELHA),
the entity that administers the HOST Business Park. We anticipate reaching
agreement on the terms of the lease, to cover a period of not less than five (5)
years, during the first calendar quarter of 2004.

The Company's corporate headquarters and principal executive offices are located
in Solana Beach, California, where the Company leases office space. However, the
Company does not intend to renew that lease when it expires in mid-May 2004, and
all operations will again be consolidated in Hawaii. The Company's sublease of
office and laboratory space from Ancile Pharmaceuticals in San Diego, California
terminated during 2003. The Company briefly leased additional office space in
Solana Beach in February 2003 on a month to month basis to accommodate Ancile
personnel. As a result of the termination of the Ancile merger discussions, that
space is no longer being leased.


ITEM 3.  LEGAL PROCEEDINGS

The Company underwent a reorganization pursuant to Chapter 11 of the U.S.
Bankruptcy Code during its fiscal year 2002. The following summarizes the
material events of the reorganization.

The Company was the subject of an involuntary bankruptcy petition filed on
October 30, 2001 by certain of its creditors in the U.S Bankruptcy Court for the
District of Hawaii. The Company obtained interim financing and sought to emerge
from the proceeding as an operating company. On May 20, 2002, the Bankruptcy
Court approved the Company's Disclosure Statement and the Hearing to Confirm the
Plan of Reorganization (the "Plan") was set for June 17, 2002. On June 17, 2002,
the Bankruptcy Court entered an order confirming the Plan. As of September 16,
2002, the effective date of the Plan, the Company had materially complied with
all of the obligations and conditions of the Plan.



                                       15



<PAGE>


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 2003 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.


PERIOD                           HIGH BID                LOW BID
------                           --------                -------
FISCAL 2001
    First Quarter                $0.43                   $0.19
    Second Quarter               $0.37                   $0.21
    Third Quarter                $0.29                   $0.24
    Fourth Quarter               $0.26                   $0.12

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


                                       16



<PAGE>


As of October 31, 2003, we had approximately 700 record holders of our
410,249,930 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 that plan 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, but options have been authorized for less than 1/3 that number of
shares.

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 November 2002 the Company issued warrants to purchase up to 3,440,000 shares
of common stock to an officer and director of the Company in connection with
loans made to the Company. The outstanding principal and interest due and
payable on these notes is convertible into common stock at the per share price
of $0.05. The exercise price of the warrants is $0.05 per share, and the
warrants have 5-year terms. This transaction was exempt from registration under
the Securities Act of 1933, as amended, pursuant to Section 4(2).

During December 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).

During December 2002 the Company issued a promissory note for $50,000 to a
limited liability company for a loan it made to the Company through one of the
lender's members. The terms of this note included interest payable at 6% per
annum and a maturity date of December 31, 2002. This note was repaid in full on
December 30, 2002. 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 a promissory note for $55,000 to a limited
liability company for a loan in that amount that it made to the Company through
certain of the lender's members. The terms of this note included interest
payable at 6% per annum and a maturity date of December 31, 2002. This note was
repaid in full on December 30, 2002. This transaction was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).


                                       17



<PAGE>

In December 2002 the Company issued 18,181,818 shares of common stock at a price
of $0.11 per share to a Hawaiian 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 December 2002 the Company issued 974 shares of Series B preferred stock at a
price of $625.00 per share to a Delaware limited liability company. Each share
of Series B preferred stock is convertible into 8,929 shares of common stock.
That company is managed by persons who, at the time of the investment, 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).

In April 2003 the Company entered into a revolving line of credit with
Aquasearch Investment Partners, one of the general partners of which is a
director of the Company. The Company eventually borrowed $78,000 under that line
of credit, and it has since repaid the line in full. As a part of the
compensation payable by the Company to Aquasearch Investment Partners for its
extension of credit to the Company, the Company issued to Aquasearch Investment
Partners detachable warrants to purchase 1,560,000 shares of the Company's
common stock. The warrants have an exercise price of $0.05 per share and a term
of five years.

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. The total number of shares of stock
issued under this agreement was 411,333. This transaction was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).

In June 2003 the Company issued a note for $50,000 to an investor who loaned the
Company that amount. The terms of the note included interest payable at the rate
of 10% and a maturity date of March 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 400,000 shares of the Company's common
stock. The warrants have an exercise price of $0.05 per share and a term of five
years.

In July 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 at the time of the assignment of the note were
shareholders, officers and directors of the Company. The assigned note reflected
an investment by Ancile Opportunity Partners into Ancile Pharmaceuticals as
required under the memorandum of understanding by which the Company 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).

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 shareholder, 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 October 2003 the Company issued a promissory note to an officer and director
of the Company, in consideration for a loan of $6,000 to the Company. The note


                                       18



<PAGE>


has since been repaid in full. As part of the compensation for the loan, the
Company issued to the lender detachable warrants to purchase 120,000 shares of
the Company's common stock at a price of $0.05 per share, which warrants have a
term of five years.

In December 2003 the Company issued 16,909,901 shares of its common stock at a
price of $0.11 per share to a Delaware limited liability company. That company
is managed in part by a shareholder, 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 December 2003, the Company issued 2,590,909 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, 2003 we had
an accumulated deficit of $2,733,210. 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 2004 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.

         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 forging strategic alliances with companies and universities that
complement and leverage our technical strengths. 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.


                                       19




<PAGE>


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.

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.

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.

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.


                                       20


<PAGE>


RESEARCH AND DEVELOPMENT

Research and Development costs are expenses 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.

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.

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, 2003
               COMPARED TO THE FISCAL YEAR ENDED OCTOBER 31, 2002

         REVENUES. During the years ended October 31, 2003 and 2002, product
sales totaled $378,000 and $341,000, respectively. During fiscal 2003, these
sales were generated principally through distribution in Hawaii and through


                                       21




<PAGE>


direct sales. In addition, we had sales through Mainland retail outlets. The
actual improvement in revenues from product sales is greater than reflected in
those figures. A credit of $91,000 was issued in 2003 for returned product,
which reduced reported product sales by that amount for 2003. Most of the
returned product was booked as revenue in prior years. If the effect of the
credit were removed from 2003 and the revenue realized in 2002 on the returned
product were reversed, the increase in product sales for 2003 over 2002 would
exceed 70%. 73% in 2003 over 2002. This increase was due to a number of factors.
They include improving sales in the Hawaiian market, as well as a decision to
begin selling product in the raw materials market. While the raw materials
market offers lower margins than does the sale of finished consumer goods, it is
an increasingly important part of the growing market for astaxanthin worldwide.
Participation in this market will enable the Company to maximize its revenues,
which in turn will help to support the expansion of our direct and retail sales
and advance the Company's efforts to reach a positive cash flow during fiscal
2004.

         We earned revenues of $243,000 and $261,000 for the years ended October
31, 2003 and 2002, respectively, 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.

         Royalty revenues for the years ended October 31, 2003 and 2002 were
$156,000 and $61,000, respectively. Royalty revenues included amounts received
from another company based on sales of its products. These royalties will not be
received beyond the first quarter of 2004.

         In November 2002 the Company entered into a technical services
agreement with a Chinese joint venture to assist the joint venture in the design
and construction of a large cultivation and processing facility in Hainan, China
(the "Chinese Facility"). The same Chinese joint venture had also previously
entered into a license and distribution agreement with the Company to utilize
our intellectual property to produce AstaFactor(R) and to distribute
AstaFactor(R) in China. Under the terms of the consulting agreement, the Company
is to receive payments of up to $1 million in exchange for consulting services,
with the actual budget to be finalized. Construction of the Chinese Facility is
not expected to begin until demand for the Company's products justifies adding
that production capacity. The Company does not expect to receive any revenue
under the technical services agreement until construction of the Chinese
Facility begins. The Chinese joint venture has not yet obtained approval for
distribution of AstaFactor(R) in China. The Company's accumulated inventory,
together with its existing production capacity in Kona, is sufficient to meet
projected customer demands pending the availability of product from the Chinese
Facility.

         EXPENSES. Overall operating expenses were $2,809,000 in fiscal 2003,
compared with $2,968,000 in 2002, a decline of about 5%. Included in operating
expenses for 2003 are several non-recurring items that total approximately
$273,000. After adjustment for these items, operating expenses declined by just
under 15%. This reduction resulted principally from cost control measures
instituted during the second quarter of fiscal 2003.

         COST OF PRODUCTS SOLD. Cost of products sold include manufacturing and
production costs associated with ASTAFACTOR(R), as well as the cost of sales of
raw materials and certain other products. Cost of products sold was $318,000 and
$151,000 for the years ended October 31, 2003 and 2002, respectively. The higher
cost of products sold was due mainly to an increase in sales.

         COST OF CONTRACT SERVICES. Cost of contract services includes costs
associated with the U.S. Department of Energy project. During the years ended
October 31, 2003 and 2002, the cost of contract services was $390,000 and


                                       22




<PAGE>



$449,000 respectively. The changes in costs under this research agreement relate
to changes in the number of personnel assigned to perform work under this
project 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, 2003 were $334,000
as compared to $913,000 for 2002. 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 2003 were $1,554,000 versus
$1,236,000 for fiscal year 2002. The increase in selling, general and
administrative expenses is the result of several factors, which include the
shift of personnel from the Department of Energy project, and two non-recurring
charges in that category totaling more than $200,000.

         INTEREST EXPENSE. For the years ended October 31, 2003 and 2002,
interest expense was $110,000 and $104,000, respectively. The amount of interest
expense incurred in any particular period varies with the amount of debt
outstanding.


LIQUIDITY AND CAPITAL RESOURCES

         We have financed our operations until now through public and private
sales of debt and equity securities and debt instruments. During the years ended
October 31, 2003 and 2002, we raised approximately $1.12 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 2003 the
Company reduced the amount of notes payable outstanding by $1,760,000.

         During fiscal 2003, cash used in operating activities was approximately
$1.1 million compared with $2.7 million for fiscal 2002. The reduction in cash
used resulted from cost control measures and the use of inventory produced in
prior years to generate revenues. Further contributing to the reduction in cash
used was the fact that completion of our plan of reorganization in 2002 led to
higher than normal expenditures of cash in 2002.

         During the fiscal year ended October 31, 2002, the Company received
$2,700,000 in financing in the form of a promissory note. The terms of this note
included interest payable at 6% per annum. We used these funds to begin
repayment of our pre-bankruptcy obligations and Debtor in Possession financing,
as authorized in the Plan, which was confirmed by the Court on June 17, 2002. We
also used these funds to pay operating expenses incurred by the Company during
the year. During the fiscal year ended October 31, 2003, $2,050,000 of this debt
was repaid.

         During April 2003 the Company entered into a line of credit agreement
with Aquasearch Investment Partners, a general partner of which is a director of
the Company. Under the credit agreement, the Company may borrow up to $125,000
from Aquasearch Investment Partners at an annual interest rate of 10%. The
agreement has a term of one year. During fiscal 2003 the Company borrowed
$78,000 under the agreement, but it has since repaid that loan in full.

         During June 2003 the Company issued a promissory note in the face
amount of $50,000 in exchange for a loan made in that amount to the Company. The
outstanding principal amount of the loan accrued interest at the rate of 10% per
annum. The note had a maturity date of March 31, 2004, but the Company has
prepaid the note in full.



                                       23




<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 for aggregate
consideration of $225,000. The company to whom the stock was issued is managed,
in part, by shareholders, officers and directors of the Company, one of whom
continues to be.
     In October 2003 the Company issued a promissory note in the face amount of
$75,000 in consideration for a loan that it received. The Company has since
repaid that loan in full.

         The Company is owed additional amounts under a conditional license of
certain of its intellectual property rights ("IP") and the grant of the rights
to distribute its products in certain geographic markets. The condition to the
payment of the license and distribution rights fees is the performance of the
comprehensive technical services agreement the Company entered into with the
developer of the Chinese Facility.

         Subsequent to the end of fiscal year 2003, the Company received total
equity investment of $2,145,000. Of that amount, $1,500,000 were net proceeds,
including the fulfillment of the $285,000 conditional commitment it had received
in connection with another investment during fiscal 2003. $645,000 of the
proceeds from that investment was used to repay a note. In addition, the Company
has received a conditional commitment for an additional equity investment of
$265,000 prior to the end of calendar 2004. The Company believes that the
condition associated with that investment will be met and the investment will be
received, but as it does not expect to receive that investment during fiscal
2004, it is not reflected in the financial statements as an investment
receivable.

         As a result of the investment that the Company received subsequent to
the end of fiscal 2003, we expect to have sufficient capital resources, combined
with anticipated revenues, to sustain operations through fiscal 2004 and beyond.

                                  RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, IN ADDITION TO ALL
OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, 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.



                                       24

<PAGE>

We have had quarterly and annual operating losses since our inception in 1988.
From inception through September 16, 2002 (the date that we completed our
reorganization proceedings and adopted "fresh-start accounting") we had an
accumulated deficit of approximately $22,262,111. From September 16, 2002
through October 31, 2003 we had an accumulated deficit of $2,733,210. 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 2004. 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
     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 $1.5 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;



                                       25

<PAGE>

     o    the cost of developing and/or operating production facilities for our
          existing and potential products;
     o    the ability of a third party to complete timely a major cultivation
          and processing facility and to operate it in a manner that meets our
          product requirements; 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.
We are seeking investment from various sources. 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.

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 entering into an agreement with a Chinese joint venture that will
construct and operate a production facility on Hainan Island, China (the
"Chinese Facility") in the event that demand warrants expansion of production
capacity. The agreement also calls for the Chinese party to distribute
AstaFactor(R) in China. We have also commenced planning for the expansion of our
existing facility should that be required to meet customer demand for our
products.


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.



                                       26




<PAGE>

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 DECISION TO RELY UPON THE CHINESE FACILITY TO MEET OUR FUTURE PRODUCTION
REQUIREMENTS INVOLVES GREATER FINANCIAL, POLITICAL, CURRENCY AND LEGAL RISKS
THAN ENGAGING IN PURELY DOMESTIC TRANSACTIONS.

The risk of engaging in international transactions is inherently greater than
confining activities to the United States. There is a variety of factors that
contribute to that greater risk, including differences in laws and the increased
potential for changes in those laws, language differences, political
instability, fluctuations in currency values, the increased cost and difficulty
of enforcing legal and contractual rights, increases in tariffs, the imposition
of or changes in import controls and export controls, as well as others. We have
attempted to reduce these risks by planning for alternatives to the Chinese
facility, including the expansion of our facility in Hawaii. However, we may not
be able to complete that expansion in a timely manner, either due to capital
required for that purpose or the permission that may be needed from our landlord
to do so or other reasons. Should that occur, we might not be able to meet the
demand for our product, and as a result might not be able to expand our business
as rapidly as we might otherwise be able to, or we may lose customers as a
result of the inability to fulfill their requirements.

IF THE THIRD PARTY ENTITIES THAT HAVE COMMITTED TO INVEST CAPITAL INTO THE
COMPANY DO NOT FULFILL THEIR COMMITMENTS, THE COMPANY COULD EXPERIENCE
SIGNIFICANT FINANCIAL AND OPERATIONAL DIFFICULTIES.

Two third party entities have conditionally committed to invest a total of
$265,000 into the Company during calendar year 2004. If the Company does not
receive both of these investments, we could encounter cash flow and financial
difficulties. If these issues become exacerbated by a variety of other related
factors, such as less than anticipated revenues or increased expenses, we may
not have sufficient capital to successfully continue operations.

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 60% of the natural astaxanthin
products we sell, with the remainder being sold to smaller retail accounts or
directly to consumers. 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.


                                       27


<PAGE>


Our success depends on the continued efforts of the principal members of our
management team. The Company has hired several 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
have 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 anticipate a
meaningful increase in employment during fiscal 2004 as we resume and expand
production. If revenues do not increase to offset these additional expenses, we
may not have the financial resources needed to sustain operations.

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 three 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.


                                       28



<PAGE>


We are not currently involved in research and development for pharmaceutical
candidates, but the Company's management may decide to pursue this line of
business in the future. If the Company does pursue this line of business, there
will be certain risks associated with it. 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.

The outcome of the lengthy and complex process of new pharmaceutical product
development is inherently uncertain. A product candidate can fail at any stage
of the process, and one or more late-stage product candidates could fail to
receive regulatory approval. New product candidates may appear promising in
development but fail to reach the market because of: (i) efficacy or safety
concerns, (ii) the inability to obtain necessary regulatory approvals, (iii) the
difficulty or excessive cost to manufacture product candidates or products, (iv)
the costs associated with preventing the infringement of our patents or
intellectual property rights by others and (v) the inability to develop the drug
candidate rapidly enough to compete with drug candidates or other treatments
commercialized by our competitors. Furthermore, the sales of new products may
fail to reach anticipated levels or general market acceptance.

As promising drug candidates are identified, we may decide to develop them
independently or in collaboration with other companies as a means of generating
revenue, reducing risk or obtaining access to additional resources to support
the development process. We or our collaborators will need to conduct
significant additional research, pre-clinical testing and clinical trials before
filing applications with the FDA for product approval of our drug candidates.
Clinical trials are expensive, can take several years to complete and have a
high risk of failure. If research and testing are not successful or our drug
candidates fail to obtain regulatory approval, we or our collaborators will be
unable to market and sell products derived from our drug candidates, although it
may still be possible to market these products as nutraceuticals. As a result,
we may not receive product royalty payments or the royalties that we receive may
be significantly reduced, and our ability to continue operations could be
jeopardized.

THE PROGRESS AND RESULTS OF PRECLINICAL AND CLINICAL TESTING ARE INHERENTLY
UNCERTAIN, WHICH COULD DELAY OUR EFFORTS AND THE EFFORTS OF ANY COLLABORATORS TO
COMMERCIALIZE PHARMACEUTICAL DRUGS.

Both pre-clinical and clinical testing are long, expensive and uncertain
processes. It may take several years to complete the pre-clinical testing and
clinical development necessary to commercialize a pharmaceutical, and failure
can occur at any stage. Commercialization of products derived from drug
candidates depends upon successful completion of clinical trials. Interim
results of trials do not necessarily predict final results, and success in
pre-clinical testing and early clinical trials does not ensure that later
clinical trials will be successful. A number of companies in the pharmaceutical
industry, including other biotechnology companies, have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. We have never successfully completed clinical development of any of our
drug candidates. In addition, we do not know whether future clinical trials will
begin on time or whether they will be completed on schedule, or at all. The
length of time necessary to initiate and complete clinical trials varies
significantly and is often difficult to predict.

Any drug is likely to produce some toxicities or undesirable side effects in
animals and in humans when administered at sufficiently high doses and/or for
sufficiently long periods of time. Our emphasis on natural products may reduce,

                                       29




<PAGE>


but cannot eliminate, such effects. Unacceptable toxicities or side effects may
occur at any dose level and at any time in the course of studies of animals
designed to identify unacceptable effects of a drug candidate or during clinical
trials of our potential products. The appearance of any unacceptable toxicity or
side effect could cause our collaborators or regulatory authorities to
interrupt, limit, delay or abort the development of any of our drug candidates
and could ultimately prevent clearance by the required regulatory authorities of
these candidates for any or all targeted indications.

WE OR OUR COLLABORATORS WILL NEED TO OBTAIN REGULATORY APPROVAL TO MARKET
PRODUCTS DERIVED FROM ANY DRUG CANDIDATES WE MAY HAVE IN THE FUTURE.

The pharmaceutical industry is subject to stringent regulation by a wide range
of authorities, both in the United States and abroad. Even if we obtain
regulatory approval for a future drug candidate, the approval may not be
obtained in a timely manner or under technically or commercially feasible
conditions. We and our collaborators cannot market a pharmaceutical product in
the United States until it has completed rigorous pre-clinical testing and
clinical trials and an extensive regulatory clearance process implemented by the
FDA. Similar approval processes apply in most, if not all, of the foreign
markets in which we intend to sell our products. Satisfaction of regulatory
requirements typically takes many years, depends upon the type or complexity and
novelty of the product and requires substantial resources. Of particular
significance are the FDA's requirements covering research and development,
testing, manufacturing, quality control, labeling and promotion of drugs for
human use.

Outside the United States, the ability to market a product is contingent upon
receiving a marketing authorization from the appropriate regulatory authorities.
The requirements governing the conduct of clinical trials, marketing
authorization, pricing and reimbursement vary widely from country to country.

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

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
pharmaceutical products and result in lost market opportunity, (iii) new laws,
regulations and judicial decisions affecting pricing or marketing of
pharmaceutical and nutraceutical 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.



                                       30




<PAGE>

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.

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.

IF WE ARE UNABLE TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, OUR BUSINESS
MAY BE HARMED.

We are subject to federal, state and local laws and regulations governing the
use, manufacture, storage, handling and disposal of hazardous materials and
waste products. We currently maintain a supply of several hazardous materials at
our facilities. In the event of an accident, we could be held liable for any
damages that result, and the liability could exceed our resources.

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



                                       31




<PAGE>

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
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.



                                       32



<PAGE>


As of October 31, 2003, our current directors and executive officers, as a
group, beneficially owned approximately 14% of the 429,749,930 outstanding
shares of our common stock. 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. is a Hawaii-based subsidiary of Fuji
Chemical Industries, Inc. that has established a market for its product in
Japan. AstaCarotene AB of Sweden, which was recently acquired by MicroGaia, has
produced and sold its nutraceutical astaxanthin for several years in Western
Europe. Cyanotech Corporation, based in Hawaii, and AlgaTechnologies, based in
Israel, also sell competing nutraceutical astaxanthin products. 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.

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


                                       33



<PAGE>


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.

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



                                       34

<PAGE>


devices and pharmaceutical products. Regulations govern manufacture, testing,
exportation and labeling, while the Federal Trade Commission (FTC) regulates
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 may require that we and our
contractors and licensees develop and adhere to GMP as established by the FDA,
ISO standards as suggested in Europe, and any other applicable standards
mandated by federal, state, local or foreign laws, regulations and policies or
customer requirements. For each potential pharmaceutical product that we
develop, produce, market or license, we will be required to go through a
lengthy, expensive and rigorous FDA drug approval process which includes
pre-clinical animal studies and Phase I (toxicity), Phase II (dosage) and Phase
III (efficacy) human clinical studies. Our current cultivation and processing
facilities and procedures are not yet required to comply with GMP or ISO
standards, although our extraction and encapsulation facilities must meet GMP
standards, and they do.

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 and
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. 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), our nutraceutical astaxanthin product, is likely to be
distributed in foreign countries, including the European Union, China, Japan,
Canada and Australia. Regulatory approvals in foreign markets vary by country.
We believe the approval process for the ASTAFACTOR(R) in China, Australia, Japan
and certain other Asian countries will 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.



                                       35



<PAGE>


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;
     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 15, 2004 we had 410,749,930 shares of common stock outstanding. Of
these shares, approximately 125,000,000 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. Approximately another 250,000,000 shares
issued in connection with our reorganization, but not exempt from registration
under the Bankruptcy Code, have now been held for more than a year and can be
traded under Rule 144 subject, in some or all cases, to the volume restrictions
contained in that rule. In addition, the Company filed an SB-2 registration
statement covering those shares in December 2003, which enabled the named
sellers to trade their shares pursuant to the prospectus contained in the
registration statement. As a result, the public float of our common stock has
increased greatly.


                                       36



<PAGE>


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. 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.

ITEM 7.  FINANCIAL STATEMENTS

         Audited balance sheet as of October 31, 2003 and the related statements
of operations, cash flows and stockholders' equity (deficit) for the years ended
October 31, 2003 and 2002, 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 2003 or 2002. The Company did change
accountants from Buttke, Bersch & Wanzek, PC, which performed its audits for
fiscal 2001 and 2002, to Jewett, Schwartz& Associates, who performed the review
of the Company's third quarter financial statements and issued the audit report
for 2003 that is contained in this report. The change in accountants was
reported on Forms 8-K, which are incorporated into this report by reference.


                                    PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

                                       37




<PAGE>


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

<TABLE>
<CAPTION>

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

------------------------------- -------------- -------------------------------------------------------
<S>                                <C>        <C>
Daniel P. Beharry..............      51        Chief Executive Officer, Secretary and Director
------------------------------- -------------- -------------------------------------------------------

------------------------------- -------------- -------------------------------------------------------
Kenneth Crowder................      65        Director
------------------------------- -------------- -------------------------------------------------------
                                     55        Director
Gregory F. Kowal

------------------------------- -------------- -------------------------------------------------------
Laurence Sombardier                  35        Vice-President and General Manager of the Operations
                                               and Production Facility
------------------------------- -------------- -------------------------------------------------------

------------------------------- -------------- -------------------------------------------------------
Terry Bridges                        58        Facilities Engineer and Processing Manager
------------------------------- -------------- -------------------------------------------------------

------------------------------- -------------- -------------------------------------------------------
Miguel Olaizola, PhD ..........      41        Research Manager
------------------------------- -------------- -------------------------------------------------------
</TABLE>


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 plc, a $3
billion per year British 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,
Parentech, Inc. in 2000 and numerous other businesses. In 2001 Mr. Beharry and
others founded Chardan Ventures, LLC and Pacific Asia Ventures, LLC, both of
which played a critical role in the reorganization of Aquasearch and the
creation and development of Mera.

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.


                                       38



<PAGE>


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.

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.

DIRECTOR COMPENSATION

Our directors do not receive cash for services they provide as directors. From
time to time, certain directors who are not our employees have served as
consultants to us, for which services they have been paid customary fees based
on the value of the services rendered. The Company intends to establish an
option grant program for its outside directors, but it has not yet done so. We
do not provide additional compensation for committee participation or special
assignments of the Board of Directors, but may enter into separate consulting
agreements with individual directors at times.



                                       39



<PAGE>


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, 2003.


<TABLE>
<CAPTION>

                                                                   RESTRICTED
NAME AND PRINCIPAL              YEAR ENDED                           STOCK
    POSITION                    OCTOBER 31,        SALARY ($)       AWARD(S) ($
    --------                    -----------        ----------       -----------

<S>                            <C>            <C>                <C>
Daniel P. Beharry,   Chief         2003        $   116,250 (1)      $ 0
Executive Officer                  2002        $    37,500          $ 0
                                   2001        $         0          $ 0

Richard  D.   Propper,   M.D.,     2003        $    62,375 (2)      $ 0
Chief Executive Officer            2002        $    37,500          $ 0
                                   2001        $         0          $ 0

</TABLE>

(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 figure stated 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 2002

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 adopted a new stock option
plan subsequent to the end of fiscal year 2003.

STOCK OPTIONS EXERCISED DURING FISCAL 2002

No stock options were exercised by the named executive officers of the Company
during fiscal 2002.

FISCAL YEAR-END OPTION VALUES

Because the Company's 1996 Stock Option Plan and all outstanding stock options
were terminated during the Company's reorganization proceedings in fiscal 2002,
there were no outstanding stock options held as of October 31, 2003.



                                       40




<PAGE>

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, 2003.

DIRECTOR COMPENSATION

Our directors do not receive compensation for services they provide as
directors. 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 February 2, 2004 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             1,509,608            *

Richard D. Propper, MD
c/o Mera Pharmaceuticals, Inc.
777 South Highway 101, Suite 215                   Direct and
Solana Beach, California  92075.................    Indirect           33,943,623 (2)       7.8%

Daniel P. Beharry
c/o Mera Pharmaceuticals, Inc.
777 South Highway 101, Suite 215                   Direct and
Solana Beach, California  92075.................    Indirect           32,464,065 (3)       7.6%

Gregory F. Kowal
First Honolulu Securities
900 Fort Street Mall, Suite 90                     Direct and
Honolulu, Hawaii  96813.........................    Indirect       26,364,503 (4)           6.1%

All directors and executive officers as a group    Direct and
   (4 persons) .................................    Indirect          94,281,799           21.9%

</TABLE>

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.


   *   Less than one percent

(1) Applicable percentage of beneficial ownership is based on shares outstanding
as of February 1, 2004. 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 14, 2002 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) as well as 3,440,000 shares of common stock that Dr.
Propper has the right to acquire within sixty days from the date of this report
on Form 10-KSB by exercising common stock warrants he holds.

(3) This amount includes 13,381,121 shares held by Mr. Beharry's spouse
(directly or indirectly), plus 120,000 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 1,560,000 shares of common stock, which warrants were issued
to Aquasearch Investment Partners.


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 persons who at the time
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).

         In December 2002 the Company issued 974 shares of Series B preferred
stock at $625.00 per share, for aggregate consideration of $609,000, to a
limited liability company managed in part by persons 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).



                                       42




<PAGE>

         During the months of July through December 2002 the Company issued
various promissory notes totaling $2,750,000 to a limited liability company
managed by persons who at the time were officers and directors of the Company,
one of whom remains such, in exchange for funds borrowed by the Company.
$1,906,000 of such notes were repaid subsequent to October 31, 2002 and
reinvested into the Company as equity. All 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 November 2002 the Company entered into various convertible
promissory notes totaling $185,732 with 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 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. Portions of this indebtedness were repaid
over the course of 2003.

         During the months June through July 2002 the Company entered into
various promissory notes totaling $117,300 with officers and directors of the
Company and a limited liability company managed in part by persons who at the
time were shareholders, officers and directors of the Company, one of whom
continues to be. Interest was accrued on the notes at 12% per annum. The notes
have since been repaid in full.

         During the two years ended October 31, 2001, 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.

         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.

         During the course of the year the Company issued various unsecured
notes payable to officers, directors and shareholders of the Company. These
notes were issued to fund the Company's working capital requirements and accrue
interest at rates ranging from 6% to 10% per annum. The outstanding principal
and interest due and payable on certain notes is convertible into common stock.
Additionally, certain notes were issued with detachable stock purchase warrants,
as defined, at price of $0.05 per common share. In July 2003 one of these notes
was converted to equity. The balance outstanding on these notes was $218,011 as
of October 31, 2003. The total interest expense on such notes during the year
was approximately $18,000. See Note 6.

         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. 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).



                                       43




<PAGE>

         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. The Company has deferred revenue of $57,760 as of
October 31, 2003 in connection with this transaction.

         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 may 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 outstanding on the line
of credit was $78,000 as of October 31, 2003.

         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).

         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.


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




                                       44
<PAGE>



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
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



*          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.



                                       45




<PAGE>



+          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
#          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

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITOR

February 12, 2004


Mera Pharmaceuticals, Inc.
777 South Highway 101, Suite 215
Solana Beach, CA 92075


I hereby consent to the use in this report on Form 10KSB of our report dated
October 31, 2002 relating to the financial statements of Mera Phamaceuticals,
Inc. (f/k/a Aquasearch, Inc.) and to the references contained therein to Buttke,
Bersch & Wanzek, P.C.


/s/ David Wanzek, CPA

Buttke, Bersch & Wanzek, P.C.
Certified Public Accountants


REPORTS ON FORM 8-K

The following reports on Form 8-K were filed during the last quarter of the year
ended October 31, 2003:



                                       46




<PAGE>

September 2, 2003 (filed September 9, 2003), reporting the change in independent
auditors from Buttke, Bersch & Wanzek, PC to Jewett, Schwartz & Associates.

September 2, 2003 (filed October 21, 2003) (Amendment 1) providing further
information on the Company's change of independent auditors.


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.


<PAGE>


                              FINANCIAL STATEMENTS

                           Mera Pharmaceuticals, Inc.


                                Table of Contents


Report of Independent Certified Public Accountants.....................F - 2

Balance Sheet as of October 31, 2003...................................F - 3

Statements of Operations for the year ended October 31, 2003 and for
the periods from September 17, 2002 to October 31, 2002 and
November 1, 2001  to September 16, 2002.......
                                                                       F - 4

Statements of Changes in Stockholders' Equity for the year ended
October 31, 2003 and for the periods from September 17, 2002 to
October 31, 2002 and November 1, 2001 to September
16, 2002...............................................................F - 5

Statements of Cash Flows for the year ended October 31, 2003
and for the periods from September 17, 2002 to October 31, 2002
and November 1, 2001 to September 16, 2002......
                                                                       F - 6

Notes to Financial Statements.........................................F - 7 -18








<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To Mera Pharmaceuticals, Inc.:

         We have audited the accompanying consolidated balance sheet of Mera
Pharmaceuticals, Inc. (hereinafter referred to as "the Company" or "Mera") (a
Delaware corporation) as of October 31, 2003, and the related statements of
income, shareholders' equity and cash flows for the year then ended. 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 audit. The financial statements of the Company as of October 31, 2002 were
audited by other auditors whose report, dated January 24, 2003, on those
statements included an explanatory paragraph that described the Company's need
to seek new sources of financing or revenue to pursue its business strategy
raise substantial doubt about the Company's ability to continue as a going
concern as further discussed in Note 2.

         We conducted our audit 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 audit provided a reasonable basis
for our opinion.

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

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,
   February 5, 2004.




                                      F-2

<PAGE>

<TABLE>
<CAPTION>


                           Mera Pharmaceuticals, Inc.
                                  Balance Sheet


                                                                      October 31, 2003
                                                                     ------------------
                                     ASSETS
Current assets:
<S>                                                                <C>
    Cash and cash equivalents                                                  $ 1,149
    Accounts receivable, net                                                    51,905
    Inventories                                                                977,502
    Prepaid expenses and other                                                  32,260
                                                                     ------------------
Total current assets                                                         1,062,816

Plant and equipment, net                                                     3,055,038
Other assets, net of accumulated amortization of $16,560                       149,040
                                                                     ------------------

Total Assets                                                               $ 4,266,894
                                                                     ==================

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable, accrued expenses and customer credits                $ 1,042,862
    Notes payable                                                              940,011
    Deferred revenue                                                           301,402
                                                                     ------------------
Total Current Liabilities                                                    2,284,275

Commitments and contingencies

Stockholders' equity:
    Convertible preferred stock, $.0001 par value, 5,000,000
          shares authorized, 80 Series A shares issued and
          outstanding and 974 Series B shares issued and
          outstanding at October 31, 2003                                            2
    Common stock, $.0001 par value: 500,000,000
          shares authorized, 405,643,926 shares issued
          and outstanding at October 31, 2003                                   40,565
    Additional paid-in capital                                               4,675,262
    Accumulated deficit                                                     (2,733,210)
                                                                     ------------------
Total stockholders' equity                                                   1,982,619
                                                                     ------------------

Total Liabilities and Stockholders' Equity                                 $ 4,266,894
                                                                     ==================

</TABLE>

       See the accompanying notes to the financial statements





                                       F-3

<PAGE>




<TABLE>
<CAPTION>

               MERA PHARMACEUTICALS, INC.
                STATEMENTS OF OPERATIONS
                                                                            Successor               Predecessor
                                                 ------------------     -------------------      -------------------
                                                   Twelve Months        September 17, 2002        November 1, 2001
                                                       Ended                 Through                  Through
                                                 October 31, 2003        October 31, 2002        September 16, 2002
                                                 ------------------     -------------------      -------------------

Revenue
<S>                                            <C>                      <C>                     <C>
   Products                                              $ 377,589                $ 17,777                $ 323,212
   Contract Services                                       242,868                  15,443                  245,123
   Royalties                                               155,652                  15,350                   45,167
                                                 ------------------     -------------------      -------------------
Total Revenue                                              776,109                  48,570                  613,502
                                                 ------------------     -------------------      -------------------

Costs and Expenses
   Cost of products sold                                   335,986                  10,627                  145,505
   Cost of subcontract services                            389,721                  36,054                  413,051
   Research and development costs                          333,794                 158,299                  754,408
   General and administrative                            1,554,057                 302,147                  933,725
   Depreciation                                            112,697                  68,867                  145,290
   Amortization                                             16,560
   Impairment loss                                          66,550                       -                        -
                                                 ------------------     -------------------      -------------------
Total costs and expenses                                 2,809,365                 575,994                2,391,979
                                                 ------------------     -------------------      -------------------

Operating loss                                          (2,033,256)               (527,424)              (1,778,477)

Other income (expense):
   Interest income                                             319                     106                      979
   Other income                                            186,609                       -                        -
   Interest expense                                       (109,779)                (17,891)                 (85,893)
                                                 ------------------     -------------------      -------------------

Total other income (expense)                                77,149                 (17,785)                 (84,914)

Net loss before reorganization items                    (1,956,107)               (545,209)              (1,863,391)
                                                 ------------------     -------------------      -------------------

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

Net loss before extraordinary items                     (1,956,107)               (545,209)              (2,055,868)

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

Net loss before income tax provision                    (1,846,873)               (545,209)              (2,055,868)

Tax expense                                                   (972)                 (1,400)                  (7,190)
Refundable tax credit                                       15,988                   4,719                  214,910
                                                 ------------------     -------------------      -------------------

Net loss                                              $ (1,831,857)             $ (541,890)            $ (1,848,148)
                                                 ==================     ===================      ===================

Loss per share - basic and diluted                          (0.005)                 (0.002)                  (0.015)
Weighted average shares outstanding - basic and diluted 398,055,825             308,803,300              122,131,237

</TABLE>

             See the accompanying notes to the financial statements





                                      F-4


<PAGE>


<TABLE>
<CAPTION>

                   Mera Pharmaceuticals, Inc.
     Statement of Changes in Stockholders' Equity (Deficit)

                                                                                               Stock
                                                                 --------------------------------------------------------------
                                                                 Convertible    Preferred       Common
                                                                  Shares        Amount          Shares                Amount
                                                                 --------------------------------------------------------------

Predecessor
-----------

<S>                                                          <C>            <C>            <C>                <C>
Balance at October 31, 2000                                     105,589,076   $11,679       $  16,970,990        $(16,355,821)
Balance at October 31, 2001                                            --     $  --           122,134,419        $     13,335
                                                                 --------------------------------------------------------------

Loss from November 1, 2001 through September 16, 2002                  --        --                  --            (1,848,148)
Elimination of prior equity, fresh start accounting                    --        --          (122,134,419)            (13,335)
                                                                 --------------------------------------------------------------

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

Successor
---------

Distribution of new common shares - September 16, 2002                 --        --           388,803,300              38,880
Loss retained in merger with Aqua RM Co., Inc.                         --        --                  --                  --
Loss from September 17, 2002 through October 31, 2002                  --        --                  --                  --

                                                                 --------------------------------------------------------------
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                                           1,054   $     2         405,643,926        $     40,565
                                                                 ==============================================================

</TABLE>

See the accompanying notes to the financial statement




<TABLE>
<CAPTION>




                                                                   Additional     Accumulated    Stockholders'
                                                                   Paid-In                         Equity
                                                                    Capital        (Deficit)       (Deficit)
                                                                ---------------------------------------------


Predecessor
-----------

Balance at October 31, 2000                                     $    626,848
<S>                                                         <C>               <C>            <C>
Balance at October 31, 2001                                     $ 19,976,153    $(20,447,435)   $  (457,947)
Loss from November 1, 2001 through September 16, 2002           $       --      $       --       (1,848,148)
Elimination of prior equity, fresh start accounting              (19,976,153)     22,295,583      2,306,095
                                                                 ---------------------------------------------
Balance September 16, 2002                                      $       --      $       --      $      --
                                                                 ---------------------------------------------

Successor
--------

Distribution of new common shares - September 16, 2002             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                                     $  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
                                                                 =============================================

</TABLE>

              See the accomanying notes to the financial statements


                                      F-5

<PAGE>



<TABLE>
<CAPTION>

                  MERA PHARMACEUTICALS, INC.
                    STATEMENTS OF CASH FLOWS

                                                                                        Successor           Predecessor
                                                                ------------------  ------------------   ------------------
                                                                  Twelve Months     September 17, 2002   November 1, 2001
                                                                      Ended              Through              Through
                                                                October 31, 2003    October 31, 2002     September 16, 2002
                                                                ------------------  ------------------   ------------------
<S>                                                           <C>                    <C>                    <C>
Cash Flows from Operating Activities:
Net loss                                                             $ (1,831,857)         $ (541,890)        $ (1,848,148)
Adjustments to reconcile net loss to net cash
used in operating activities:
   Accumulated depreciation and amortization                              241,580              20,797              231,636
   Impairment loss                                                         66,550
   Expenses paid with common stock                                        124,680                   -                    -
Changes in assets and liabilities, net of effects
of debt discharge and fresh start adjustments:
   Accounts receivable                                                    (40,159)             11,139               78,727
   Tax receivable                                                          27,671             177,996             (214,910)
   Inventories                                                             23,801             (87,709)            (378,133)
   Other current assets                                                    34,889             (23,894)             (29,672)
   Accounts payable, accured expenses,                                    163,720             (33,590)            (217,801)
     and customer credits
   Deferred revenue                                                       101,392             100,000               56,810
                                                                ------------------  ------------------   ------------------
Net cash used by operating activities                                  (1,087,733)           (377,151)          (2,321,491)
                                                                ------------------  ------------------   ------------------

Cash Flows from Investing Activities:
   Purchases of fixed assets                                              (74,290)               (774)              (7,633)
                                                                ------------------  ------------------   ------------------
Net cash used by investing activities                                     (74,290)               (774)              (7,633)
                                                                ------------------  ------------------   ------------------

Cash Flows from Financing Activities
   Proceeds from issuance of stock                                      2,882,812                   -                    -
   Proceeds from notes payable                                            574,232             350,000            2,350,000
   Payment of notes payable                                            (2,334,221)                  -                    -
                                                                ------------------  ------------------   ------------------
Net cash provided by financing activities                               1,122,823             350,000            2,350,000
                                                                ------------------  ------------------   ------------------

Net increase (decrease) in cash and cash equivalents                      (39,200)            (27,925)              20,876
Cash and cash equivalents, beginning of the period                         40,349              68,274               47,398
                                                                ------------------  ------------------   ------------------
Cash and cash equivalents, end of the period                              $ 1,149            $ 40,349             $ 68,274
                                                                ==================  ==================   ==================

Supplemental non-cash information
   Stock issued to a related party exchange for consulting services     $ 124,680
                                                                ==================

</TABLE>




    See the accompanying notes to the financial statements



                                      F-6



<PAGE>


                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
    FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002 AND NOVEMBER
                          1, 2001 TO SEPTEMBER 16, 2002


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, and it has corporate offices 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 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.

         Fresh Start Accounting -- Upon emergence from bankruptcy in September
2002, 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"). More details are contained in Note
3.

         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 one major banking
institution. 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.



                                      F-7

<PAGE>

                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
           FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002
                   AND NOVEMBER 1, 2001 TO SEPTEMBER 16, 2002

         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, 2003, inventories consisted of $849,426 of work in process and $263,076 of
finished goods, less an allowance for obsolescence of $135,000.

         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, 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.

         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 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 as
described in Note 3.


                                      F-8




<PAGE>

                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
         FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002 AND
                     NOVEMBER 1, 2001 TO SEPTEMBER 16, 2002

         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.

         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, 2003, 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, 2003 and 2002 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.


                                      F-9

<PAGE>
                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
         FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002 AND
                     NOVEMBER 1, 2001 TO SEPTEMBER 16, 2002


Recent Authoritative Pronouncements

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

  SFAS No. 141 "Business Combinations" establishes revised standards for
  accounting for business combinations. Specifically, the statement eliminates
  the pooling method, provides new guidance for recognizing intangible assets
  arising in a business combination, and calls for disclosure of considerably
  more information about a business combination. This statement is effective for
  business combinations initiated on or after July 1, 2001. The adoption of this
  pronouncement on July 1, 2001 did not have a material effect on the Company's
  financial position, results of operations or liquidity.

  SFAS No. 142 "Goodwill and Other Intangible Assets" provides new guidance
  concerning the accounting for the acquisition of intangibles, except those
  acquired in a business combination, which is subject to SFAS No. 141, and the
  manner in which intangibles and goodwill should be accounted for subsequent to
  their initial recognition. 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. This statement is effective for all fiscal
  years beginning after December 15, 2001. The adoption of SFAS No. 142 on
  January 1, 2002 did not have a material effect on the Company's financial
  position, results of operations or liquidity.

  In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
  Obligations." The standard requires entities to record the fair value of a
  liability for an asset retirement obligation in the period in which it is
  incurred. When the liability is initially recorded, the entity capitalizes a
  cost by increasing the carrying amount of the related long-lived asset. Over
  time, the liability is accreted to its present value each period, and the
  capitalized cost is depreciated over the useful life of the related asset.
  Upon settlement of the liability, an entity either settles the obligation for
  its recorded amount or incurs a gain or loss upon settlement. The standard is
  effective for fiscal years beginning after June 15, 2002. The adoption of SFAS
  No. 143 is not expected to have a material impact on the Company's financial
  position, results of operations or liquidity.

  SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
  supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
  and for Long-Lived Assets to be Disposed of". Though it retains the basic
  requirements of SFAS 121 regarding when and how to measure an impairment loss,
  SFAS No. 144 provides additional implementation guidance. SFAS 144 excludes
  goodwill and intangibles not being amortized among other exclusions. SFAS No.
  144 also supercedes the provisions of APB Opinion No. 30, "Reporting the
  Results of Operations," pertaining to discontinued operations. Separate
  reporting of a discontinued operation is still required, but SFAS No. 144
  expands the presentation to include a component of an entity, rather than
  strictly a business segment as defined in SFAS No. 131, "Disclosures about
  Segments of an Enterprise and Related Information." SFAS No. 144 also
  eliminates the current exemption to consolidation when control over a
  subsidiary is likely to be temporary. This statement is effective for all
  fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144
  did not have a material effect on the Company's financial position, results of
  operations or liquidity.



                                      F-10


<PAGE>


                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
         FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002 AND
                     NOVEMBER 1, 2001 TO SEPTEMBER 16, 2002


  SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
  FASB Statement No. 13, and Technical Corrections," updates, clarifies, and
  simplifies existing accounting pronouncements. SFAS No. 145 rescinds SFAS 4,
  which required all gains and losses from extinguishment of debt to be
  aggregated and, if material, classified as an extraordinary item, net of
  related income tax effect. As a result, the criteria in APB Opinion 30 will
  now be used to classify those gains and losses. SFAS No. 64 amended SFAS No.
  4, and is no longer necessary because SFAS No. 4 has been rescinded. SFAS No.
  44 was issued to establish accounting requirements for the effects of
  transition to the provisions of the motor Carrier Act of 1980.

  SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications
  that have economic effects similar to sale-leaseback transactions is accounted
  for in the same manner as sale-leaseback transactions. This amendment is
  consistent with FASB's goal requiring similar accounting treatment for
  transaction that have similar economic effects. This statement is effective
  for fiscal years beginning after May 15, 2002. The adoption of SFAS No. 145 is
  not expected to have a material impact on the Company's financial position,
  results of operations or liquidity.

  Statement No. 146, "Accounting for Exit or Disposal Activities" addresses the
  recognition, measurement, and reporting of costs that are associated with exit
  and disposal activities that are currently accounted for pursuant to the
  guidelines set forth in Emerging Issues Task Force ("EITF") No. 94-3,
  "Liability Recognition for Certain Employee Termination Benefits and Other
  Costs to exit an Activity (including Certain Cost Incurred in a
  Restructuring)," cost related to terminating a contract that is not a capital
  lease and one-time benefit arrangements received by employees who are
  involuntarily terminated - nullifying the guidance under EITF No. 94-3. Under
  SFAS No. 146, the cost associated with an exit or disposal activity is
  recognized in the periods in which it is incurred rather than at the date the
  Company committed to the exit plan. This statement is effective for exit or
  disposal activities initiated after December 31, 2002 with earlier application
  encouraged. The adoption of SFAS No. 146 is not expected to have a material
  impact on the Company's financial position, results of operations or
  liquidity.

  SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and
  Disclosure", amends SFAS No. 123, "Accounting for Stock-Based Compensation."
  In response to a growing number of companies announcing plans to record
  expenses for the fair value of stock options, SFAS No. 148 provides
  alternative methods of transition for a voluntary change to the fair value
  based method of accounting for stock-based employee compensation. In addition,
  SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require
  more prominent and more frequent disclosures in financial statements about the
  effects of stock-based compensation. The Statement also improves the
  timeliness of those disclosures by requiring that this information be included
  in interim as well as annual financial statements. In the past, companies were
  required to make pro forma disclosures only in annual financial statements.
  The transition guidance and annual disclosure provisions of Statement 148 are
  effective for fiscal years ending after December 15, 2002, with earlier
  application permitted in certain circumstances. The interim disclosure
  provisions are effective for financial reports containing financial statements
  for interim periods beginning after December 15, 2002.

  The Company adopted the disclosure provisions of SFAS No. 148 for the year
  ended December 31, 2002, but will continue to use the method under APB Opinion
  No. 25 in accounting for stock options. The adoption of the disclosure
  provisions of SFAS No. 148 did not have a material impact on the Company's
  financial position, results of operations or liquidity.



                                      F-11



<PAGE>



  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 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 $2,733,210 through the year
ended October 31, 2003 and current liabilities exceeded current assets by
$1,221,459. 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, FRESH START ACCOUNTING AND GOODWILL

         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


                                      F-12



<PAGE>

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 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. remained the reporting entity. Because Mera is the
surviving entity for legal purposes, all equity transactions have been restated
in terms of this corporation's capital structure.

         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.

         In accordance with fresh start accounting, the Company's tangible and
intangible assets were recorded at their assumed fair value. In addition,
Goodwill in the amount of $66,550 was established. Management tested the
established Goodwill for impairment as of October 31, 2003 and determined that
no fair value existed for the Goodwill. As such, an expense of $66,550 was
recorded.

4. 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.

         During the course of the year the Company issued various unsecured
notes payable to officers, directors and shareholders of the Company (see Note
6). These notes were issued to fund the Company's working capital requirements
and accrue interest at rates ranging from 6% to 10% per annum. The outstanding
principal and interest due and payable on certain notes is convertible into
common stock. Additionally, certain notes were issued with detachable stock
purchase warrants, as defined, at price of $0.05 per common share. In July 2003
one of these notes was converted to equity (see Note 8). The balance outstanding
on these notes was $218,011 as of October 31, 2003. The total interest expense
on such notes during the year was approximately $18,000. See Note 6.

         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 $57,760 as of
October 31, 2003.



                                      F-13



<PAGE>

         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 may 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 (See Note 7) in consideration for
the extension of credit under this arrangement. The principal balance
outstanding on the line of credit was $78,000 as of October 31, 2003. See Note
6.

         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 subsequent to year-end. See Note 6.

5. 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.

         At October 31, 2003, the Company has available net operating loss carry
forwards of approximately $2,700,000 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 $1,000,000.

         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 $1,000,000 valuation allowance at October 31, 2003 was
necessary. The increase in the valuation allowance for the year ended October
31, 2003 was approximately $600,000.

         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


                                      F-14



<PAGE>
                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
         FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002 AND
                     NOVEMBER 1, 2001 TO SEPTEMBER 16, 2002


ended October 31, 2003, the Company received $43,659 in QHTB tax credit refunds.
At October 31, 2003, approximately $9,243 in additional QHTB tax credit refunds
was receivable.


6. NOTES PAYABLE - RELATED PARTIES

Notes payable - related parties consists of the following as of October 31,
2003:

<TABLE>
<CAPTION>



       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
<S>    <C>                                                                           <C>
       7.                                                                               218,011

       Line of credit - credit line from a partnership with maximum borrowings
       of up to $125,000 bearing an annual interest rate of 10%, due in April,
       2004. This line of credit contained detachable stock purchase warrants
       further described in Note 7.                                                      78,000

       Promissory note - issued to a limited liability company bearing an annual
       interest rate of 6%, due on December 31, 2003. Subsequent to year-end
       this promissory note was paid in full.



                                                                                        644,000
                                                                          ----------------------

                 Total notes payable - related parties                                $ 940,011
                                                                          ----------------------

</TABLE>

         Total interest expense on notes payable - related parties was $109,779
and $103,784 for the years ended October 31, 2003 and 2002, respectively.

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

         During 2002, 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
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 (see Note 13).

         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).


                                      F-15


<PAGE>

                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
         FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002 AND
                     NOVEMBER 1, 2001 TO SEPTEMBER 16, 2002

         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).

         The following is a summary of the Company's outstanding common stock
purchase warrants as of October 31, 2003:

<TABLE>
<CAPTION>

   -------------------- ------------------------ ------------ --------------- ----------------------------
   Exercise Price       Outstanding at October   Issued       Exercised       Outstanding at October
                        31, 2002                                              31,  2003
   -------------------- ------------------------ ------------ --------------- ----------------------------
<S>                  <C>                      <C>            <C>             <C>
   $0.05                -                        5,520,000    -               5,520,000

                        ------------------------ ------------ --------------- ----------------------------
                        -                        5,520,000    -               5,520,000
                        ------------------------ ------------ --------------- ----------------------------
</TABLE>

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

                                      F-16


<PAGE>

                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
         FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002 AND
                     NOVEMBER 1, 2001 TO SEPTEMBER 16, 2002

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. Further details on the new plan are contained in Note
12.

9. CUSTOMER CONCENTRATION

         Sales to the Company's major customers for the year ended October 31,
2003 for customers A, B, and C amounted to 36%, 15%, and 12%, respectively.

10. PROPERTY, PLANT AND EQUIIPMENT, NET

At October 31, Property, Plant and Equipment is as follows:
        --------------------------------- ------------------
                                          October 31, 2003
        --------------------------------- ------------------
             Plant                         2,621,614
             Equipment                       697,587
        --------------------------------- ----------
                                           3,319,201
             Accumulated depreciation       -264,163
        --------------------------------- ----------
                                           3,055,038
        --------------------------------- ----------



11. 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 associated revenue deferred.
This sale was made under contract and amounts received are not to be refunded.
Management believes the returned product will be reshipped at a later date.

         The Company has deferred approximately $58,000 in revenue in relation
to a sales agreement with Aquasearch Investment Partners.


12. SUBSEQUENT EVENTS
         On December 30, 2003, the Board of Directors adopted the 2003 Stock
Option Plan. Under the plan up to 60,000,000 shares may be purchased by
employees and directors of the Company at an exercise price of $0.03 per share.
The shareholders have not yet approved this plan, and until they do, no options
issued under it may be exercised.


                                      F-17



<PAGE>

                           MERA PHARMACEUTICALS, INC.
    NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2003 AND
         FOR THE PERIODS FROM SEPTEMBER 17, 2002 TO OCTOBER 31, 2002 AND
                     NOVEMBER 1, 2001 TO SEPTEMBER 16, 2002


         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
shareholders, 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 statement of the
Company.

         In December 20034, the Company agreed to compensate a board member 4%
of its Hawaiian Retail Sales for a period of two years as compensation for his
efforts in securing such sales. The compensation is to be paid retroactive to
May 2003.

         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.

13. INTANGIBLE ASSETS

         The Company issued detachable stock purchase warrants with an aggregate
fair market value of $165,600 that expire in 2008. For the year ended October
31, 2003 the Company recognized amortization expense of $16,560. Estimated
amortization expense for each of the years ended October 31, is as follows:

         2004:    $33,120
         2005:    $33,120
         2006:    $33,120
         2007:    $33,120
         2008:    $16,560





                                      F-18


<PAGE>

                                   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 February 12, 2004.

                                         MERA PHARMACEUTICALS, INC.


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


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,      February 12, 2004
-----------------------        Secretary and Director
Daniel P. Beharry

/S/ ANTHONY APPLEBAUM          Principal Financial           February 12, 2004
-----------------------        and Accounting
Anthony Applebaum              Officer

Kenneth Crowder                Director                      February 12, 2004


Gregory F. Kowal               Director                      February 12, 2004



                                       47