Mera Pharmacetuticals 10-QSB



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 2006
	Or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 333-107716

MERA PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware		04-3683628
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)
73-4460 Queen Ka'ahumanu Highway, Suite 110 Kailua-Kona, Hawaii 96740 (808) 326-9301 (Address and telephone number of principal executive offices)

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

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

492,247,918 shares of $0.0001 par value common stock outstanding as of July 31, 2006 80 shares of $0.0001 par value Series A preferred stock outstanding as of July 31, 2006 974 shares of $0.0001 par value Series B preferred stock outstanding as of July 31, 2006

Mera Pharmaceuticals, Inc.

Form 10-QSB
For the Quarter Ended July 31 2006

Contents


			Page
Part I - Financial Information

	Item 1: Financial Statements

		Condensed Balance Sheet	3

		Condensed Statements of Operations	4

		Condensed Statements of Cash Flows	5

		Notes to Condensed Financial Statements	6

	Item 2: Management's Plan of Operation

		Management's Discussion and Analysis of Financial Condition
		and Results of Operations	7

	Item 3. Controls and Procedures		9

Part II - Other Information

	Item 1: Legal Proceedings		9

	Item 2: Changes In Securities		9

	Item 3. Defaults Upon Senior Securities		9

	Item 4: Submission of Matters to a Vote of Security Holders		9

	Item 5: Other Information		9

	Item 6: Exhibits and Reports on Form 8-K		10

	Signature		11


MERA PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS

			July 31,
			2005
			(Unaudited)
ASSETS

CURRENT ASSETS
	Cash and cash equivalents	$	54,779
	Accounts receivable, net		6,313
	Prepaid expenses and other current assets		43,112

TOTAL CURRENT ASSETS			104,204

PROPERTY, PLANT, AND EQUIPMENT, NET			2,356,922
OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION OF $40,560			21,840

TOTAL ASSETS		$	2,482,966

LIABILITIES AND SHARHOLDERS' EQUITY

CURRENT LIABILITIES
	Accounts payable, accrued expenses and customer credits	$	332,115
	Notes payable - related party		62,813

TOTAL CURRENT LIABILITIES			394,928

SHAREHOLDERS' EQUITY
	Convertible preffered stock, $.0001 par value, 10,000 shares
	authorized, 80 Series A shares issued and outstanding and
	974 Series B shares issued and outstanding		2
	Common stock, $.0001 par value: 500,000,000 shares authorized,
	469,576,411 shares issued and outstanding		49,225
	Additional paid-in capital		7,580,116
	Accumulated deficit		(5,541,305)

TOTAL SHAREHOLDERS' EQUITY			2,088,038

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	2,482,966


MERA PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS

			Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
			July 31,		July 31,		July 31,		July 31,
			2006		2005		2006		2005
			(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

NET SALES		$	72,792	$	116,592	$	294,636	$	357,639
Cost of goods sold			19,161		75,050		49,807		233,815

GROSS PROFIT			53,631		41,542		244,829		123,824

Operating Expenses
	Selling and administrative expenses		81,659		126,804		303,585		423,350
	Cost of subcontract services		-		9,993		-		122,613
	Research and development costs		26,464		76,152		131,930		120,867
	Depreciation and amortization		70,687		66,236		215,209		154,910
	Provision for excess inventory		-		-		-		25,000

Total operating expenses			178,810		279,185		650,724		846,740

Operating loss			(125,179)		(237,643)		(405,895)		(722,916)

Other income (expense)
	Interest income		43		552		924		552
	Other income		-		-		2,179		-
	Interest expense		(667)		(457)		(5,193)		(1,357)

Total other income (expense)			(624)		95		(2,090)		(805)

Net income (loss) before tax provision			(125,803)		(237,548)		(407,985)		(723,721)

Provision for income taxes			-		(518)		-		(518)
Refundable tax credit			2,069		8,243		10,145		11,548

NET INCOME (LOSS)		$	(123,734)	$	(229,823)	$	(397,840)	$	(712,691)

Net income (loss) per common share		$	(0.0003)	$	(0.0005)	$	(0.0008)	$	(0.0016)

Weighted Average Shares Outstanding			480,037,506		469,576,411		478,191,349		447,578,467


MERA PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS



				Nine Months Ended		Nine Months Ended
				July 31,		July 31,
				2006		2005
				(Unaudited)		(Unaudited)

Cash Flows from Operating Activities
	Net Income (loss)		$	(397,840)	$	(712,691)
	Adjustments to reconcile net loss to net
	cash used in operating activities:
		Accumulated depreciation and amortization		215,209		193,215
		Expenses paid with common stock		-		14,992
	Changes in current assets and liabilities:
		Accounts receivable		1,108		1,131
		Inventories		-		24,959
		Prepaid expenses and other current assets		(30,686)		6,891
		Accounts payable, accrued expenses, and customer		30,971		(29,285)
		credits
		Deferred revenue		-		(10,790)
Net Cash Used in Operating Activities				(181,237)		(511,578)

Cash flows From Financing Activities
	Proceeds from issuance of stock			250,000		547,643
	Payment of notes payable			(14,523)		(20,000)
Net Cash Provided by Financing Activities				235,477		527,643

Net increase (decrease) in cash and cash equivalents				54,240		16,065

Cash and cash equivalents - beginning of period				539		4,401

Cash and cash equivalents - end of period			$	54,779	$	20,466

MERA PHARMACEUTICALS, INC.

NOTES TO CONDESED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2005 AND 2006

(UNAUDITED)

Basis of Presentation of Financial Statements

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended July 31, 2006 are not necessarily indicative of the results that may be expected for the year ending October 31, 2006. For further information, refer to the condensed financial statements and footnotes thereto for the year ended October 31, 2005, included in Form 10-KSB filed with the Securities and Exchange Commission

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

Legal Proceedings

On June 2, 2006, Fuji Health Science, Inc. filed suit in the United States District Court for the District of New Jersey Camden Vicinage against Mera Pharmaceuticals, Inc. alleging patent infringement against Mera Pharmaceuticals, Inc.. At dispute is United States patent No. 6,245,818 entitled "Medicament for Improvement of Duration of Muscle Function or treatment of Muscle Disorders or Diseases."

The Company believes that it has meritorious defenses to Fuji Health Science, Inc. `s claims and intends to vigorously defend the suit. As such, no related contingency as been recorded.

Subsequent Events

On August 14th, 2006, the Company issued 1,233,192 shares of common stock to a Corporate Officer in exchange for amounts owed for services rendered. The issuance was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2).

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

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

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

Since inception, our primary operating activities have consisted of basic research and development and production process development, recruiting personnel, purchasing operating assets, raising capital and sales of product. From September 16, 2002, the effective date of our plan of reorganization, through July 31, 2006 we had an accumulated deficit of $5,441,305. Our losses to date have resulted primarily from costs incurred in research and development, production costs and from general and administrative expenses associated with operations. We expect to continue to incur operating losses through the current fiscal year. 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, diversifying our customer base and expanding revenue sources, e.g., by performing other contract services and increasing efforts to sell raw materials to other product formulators. However, our best efforts cannot guarantee that we will overcome these risks in a timely manner, if at all.

Results of Operations

Revenues. Revenues for the quarter ended July 31, 2006 were $72,792 as compared to $116,592 for the equivalent period in 2005, a decline of 38%.

The decrease was due primarily to two factors: Sales for the third quarter of 2005 included approximately $10,000 in revenues earned from a contract related a project for the United States Department of Energy. That contract has now ended. In addition, in the third quarter of 2005 the Company earned approximately $29,160 in one large transaction with a wholesale distributor. No similar transactions occurred during the same period of 2006. On a sequential basis revenue for the third quarter of 2006 increased 4.8% to 72,792 versus 69,450. That revenue trend has increased markedly during the first few weeks of the fourth quarter. During the later part of the third quarter, the company signed a 1 year contract to supply products that that will increase yearly revenue by approximately 4%

Additionally, during the current fourth quarter, the company signed a 10 year agreement to supply products to a different entity that calls for 10% minimum increases each year plus cost of living price adjustments. The first years minimum increment purchase should also increase revenues by 4% the first year.

Cost of Sales. Cost of goods sold was $19,165 for the quarter ending July 31, 2006 versus $75,050 in the same quarter in 2005, a decrease of 74%. Gross profit margins from sales of product for the quarter were approximately 74%, versus 36`% for the same period in 2005. The decrease in cost of goods sold, and the corresponding increase in gross profit margin, was due primarily to a greater percentage of in direct retail sales, which carry greater profit margins as compared to wholesale revenues.

Research and Development Costs. Research and development costs were $26,464 for the quarter ending July 31, 2006. This was a decrease of approximately 64% over the $76,152 that was incurred for the same period in the prior year. The decrease was primarily due to the ending of our research reimbursement contract with the Department of Energy. .

Selling, General and Administrative Expenses. In the quarter ended July 31, 2006 as compared to the same period during the prior year, selling, general and administrative costs declined from $126,808 to $81,659, or approximately 36%. The reduction was due to general cost cutting measures, primarily in the area of salaries. It is expected that such expenses will rise in future periods as the Company begins to institute a new marketing plan.

Interest Expense. For the quarters ended July 31, 2006 and 2005, interest expense was $666 and $457, respectively. This increase was due to a slightly higher level of borrowing by the Company during the third quarter of 2006 compared to the same period in 2005.

Additionally, interest expense increased because the Company began interest accrual on a promissory note due to a related party. The interest in question was previously halted. While the Company believes that such interest may ultimately be forgiven, there is no definitive agreement in place to that effect. As such, the Company accrued interest on the note as a contingency.

Liquidity and Capital Resources.

During the quarter ended July 31, 2006, the Company issued a total of 13,071,895 shares to a private investor in exchange for an investment of $100,000. The issuance was exempt from registration under the Securities Act of 1933 as amended, pursuant to Section 4(2). Proceeds from the sales of securities were used as general working capital and pay down short term loans.

ITEM 3. CONTROLS AND PROCEDURES

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

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On June 2, 2006, Fuji Health Science, Inc. filed suit in the United States District Court for the District of New Jersey Camden Vicinage against Mera Pharmaceuticals, Inc. alleging patent infringement against Mera Pharmaceuticals, Inc. At dispute is United States patent No. 6,245,818 entitled "Medicament for Improvement of Duration of Muscle Function or treatment of Muscle Disorders or Diseases."

The Company believes that it has meritorious defenses to Fuji Health Science, Inc. `s claims and intends to vigorously defend the suit. As such, no related contingency has been recorded.

ITEM 2. CHANGES IN SECURITIES

On July 25, 2006 the Company issued a total of 13,071,895 shares of common stock to a private investor at a price of $0.00765 per share. This issuance was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2),

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

31.1

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

31.2

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

32.1

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

32.2

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

REPORTS ON FORM 8-K

(i) June 2, 2006 (filed July 17, 2006) reporting the filing of a lawsuit against Mera Pharmaceuticals by Fuji Health Science, Inc.

SIGNATURES

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

MERA PHARMACEUTICALS, INC.

Dated: September 14, 2006 By: /s/ Gregory F. Kowal______

Gregory F. Kowal

Chief Executive Officer