Mera Pharmaceuticals, Inc.
Mera Pharmaceuticals, Inc.
Condensed Statements of Cash Flows(Unaudited)
| | Six Months | | | Six Months | |
| | Ended | | | Ended | |
| | April 30, 2009 | | | April 30, 2009 | |
| | (Unaudited) | | | (Unaudited) | |
Cash Flows from Operating Activities: | | | | | | |
Net loss | | $ | (95,168 | ) | | $ | (1,225 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | |
used in operating activities: | | | | | | | | |
Accumulated depreciation and amortization | | | 11,149 | | | | 43,216 | |
Changes in assets and liabilities | | | | | | | | |
Accounts receivable | | | (6,959 | ) | | | 7,492 | |
Tax credit receivable | | | (10,561 | ) | | | (13,714 | ) |
Prepaid expenses and other current assets | | | 8,011 | | | | 9,246 | |
Accounts payable and accrued liabilities | | | 150,093 | | | | 27,399 | |
Deferred revenue | | | 93,500 | | | | - | |
Net cash provided (used) by operating activities | | | 150,065 | | | | 72,414 | |
| | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | |
Purchases of marketable equitable securities | | | - | | | | (14,408 | ) |
Proceeds from sales of marketable equitable securities | | | - | | | | 34,400 | |
Prepaid construction costs | | | - | | | | | |
Purchases of fixed assets | | | (150,000 | ) | | | (29,394 | ) |
Net cash used by investing activities | | | (150,000 | ) | | | (9,402 | ) |
| | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | |
Proceeds from related party notes payable | | | - | | | | - | |
Payment of related party notes payable | | | - | | | | - | |
Net cash provided by financing activities | | | - | | | | - | |
| | | | | | | | |
Net increase in cash and cash equivalents | | | 65 | | | | 63,012 | |
Cash and cash equivalents, beginning of the period | | | 3,135 | | | | 19,288 | |
Cash and cash equivalents, end of the period | | $ | 3,200 | | | $ | 82,300 | |
Mera Pharmaceuticals, Inc. |
Condensed Balance Sheets |
| | July 31, 2011 | | | October 31, 2010 | |
| | (Unaudited) | | | | |
| | | | | | |
ASSETS |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 4,008 | | | $ | 5,940 | |
Accounts receivable | | | 14,165 | | | | 8,864 | |
Prepaid expenses | | | 32,420 | | | | - | |
| | | | | | | | |
Total current assets | | | 50,593 | | | | 14,804 | |
| | | | | | | | |
Plant and equipment, net | | | 4,144 | | | | 8,034 | |
| | | | | | | | |
Other assets | | | 30,045 | | | | 50,519 | |
| | | | | | | | |
Total Assets | | $ | 84,782 | | | $ | 73,357 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS' DEFICIT |
Current liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 427,081 | | | $ | 373,661 | |
Accounts payable - related parties | | | 150,000 | | | | 150,000 | |
Notes payable - related parties | | | 51,936 | | | | 51,936 | |
Deferred revenue | | | 218,200 | | | | 174,700 | |
| | | | | | | | |
Total Current Liabilities | | | 847,217 | | | | 750,297 | |
| | | | | | | | |
Contingencies | | | | | | | | |
| | | | | | | | |
Stockholders' deficit: | | | | | | | | |
Preferred stock, $.0001 par value, 5,200 shares authorized, none issued and outstanding, respectively | | | - | | | | - | |
Series A- Convertible Preferred Stock $0.0001 par value, 2,400 shares authorized, 80 and 80 issued and outstanding, respectively | | | 1 | | | | 1 | |
Series B- Convertible Preferred Stock $0.0001 par value, 2,400 shares authorized, 974 and 974 shares issued and outstanding | | | 1 | | | | 1 | |
Common stock, $.0001 par value: 750,000,000 shares authorized, 547,769,915 shares issued and 547,769,915 outstanding, respectively | | | 54,777 | | | | 54,777 | |
Additional paid-in capital | | | 7,968,873 | | | | 7,968,873 | |
Treasury stock at cost | | | (2,025 | ) | | | (2,025 | ) |
Accumulated deficit | | | (8,784,062 | ) | | | (8,698,567 | ) |
Total stockholders' deficit | | | (762,435 | ) | | | (676,940 | ) |
| | | | | | | | |
Total Liabilities and Stockholders' Deficit | | $ | 84,782 | | | $ | 73,357 | |
See the accompanying notes to theunaudited condensed financial statements
Mera Pharmaceuticals, Inc. |
Condensed Statements of Operations |
(Unaudited) |
| | Three Months | | | Three Months | | | Nine Months | | | Nine Months | |
| | Ended | | | Ended | | | Ended | | | Ended | |
| | July 31, 2011 | | | July 31, 2010 | | | July 31, 2011 | | | July 31, 2010 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net Sales | | $ | 86,819 | | | $ | 67,115 | | | $ | 238,707 | | | $ | 224,743 | |
Cost of Goods Sold | | | 284 | | | | - | | | | 14,027 | | | | 10,401 | |
| | | | | | | | | | | | | | | | |
GROSS PROFIT | | | 86,535 | | | | 67,115 | | | | 224,680 | | | | 214,342 | |
| | | | | | | | | | | | | | | | |
Costs and Expenses | | | | | | | | | | | | | | | | |
Research and development costs | | | 40,564 | | | | 70,262 | | | | 127,788 | | | | 203,667 | |
Selling, general and administrative | | | 63,913 | | | | 38,284 | | | | 188,218 | | | | 145,521 | |
Depreciation and Amortization | | | 2,122 | | | | 11,149 | | | | 6,178 | | | | 22,298 | |
| | | | | | | | | | | | | | | | |
Total costs and expenses | | | 106,599 | | | | 119,695 | | | | 322,184 | | | | 371,486 | |
| | | | | | | | | | | | | | | | |
Operating loss | | | (20,064 | ) | | | (52,580 | ) | | | (97,504 | ) | | | (157,144 | ) |
| | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | |
Other income | | | 2,040 | | | | 980 | | | | 4,998 | | | | 2,312 | |
Interest expense | | | (1,248 | ) | | | (1,248 | ) | | | (3,744 | ) | | | (3,744 | ) |
| | | | | | | | | | | | | | | | |
Total other income (expense) | | | 792 | | | | (268 | ) | | | 1,254 | | | | (1,432 | ) |
| | | | | | | | | | | | | | | | |
Net loss before income tax provision | | | (19,272 | ) | | | (52,848 | ) | | | (96,250 | ) | | | (158,576 | ) |
| | | | | | | | | | | | | | | | |
Provision for income taxes | | | - | | | | - | | | | - | | | | - | |
Refundable tax credit | | | 3,522 | | | | 4,730 | | | | 10,755 | | | | 15,291 | |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (15,750 | ) | | $ | (48,118 | ) | | $ | (85,495 | ) | | $ | (143,285 | ) |
| | | | | | | | | | | | | | | | |
Loss per share - basic and diluted | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) | | | (0.00 | ) |
Weighted average shares outstanding - basic and diluted | | | 547,769,915 | | | | 547,769,915 | | | | 547,769,915 | | | | 547,769,915 | |
See accompanying notes to unaudited condensed financial statements
Mera Pharmaceuticals, Inc. |
Condensed Statements of Cash Flows |
(Unaudited) |
| | Nine Months | | | Nine Months | |
| | Ended | | | Ended | |
| | July 30, 2011 | | | July 30, 2010 | |
| | | | | | |
Cash Flows from Operating Activities: | | | | | | |
Net loss | | $ | (85,495 | ) | | $ | (143,285 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | |
Accumulated depreciation and amortization | | | 6,178 | | | | 22,298 | |
Changes in assets and liabilities | | | | | | | | |
Accounts receivable | | | (5,301 | ) | | | (14,447 | ) |
Prepaid expenses | | | (32,420 | ) | | | 12,002 | |
Other assets | | | 20,474 | | | | (15,291 | ) |
Accounts payable and accrued liabilities | | | 53,420 | | | | 156,688 | |
Deferrecd revenue | | | 43,500 | | | | 129,750 | |
Net cash provided by operating activities | | | 356 | | | | 147,715 | |
| | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | |
Purchases of fixed assets | | | (2,288 | ) | | | (150,000 | ) |
Net cash used in investing activities | | | (2,288 | ) | | | (150,000 | ) |
| | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | |
Net cash provided by (used in) financing activities | | | - | | | | - | |
| | | | | | | | |
Net decrease in cash and cash equivalents | | | (1,932 | ) | | | (2,285 | ) |
Cash and cash equivalents, beginning of the period | | | 5,940 | | | | 3,135 | |
Cash and cash equivalents, end of the period | | $ | 4,008 | | | $ | 850 | |
| | | | | | | | |
Cash paid for interest | | $ | - | | | $ | - | |
Cash paid for taxes | | $ | - | | | $ | - | |
See accompanying notes to unaudited condensed financial statements
MERA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010
1. | NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business
Organization - Mera Pharmaceuticals, Inc. (the “Company” or “Mera”), originally was seeking to develop and commercializes natural products from microalgae using its proprietary, large-scale photobioreactor technology. During 2009, the Company switched its focus to engaging in the development of Sea Salt for sale in commercial and consumer uses. The salt is concentrated, low sodium and organic. The water used to produce the salt is drawn from an ocean depth of one-half mile. It is different in chemical composition from other sea salts because it comes from deep-sea water. It contains less sodium and more potassium, as well as higher concentrations of trace minerals. The Company's operations are located in Kailua-Kona, Hawaii.
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-Q and Article 10 of Regulation S-X.10-Q. 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 periodsnine-month period ended April 30, 2010July 31, 2011 are not necessarily indicative of the results that may be expected for the year ending October 31, 2010.2011. For further information, refer to the financial statements and footnotes th eretothereto for the year ended October 31, 2009,2010, included in Form 10-K filed with the Securities and Exchange CommissionCommission.
The preparation of the Company’s financial statementsFinancial 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 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)assets); valuation allowances for deferred tax assets; reserves for contingencies and litigation; and the fair value and accounting treatment of financial instruments. The Company bas esbases 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.
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.
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. Significant estimates include valuation of inventory, valuation of deferred tax assets and impairment of property and equipment.
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.
MERA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010
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 either high quality money market securities or to invest in short term corporate bonds. Certain amounts of such funds might not be insured by the Federal Deposit Insurance Corporation. However, the Company considers its credit risk associated with cash and cash equivalents to be minimal.
Inventories - Inventories are stated at the lower of cost (which approximates first-in, first-out) or market. At July 31, 2011, inventories consisted of $742,736 of work in process, $61,771 of finished goods, $68,768 of other inventory assets, and $19,338 of raw materials. Management has recorded a full valuation allowance for obsolete and excess inventory totaling $892,613.
| | July 31, July 31, | |
| | 2011 | | | 2010 | |
| | | | | | |
Raw Materials | | $ | 19,338 | | | $ | 19,338 | |
Work In Process | | | 742,736 | | | | 742,736 | |
Inventory Asset | | | 68,768 | | | | 72,824 | |
Finished Goods | | | 61,771 | | | | 61,771 | |
| | | 892,613 | | | | 896,669 | |
| | | | | | | | |
Inventories Allowance | | | (892,613) | | | | (896,669) | |
| | $ | - | | | $ | - | |
Revenue Recognition - Product revenue is recognized upon shipment to customers. Contract services revenue is recognized as services are performed on a cost reimbursement basis. Royalties are recognized upon receipt. The Company recognizes revenue when the price is fixed and determinability persuasive evidence of an arrangement exists, the products are shipped and collectability is reasonable assured. Plant and Equipment, net - Plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded principally using the straight-line method, based on the estimated useful lives of the assets (property and plant, 10-40 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 with an expected life of more than one year, and used in the business operations are capitalized and amortized over their expected useful lives. Expenditures for maintenance and repairs are charged to operations when incurred. When assets are sold or retired, the cost of the asset and the related accumulated depreciation are removed from the accounts and any gain or loss is recognized at such time.
Impairment of Long Lived Assets and Long Lived Assets to be Disposed Of – ASC 360 “Accounting for the Impairment or Disposal of Long-Lived Assets” 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.
Stock Issued For Services - In December 2004, the FASB issued ASC No. 718, Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.
MERA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010
Equity instruments (“instruments”) issued to persons other than employees are recorded on the basis of the fair value of the instruments, as required by ASC 718. ASC No. 505, Equity Based Payments to Non-Employees (“ASC 505”) defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the ASC 505.
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. ASC 350 “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 ASC 740 “Accounting for Income Taxes”. ASC 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. Statutory taxes not based on income are included in general and administrative expenses.
Loss Per Share - The Company computed basic and diluted loss per share amounts for July 31, 2011 and 2010 pursuant to the ASC 260, “Earnings per Share.” The assumed effects of the exercise of 11,215,000 shares of outstanding stock options, and conversion of 833,333 shares of convertible preferred stock series A and 8,695,429, shares of convertible preferred stock series B were anti-dilutive and, accordingly, dilutive per share amounts have not been presented in the accompanying statements of operations.
Concentrations- During 2010 and 2011, the Company obtains 100% of its salt from one source.
As of July 31, 2011 and 2010, the Company has accounts receivable balances that exceed 10% from 4 and 2 customers, respectively.
| 2011 | 2010 |
Customer A | 21% | N/A |
Customer B | 15% | 10% |
Customer C | 13% | N/A |
Customer D | 10% | N/A |
Customer E | N//A | 38% |
As of July 31, 2011 and 2010, the Company has a sales concentration that exceeded 10% to 1 and 1 customer, respectively.
| 2011 | 2010 |
Customer A | 11% | N/A |
Customer B | N/A | 35% |
Recent Accounting Pronouncements: In December 2011, FASB issued Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such; we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.
MERA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010
NOTE B- GOING CONCERN
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred a net loss of $77,778$15,750 and $85,495 for the First quarterthree and nine months ending April 30, 2010July 31, 2011, and has a total accumulated deficit of $8,784,062. There is also a working capital deficiency of $796,624 and a net accumulated lossstockholder deficiency of $8,207,026 from October$762,435 as of July 31, 2002 through April 30, 2010.2011. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development and sales fromof Kona Sea Salt. Management has plans to seek additional capital through private placement and public offerings of its common stock. These factors raise substantial doubt that the Company will be able to continue as a going concern.
Management’s plan for the continuation of the Company as a going concern includes financing the Company’s operationsManagement has plans to seek additional capital through issuanceprivate placement and public offerings of its common stock. If the Company is unable to complete its financing requirements or achievestock, and projects that revenue as projected, it will then modify its expenditures and plan of operations to coincide with the actual financing completed and actual operating revenues.increase in future years. There are no assurances, however, with respect to the future success of these plans.
MERA PHARMACEUTICALS
CONDENSED FINANCIAL STATEMENTS
Unless otherwise indicated, amounts provided in these notes to the financial statements pertain to continuing operations.NOTE C- RELATED PARTY TRANSACTIONS
3. | Related Party Transactions. |
In December 2003 the Board agreed to pay one of its members a commission of 4% of sales made to a Hawaiian distributor. The commission amount to be paid is based on sales consummated and approximately $13,000 was payable under this agreement as of July 31, 2011.
On November 2, 2009 the Company entered into an agreement with an entity created and controlled by certain members of its Board of Directors. The agreement involves the purchase by such entity of Bulk Kona Deep Sea Salt from unsold inventory at a price onof $7.25 per kilogram. The Company estimates its direct cost for thethis material is approximately $5.00 per kilogram. The purpose of this transaction is, in the absence of any other funding sources, to provide the cash flow needed to maintain and grow operations so that the Company is able to produce enough Kona Deep Sea Salt to market and sell outside of Hawaii. This program will end once the Company is able to attain positive cash flow sufficient to sustain such operations. Under this agreement, the Company shall have the right of firs tfirst refusal to repurchase some or the entire product purchased by the related entity at a price of $8.50 per kilogramKilogram if certain conditions are met. During the three months ended April 30,As of July 31, 2011 and 2010, the Company has received $58,700 from the related entitya total of $246,500 and $188,500 under this agreement. Of this amount $58,700 wassuch amounts, $218,200 and $160,200 has been recorded as deferred revenue resulting for product that hadhas not yet been shipped.
4. SummaryIn March 2009 the Company entered into an agreement with a Director. The Director’s Company to provide construction services in exchange for payment of Significant Accounting Policies$150,000. As of the date of these financial statements, such amount has not yet been paid.
Revenue Recognition. The Company has adopted Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, which provides guidancean unsecured demand notes payable – shareholder bearing an annual interest rate of 10% due on the recognition, presentation and disclosure of revenue in financial statements. Product revenue is recognized upon shipment to customers. Contract services revenue is recognized as servicesMarch 31, 2004. The notes are performed on a cost reimbursement basis. Royalties are recognized upon receipt.currently past maturity; however no demand for payment has been made (See Note D).
5. Recent Accounting PronouncementsThe Company has an unsecured demand notes payable – shareholder bearing an annual interest rate of 8% due on various dates through March 26, 2006. The notes are currently past maturity; however no demand for payment has been made (See Note D).
NOTE D- NOTES PAYABLE - RELATED PARTIES
Recent accounting pronouncements thatNotes payable – related parties consists of the following as of July 31, 2011:
The Company has adopted or that will be required to adopt in the futurean unsecured demand notes payable – shareholder bearing an annual interest rate of 10% due on March 31, 2004. The notes are summarized below.currently past maturity; however no demand for payment has been made (see Note C)
MERA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010
The Company has an unsecured demand notes payable – shareholder bearing an annual interest rate of 8% due on various dates through March 26, 2006. The notes are currently past maturity; however no demand for payment has been made (See Note 1 C).
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles
The Company has an unsecured demand notes payable – shareholder bearing an annual interest rate of 10% due on March 31, 2004. The notes are currently past maturity; however no demand for payment has been made. | | $ | 41,936 | |
The Company has an unsecured demand notes payable – shareholder bearing an annual interest rate of 8% due on various dates through March 26, 2006. The notes are currently past maturity; however no demand for payment has been made. | | | 10,000 | |
Total notes payable, related parties | | $ | 51,936 | |
In June 2009,The Company accrued $1,248 and $1,248 for the Financial Accounting Standards Board “FASB” issued Statementthree months ended July 31, 2011 and 2010, and $3,744 and $3,744 for the nine months ended July 31, 2011 and 2010, respectively, for interest expense due on notes payable-related parties.
NOTE E- STOCK HOLDERS EQUITY
(A) | Preferred Stock- The Company has 5,200 preferred shares authorized to be issued with the rights and preferences to be determined by the Board of Directors as of July 31, 2010 and 2011. |
(B) | Stock Options- On November 7, 2004 the Board of Directors adopted the 2004 Stock Option Plan, authorizing issuance of options on up to 60 million shares of the Company’s common stock. In December of 2004, the Board approved issuance of options to purchase approximately 48,000,000 shares of its common stock to existing officers, directors and employees, subject to shareholder approval of the plan. In May 2005, such approval was received. The fair value of the options on the grant date was $480,000 calculated using the Black-Scholes Option Pricing Model. As of July 31, 2011 approximately 11,215,000 were deemed vested based on length of service with the Company since the date the Company’s Plan of Reorganization was approved. Terminated employees who have elected not to exercise options have forfeited their options. Approximately 37,000,000 total options have been forfeited since the adoption of the Stock Option Plan. |
The following table summarizes the transactions of Financial Accounting Standard (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS No. 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securitie s and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. This statement will have an impact on the Company’s financial statements since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.stock options for the two-year period ended July 31, 2011:
Subsequent Events | | Number of Shares | | | Weighted Average Exercise Price | |
Options outstanding, July 31, 2009 | | | 12,430,000 | | | $ | 0.01 | |
Options granted | | | - | | | | - | |
Options exercised | | | - | | | | - | |
Options forfeited | | | (1,215,000) | | | | 0.01 | |
Options outstanding, July 31, 2010 | | | 11,215,000 | | | $ | 0.01 | |
Options granted | | | - | | | | - | |
Options exercised | | | - | | | | - | |
Options forfeited | | | - | | | | - | |
Options outstanding, July 31,2011 | | | 11,215,000 | | | $ | 0.01 | |
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”.(“SFAS No. 165”) This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual periods ending after June 15, 2009. The adoption of SFAS No. 165 did not have a material impact on the Company’s financial statements.
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The implementation of FSP FAS No. 157-4 did not have a material on the Company’s financial position and results of operations.
Recognition and Presentation of Other-Than-Temporary Impairments
In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments ". The objective of an other-than-temporary impairment analysis under existing U.S. generally accepted accounting principles (GAAP) is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. FSP FAS No. 115-2 and FAS No. 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after Mar ch 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted. The implementation of FSP FAS No. 115-2 and FAS No. 124-2 did not have a material impact on the Company’s financial position and results of operations.
MERA PHARMACEUTICALS
CONDENSED FINANCIAL STATEMENTS
Interim Disclosures about Fair Value of Financial Instruments
In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments". This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS No. 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The implementation of FSP FAS No. 107-1 did not have a material impact on the Company’s financial position and results of operations
Amendments to the Impairment Guidance of EITF Issue No. 99-20
In January 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20". This FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other than- temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. This I ssue is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The adoption of FSP EITF 99-20-1 did not have a material effect on the Company’s financial statements
Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
In June 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”. This Issue is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. Share lending arrangements that have been terminated as a result of counterparty default prior to the effective date of this Issue but for which the entity has not reached a final settlement as of the effective date are within the scope of this Issue. This Issue requires retrospective application for all arrangements outstanding as of the beginning of fiscal years be ginning on or after December 15, 2009. This Issue is effective for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact of FSP EITF 09-1 on its financial position and results of operations.
MERA PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010
July 31, 2011 Options Outstanding | | | Options Exercisable | |
Range of Exercise Price | | | Number Outstanding at April 30, 2011 | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | | | Number Exercisable at April 30, 2011 | | | Weighted Average Exercise Price | |
$ | .01 | | | | 11,215,000 | | 1.83 years | | $ | .01 | | | | 11,215,000 | | | $ | .01 | |
July 31, 2010 Options Outstanding | | | Options Exercisable |
Range of Exercise Price | | | Number Outstanding at April 30, 2010 | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | | | Number Exercisable at April 30, 2010 | | | Weighted Average Exercise Price | |
$ | .01 | | | | 11,215,000 | | 2.83 years | | $ | .01 | | | | 11,215,000 | | | $ | .01 | |
NOTE F- LEGAL PROCEEDINGS
On June 22, 2011, Michael Broby, a former consultant filed a suit in the 3rd Circuit Court, State of Hawaii courts against Mera Pharmaceuticals, Inc. The complaint alleges breach of contract and breach of covenant of good faith and fair dealing arising out of a commission contract and is seeking damages in excess of $50,000. Mera management is planning to vigorously defend themselves against this claim, as they believe there is no merit.
NOTE G- RECLASSIFICATIONS
Certain amounts from prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company’s net loss or cash flows.
NOTE H- SUBSEQUENT EVENT
Merger
On June 15, 2012, Mera Pharmaceuticals, Inc. (the “Company”) entered into a Share Exchange Agreement (the “Agreement”) with Villari Family Centers, Inc., a Florida corporation (“VFC”), and the shareholders of VFC. Pursuant to the terms of the Agreement, the VFC shareholders exchanged 100% of their shares of VFC for shares of the Company’s Series C Convertible Preferred Stock, which, upon conversion, will constitute 95% of the Company’s common voting stock on a fully diluted basis as of the date of closing. The Company will account for this transaction as a reverse merger.
In connection with the issuance of the Series C Convertible Preferred Stock, the Board of Directors and Holders of a Majority of the Voting Interests of the Company has ratified the increase of its authorized common stock to 18,000,000,000 shares.
The rights and preference of the Series C stockholders rank in parity with the Corporation’s Common Stock and Series A and Series B Preferred Stock. The Series C is convertible mandatorily on June 14, 2013 or at the option of 51% of its holders into their proportionate shares of common stock on a fully diluted basis. The Series C will be cancelled once it is redeemed.
Additionally, in connection with the merger, the Series A and B preferred stock automatically converts into an aggregate of 9,529,761 shares of the Company's common stock, resulting in total common stock issued and onstanding of 557,299,676, post merger.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
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-K 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 April 30, 2010July 31, 2011 we had an accumulated deficit of $8,207,026.$8,784,062. 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 smaller operating losses through the current fiscal year. We also 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
Revenue declined 70.3%increased 29% for the three months ending July 31, 2011 to $86,819 compared to $67,115 for the three months ending July 31, 2010, and increased 6% for the nine months ended July 31, 2011 to $238,707 compared to $224,743 for the nine months ended July 31, 2010. The increase in revenues was due primarily to increased sales of our AstaFactor nutraceutical supplement. We had several large international AstaFactor sales in first quarter ending April 30, 20102011 that did not occur in first quarter 2010. Additionally we ran several promotions and discounts on AstaFactor which generated increased customer response and sales. We plan to $61,413 vs. $206,762continue such promotions for the foreseeable future and believe that we will maintain corresponding increases in year over year revenues.
Additionally, the Company had a one time, large bulk sea-salt sale that occurred in the year agofirst quarter ending April 30, 2009. Theof 2010, which did not occur in the same period for 2011. Had the large bulk sea-salt sale not occurred in 2010, our nine month revenue decline was partially attributable2011 would have increased 18% in comparison to the endingprevious year. Our expectation is that revenue will increase slightly for the rest of the HRBioPetroleum agreement which ended on June 8, 2009. Product sales of AstaFactor and Kona Sea Salt decreased to $61,413 versus $96,215 in the comparable periods, an decrease of 36.2%2010-2011 fiscal year.
Cost of Sales. CostSales
For the three months ending July 31, 2011, cost of goods sold increased by $284 -- $284 versus $0 for the three months ending July 31, 2010. For the nine month period ending July 31, 2011, cost of goods increased 35% -- $14,027 versus $10,401 for the nine months ended July 31, 2010. The primary factor that increased cost of goods sold was $9,095 forincreased product sales. This trend is expected to continue as the quarter ending April 30, 2010 versus $1,306Company foresees continued increases in the quarter ending April 30, 2009 which was a 696% increase as we added materials and inventory to meet expected future sales of our AstaFactor and Kona Sea Saltits products.
Research and Development Costs.
Research and development costs decreased to $70,474$40,564 for the quarterthree months ending April 30,July 31, 2011 compared $70,262 to the three months ending July 31, 2010, a decline of 42%. For the nine month period ending July 31, 2011, research and development costs decreased 37% -- $127,788 versus $72,788$203,667 for the quarter ending April 30, 2009, an decrease of approximately 3.2%.nine months ended July 31, 2010. The decrease was due primarily to the winding down of costs associated with the conclusioncost cutting measures, and due to a re-focus of the Company’s technical service agreement and shiftCompany on production of personnel to work on research for the introduction of future new products.its Sea Salt product line.
Selling, General and Administrative Expenses
. TheseSelling, general and administrative expenses decreasedincreased to $56,491$63,913 for the quarterthree months ending April 30, 2010July 31, 2011 as compared with $93,394to $38,284 the three months ending July 31, 2010, an increase of 67%, and increased to $188,218 for the nine months ended July 31, 2011 versus $145,421 for the nine months ended July 31, 2010. The increase was due primarily to compensation expense that was accrued for the Company’s CEO during fiscal 2011 that was not incurred in the quarter ending April 30, 2009, a decrease of 39.5% as the Company, concluded the technical service agreement and the employees associated with that project. The Company will also continue to contain expenses though the use of part time workers who are available on a call basis when needed.fiscal 2010.
Interest Expense.Expense
For the quarterthree months ended April 30,July 31, 2011 and 2010, versus 2009, interest expense was $1,248 and $1,248 respectively. For the nine months ended July 31, 2011 and 2010, interest expense was $3,744 and $3,744 respectively. Debt was neither incurred nor paid during either period.
Off-Balance Sheet Arrangements
We don't have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities"(SPEs).
Critical Accounting Policies
Our financial statements have been prepared in accordance with accounting policies generally accepted in the United States of America. Our discussion and analysis of our financial condition and results of operations are based on these financial statements. The preparation of these financial statements requires the application of accounting policies in addition to certain estimates and judgments by our management. Our estimates and judgments are based on currently available information, historical results and other assumptions we believe are reasonable. Actual results could differ from these estimates.
There have been no material changes to the critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended October 31, 2010.
Recent Accounting Pronouncements - In December 2011, FASB issued Accounting Standards Update 2011-11, Balance Sheet - Disclosures about Offsetting Assets and Liabilities” to enhance disclosure requirements relating to the offsetting of assets and liabilities on an entity's balance sheet. The update requires enhanced disclosures regarding assets and liabilities that are presented net or gross in the statement of financial position when the right of offset exists, or that are subject to an enforceable master netting arrangement. The new disclosure requirements relating to this update are retrospective and effective for annual and interim periods beginning on or after January 1, 2013. The update only requires additional disclosures, as such; we do not expect that the adoption of this standard will have a material impact on our results of operations, cash flows or financial condition.
Going Concern
For a discussion of going concern issues, see Note B to our financial statements in Part 1, Item 1 to this quarterly report.
Liquidity and Capital Resources
The Company currently does not have enough cash to satisfy its minimum cash requirements for the next twelve months. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development and sales of Kona Sea Salt.
Management has plans to seek additional capital through private placement and public offerings of its common stock, and projects that revenue will increase in future years. There are no assurances, however, with respect to the future success of these plans.
The present state of the Company's liquidity and capital resources raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional capital and implement its business plan.
ITEM 3.4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. UnderAn evaluation was carried out under the supervision and with the participation of ourthe Company’s management, including our chiefits principal executive officer we conducted an evaluationand principal financial officer, of ourthe effectiveness of the design and operation of the Company’s disclosure controls and procedures as such terms are(as defined in Rule 13a-14(c) promulgated13a-15(e) and 15d-15(e) under the Exchange Act, withinAct) as of the 90 dayend of the period prior tocovered by this Report. Based upon that evaluation, the filing date of this quarterly report. Based on this evaluation, our Chief Executive Officerprincipal executive officer and Principal Financial and Accounting Officerprincipal financial officer concluded that ourthose disclosure controls and procedures were not effective as of that date.July 31, 2011, because we do not have sufficient staff to segregate responsibilities and no written documentation of internal control policies. Additionally, our annual report on Form 10-K for the year ended October 31, 2010 and our quarterly report on Form 10-Q for the quarter ended July 31, 2011 were not filed within the time periods specified in the SEC's rules. We plan to seek to correct these deficiencies during the current fiscal year or the next.
(b) ThereDuring the quarterly period covered by this Report, there were no changes in the Company’s internal control over financial reporting that have been no significant changes (including corrective actions with regardmaterially affected, or are reasonably likely to significant deficiencies or material weaknesses) in ourmaterially affect, the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.
control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIESUNREGESTERED SALE OF SECURITES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. (REMOVEDREMOVED AND RESERVED)RESERVED
ITEM 5. OTHER INFORMATION
None.
| Certification of Chief Executive Officer pursuant to Rule 13a – 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically). |
| Certification of Principal Financial and Accounting Officer pursuant to Rule 13a – 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically). |
| 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). |
| 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) |
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
| MERA PHARMACEUTICALS, INC. | |
| | | |
Dated: June 14, 2010July 26, 2012 | By: | /s/ Gregory F. Kowal/s/ Charles Gary Spaniak, Sr. | |
| | Gregory F. KowalCharles Gary Spaniak, Sr. | |
| | Chief Executive Officer | |
| | | |
| By: | /s/ Lawrence H. Wolfe | |
| | Lawrence H. Wolfe | |
| | Principal Financial and Accounting Officer | |