1. Summary of Significant Accounting Policies

3 Months Ended

Jul. 31, 2011

Notes to Financial Statements

1. Summary of Significant Accounting Policies

NOTE 1. 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

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. 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 nine-month period ended July 31, 2011 are not necessarily indicative of the results that may be expected for the year ending October 31, 2011. For further information, refer to the financial statements and footnotes thereto for the year ended October 31, 2010, included in Form 10-K filed with the Securities and Exchange Commission.

The preparation of the Company’s 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 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 long-lived assets); 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.

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.

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.

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 20I I, FASB issued Accounting Standards Update 20I 1-11, 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 fmancial 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 fmancial condition.