United States Securities and Exchange Commission
                             Washington, D.C. 20549


                                  FORM 10-KSB-A
--------------------------------------------------------------------------------
                                 Amendment No. 2


(Mark One)
  [X]    Annual Report Pursuant to Section 13 or 15(d) of The Securities
         Exchange Act of 1934 for the Fiscal Year Ended December 31, 2002

  [ ]    Transition Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

                        Commission File Number: 000-32343

                                MR3 Systems, Inc.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

                Delaware                                68-0259003
     -------------------------------                 ----------------
     (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)                Identification No.)

         435 Brannan Street, Suite #200, San Francisco, California 94107
         ---------------------------------------------------------------
              (Address of principal executive officers) (Zip Code)

Issuer's telephone number:  (415) 947-1090

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, $0.01 par value per share
                     ---------------------------------------
                                (Title of Class)

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 [ ] No [X ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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]

State issuer's revenues for its most recent fiscal year.  $ 0

State the aggregate market value of the voting stock 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 of a specified date within the past 60
days. $6,799,212 (Based on price of $0.36 per share on October 31, 2003)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

           Class                              Outstanding as of October 31, 2003
           -----                              ----------------------------------
Common Stock, Par Value $0.01                             59,316,816


DOCUMENTS INCORPORATED BY REFERENCE

Transitional Small Business Disclosure Format.  Yes [ ]  No [X]

<PAGE>

                                MR3 Systems, Inc.

                                TABLE OF CONTENTS

                                     PART I
                                                                            Page
Item 1.     Description of Business........................................  01

Item 2.     Properties.....................................................  19

Item 3.     Legal Proceedings..............................................  20

Item 4.     Submission of Matters to a Vote of Security Holders............  20

                                     PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder
             Matters.......................................................  21

Item 6.    Management's Discussion and Analysis of Financial Condition and
             Results of Operations.........................................  26

Item 7.    Financial Statements and Supplementary Data.....................  32

Item 8.    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure......................................  32

                                    PART III

Item 9.    Directors and Executive Officers of the Registrant..............  32

Item 10.   Executive Compensation..........................................  37

Item 11.   Security Ownership of Certain Beneficial Officers and
             Management....................................................  40

Item 12.   Certain Relationships and Related Transactions..................  42

                                     PART IV

Item 13.   Exhibits and Reports on Form 8-K................................  43


Item 14.   Controls and Procedures.........................................  45

           Signatures......................................................  46

           Certifications..................................................  47

           Index to Financial Statements...................................  49

           Financial Statements............................................  F-1

<PAGE>

                                     PART I

THE INFORMATION IN THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF FEDERAL SECURITIES LAWS. ANY STATEMENTS IN THIS
REPORT REGARDING MR3'S OUTLOOK FOR ITS BUSINESS AND RESPECTIVE MARKETS, SUCH AS
PROJECTIONS OF FUTURE PERFORMANCE, STATEMENTS OF MANAGEMENT'S PLANS AND
OBJECTIVES, METAL PRODUCTION, PROBABLE ORE RESERVES, FUTURE FINANCING PLANS,
COMPETITION AND OTHER MATTERS ARE FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS RELATE TO FUTURE EVENTS AND MR3'S FUTURE FINANCIAL
AND OPERATING PERFORMANCE AND INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE
OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM THAT EXPRESSED OR IMPLIED BY
THESE FORWARD-LOOKING STATEMENTS. IN SOME CASES, YOU CAN IDENTIFY
FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY", "WILL", "SHOULD",
"EXPECTS", "PLANS", "INTENDS", "ANTICIPATES", "BELIEVES", "ESTIMATES",
"PREDICTS", "POTENTIAL" OR "CONTINUE", THE NEGATIVE OF SUCH TERMS OR OTHER
COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY PREDICTIONS. IN EVALUATING
THESE STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING,
WITHOUT LIMITATION, THE RISKS OUTLINED UNDER "RISK FACTORS" AND MATTERS
DESCRIBED IN THIS REPORT GENERALLY. THESE FACTORS MAY CAUSE OUR ACTUAL RESULTS
TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT.

ALTHOUGH MR3 BELIEVES THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATMENTS ARE REASONABLE, MR3 CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. GIVEN THESE UNCERTAINTIES, READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. MR3
DISCLAIMS ANY OBLIGATION TO PUBLICLY UPDATE THESE STATEMENTS, OR DISCLOSE ANY
DIFFERENCE BETWEEN ITS ACTUAL RESULTS AND THOSE REFLECTED IN THESE STATEMENTS


ITEM 1.  DESCRIPTION OF BUSINESS

Business Development

         MR3 Systems, Inc. ("MR3" or the "Company") was incorporated in
California on July 3, 1991 as Airponic International Corporation to engage in
the business of developing and marketing a technology that accelerates the
growth of plants, known as the Airponic Growing System ("AGS"). On March 9,
1992, the Company amended its Articles of Incorporation to change its name to
Bioponic International. On February 26, 1997 the Company filed Amended and
Restated of Articles of Incorporation to increase its authorized common stock
and to create a new class of preferred stock.

         On October 7, 1997, pursuant to a Plan and Agreement of Reorganization,
the Company obtained all of the issued and outstanding shares of MR3, Inc., a
Delaware corporation, in exchange for 2,665,000 shares of its common stock. MR3,
Inc., was then engaged in the business of manufacturing modules (integrated
hardware and media systems) for the removal and purification of metals from
industrial waster water, similar to that of the business the Company is
currently engaged in. With the acquisition of MR3, Inc., which was accounted for
as a pooling of interests, MR3 became an operating division of the Company.

         On June 8, 1999 the Company formed Emarethree Corporation, a Delaware
corporation, as a wholly owned inactive subsidiary of the Company. On March 6,
2000, the Company formed Bioponic AGS, Inc. ("Bioponic AGS"), a Delaware
corporation, as a wholly owned inactive subsidiary of Emarethree Corporation. On
March 31, 2000, the Certificate of Incorporation of Emarethree Corporation was

                                      -1-
<PAGE>

amended and restated to change its name to MR3 Systems, Inc., increase its
authorized capital stock and create a class of preferred stock. On April 28,
2000, the Company completed a change of domicile of incorporation from the State
of California to the State of Delaware in connection with the merger of its
parent company, Bionomic International, a California corporation, with its
wholly owned subsidiary, MR3 Systems, Inc., a Delaware corporation. MR3 Systems,
Inc. became the surviving public entity resulting from the merger.

         Effective April 29, 2000, the Company transferred its Airponic Growing
System technology assets and related liabilities to its subsidiary, Bioponic
AGS. Further, on April 29, 2000, the Company spun off its ownership in Bioponic
AGS to its shareholders of record as of January 31, 2000. Bioponic International
shareholders of record as of January 31, 2000, received one share of Bioponic
AGS Inc. for every two shares of Bioponic International as a stock dividend. An
aggregate of 13,734,369 common shares of Bioponic AGS were distributed to 422
shareholders on or about May 8, 2000. Effective with the distribution of shares
to the Company's shareholders, Bioponic AGS was no longer deemed to be a
subsidiary of the Company and the Company had no rights or ownership to any of
the technology transferred or otherwise owned by Bioponic AGS.

         In May 2003, the Company formed TechMining, LLC, a Colorado company, as
a wholly owned subsidiary of the Company to own and operate a precious metals
processing facility in Lakewood, Colorado. TechMining is currently inactive and
the Company may elect to close the subsidiary if it does not initiate precious
metals processing operations in Colorado. Business of the Company

Principal Product and Services

         MR3 Systems, Inc. is a metals extraction and recovery technology
company. The technology originated from research in microbiology on how
microbial cells efficiently acquire their essential nutrient metals such as
calcium, copper, zinc, etc. The Company has synthesized these natural
hydrometallurgical process plants and has successfully applied the technology on
a commercial processing level for certain periods of time during 1999 through
2001, consistent with demand for its manufactured zinc sulfate end product. The
Company did not generate any revenues in 2002 related to the implementation of
its MR3 technology, as it revised its business strategy during that period to
focus on more stable and lucrative prospects for its technology. The MR3
technology is an automated, modular metals reclamation system that integrates
specialized media with a unique hydrometallurgical chemical process to
selectively separate, extract, and purify individual targeted metals. The key
aspect of the MR3 system is its unique affinity and selectivity for an
individual target metal, even within multiple metal ion environments.

         MR3's technology has many applications including: (i) the recovery of
precious metals from ore and concentrates; (ii) the processing of industrial
wastes into purified metals and specialty chemical products; and (iii) the
environmental remediation of hazardous metals from contaminated sites. MR3 has
developed a proprietary process for the recovery, separation and purifying of a
broad range of metals.

         The Company's strategy is to either license its proprietary technology
to third parties for use in individual applications or directly implement the
technology under operations controlled by the Company or through joint ventures
with other entities. The metals and specialty chemical products produced by the
Company's process are expected to achieve purity levels greater than 99.9% and
will be offered for sale to metals and chemical commodities brokers and other
end-users, where applicable. The Company intends to charge contract fees for
various waste removal and remediation services related to its proprietary
technology. These remediation services are also expected to achieve efficiencies

                                      -2-
<PAGE>

of greater than 99.9% in extracting the targeted waste metals from the source
waste streams. At present, the Company does not have any production facilities
operational at a commercial processing level.


        The Company's belief that it will be able to provide end products
achieving purity levels of greater than 99.9% is based on the Company's actual
processing experience at its treatment facility in Butte, Montana and quality
control testing by third parties in connection with practical applications of
the technology. The resultant liquid zinc sulfate (ZnSO4.H2O) product generated
by the Company in Butte routinely exhibited results of greater than 99.9% purity
in quality control analysis performed by Company personnel. The MR3 technology
has also been tested in practical applications involving plutonium extraction
and treatment of nuclear waste streams. Testing of the nuclear related
post-treatment product was performed by independent third party companies. In
each of these cases, the entities documented and reported end-product purity
levels greater than 99.9%. Management believes that the past performance of its
technology in practical field applications will translate accordingly to
applications of the technology in other future commercial environments.

         For the foreseeable future, the Company's strategy will be to focus on
precious metals extraction, specialty chemical production and environmental
remediation applications for the MR3 technology. Management expects to license
other possible applications to qualified licensees on a territorial,
field-of-use basis with the goal of accelerating the global introduction of the
technology. Management further intends to enter into joint venture opportunities
with domestic and international entities whereby the Company will process
hazardous wastes and mining materials, collect the resultant products, arrange
for product sales to third party commodity brokers and share the proceeds or a
portion of the manufactured products (e.g. gold, silver platinum) under a
negotiated sharing agreement. Management is currently in negotiations with
several parties for licensing or other contractual adoption of its MR3
technology. The Company is in the process of taking source samples from the
prospect sites to determine the validity and potential of the designated
applications.

        The Company has established strategic relationships with mining and
engineering consultancy firms, such as Arrakis, Inc. and SRK Engineering, to
provide engineering, cost modeling, project due diligence and mining related
consulting support to the Company's service capabilities. In association with
these firms, and other firms with related expertise, the Company will also offer
fee based services to its clients including: (i) materials assessment and
pre-engineering services; (2) plant engineering and construction services; (3)
fabrication, delivery and installation of fully configured process components
including the necessary proprietary automation systems and medias; (4) plant
monitoring, operational and maintenance services; and (v) special selective
media preparation and production.


         MR3's manufactured end products include, but are not limited to 42 pure
industrial metals such as zinc, copper, chromium, cobalt, nickel and precious
metals such as gold, silver and platinum, which can be produced in either an
electro-winned solid bar or strip form, or as value added metal products, e.g.
sulfates, chlorides and oxides. Specialty chemical products, such as metal
sulfates, can be produced in solid or liquid form. Products are extracted and
selectively recovered from electric arc furnace ("EAF") dust, nuclear wastes,
semiconductor manufacturing and electroplating effluents, mercury and metal
hydroxide sludge, precious metals mining tailings, ores, contaminated soils and
sediments, and other industrial waste streams containing high concentrations of
valuable metals. The Company anticipates acquiring the source materials at low
cost to the Company or at minimal expense in connection with an end product
revenue sharing agreement with the source provider. In certain cases the Company
may be paid service fees to process hazardous source materials at MR3 related
facilities.

                                      -3-
<PAGE>

         From second quarter 1999 to fourth quarter 2001, the Company processed
zinc waste dust on a commercial level at its MR3 treatment facility located in
Butte, Montana. The raw zinc waste materials used for processing at the
Company's Butte facility were obtained from varied sources including zinc
trading and recycling firms, such as Dominion Zinc Company of Spokane,
Washington (a subsidiary of US Zinc) and several metals brokerage firms, such as
Freidman Metals Brokerage of Louisville, Kentucky. The facility consisted of
certain MR3 owned manufacturing, processing and storage equipment valued at
approximately $500,000, which was situated within 6,600 square feet of a leased
building within an industrial zoned area of Butte. The Company did not own the
building or land on which the processing took place. At its peak in 2000, the
Butte facility produced, sold and shipped an average of 100 tons a month of pure
liquid zinc sulfate to its lead customer, a major Midwestern chemical company,
for use as part of a corrosion inhibitor in several California municipal water
systems, including Los Angeles and the County of Marin.

         In fourth quarter of 2001, the Company discontinued operation of the
Butte facility due to economic considerations. The demand for its zinc sulfate
product by its primary customer was seasonal in nature and management ultimately
determined that it could not economically justify maintaining low-level
operations in the winter period when such demand was excessively small. The
decision to permanently close the Butte site, which was temporarily closed for
the slow winter season, was based on a combination of a predicted sluggish
economy and the high freight charges customers were paying for the Company's
zinc sulfate shipments from Butte. Certain equipment in Butte was sold to
relinquish in part existing obligations to the Company's landlords in Butte, the
balance of which is recorded on the books of the Company as a liability of
$11,700 for rent due.

         In 2002, the Company recorded an extraordinary expense item of $202,907
under operating expenses related to the valuation of property and equipment in
connection with the closure of the Butte, Montana facility. Some equipment was
designated for sale, while other equipment and property were designated for
transfer to the Company, as practicable. Upon review of the state of the
property and equipment, it was determined that certain MR3 manufacturing
property and equipment were impaired, as determined based on the quoted market
prices for similar assets. Consequently, the carrying value of MR3 property and
equipment was written down and an impairment loss in the amount of $202,907 was
included in operating expenses during the year ended December 31, 2002.

         In April 2002, the Company closed its Pittsburg, Pennsylvania business
development office that was established to facilitate business projects and
management relationships for the processing of EAF in carbon steel mills. Due to
the severe economic downturn in the domestic steel industry as a whole and
subsequent financial instability of many steel mills, the Company has
discontinued negotiations with representatives of the mills for the time being.
The Company may elect to pursue or license this business niche in the future
depending on available resources and prevailing economic conditions.

         In April 2002, the Company entered into a Joint Venture and Technology
Transfer Agreement with Linsa Associates Ltd., a British Virgin Islands Company
("Linsa"), to commercialize the MR3 Technology in certain jurisdictions of
Canada, Australia, Asia and the Middle Eastern Territories.

         On June 18, 2002, the Company entered into a MR3 Metals Extraction
Agreement with Consolidated Empire Gold, Inc. ("Empire Gold"), of Evergreen,
Colorado, to process gold from the gold tailings and dumps located at Grace Gold
Mine Complex in Empire, Colorado. The Company entered into an amendment of this
agreement in October 2002, to include exclusive processing of additional gold
ore at the Empire complex. The June agreement is not provided as an exhibit to
this annual report as all details of the agreement are contained in the October
agreement, which is provided as an exhibit to this document. The Company further
amended the Empire Gold agreement on May 1, 2003 to extend certain dates within

                                      -4-
<PAGE>

the October agreement. Further discussion on the Linsa and Empire Gold projects
and the terms of the above agreements are provided under the following section -
Current Operations.

         In December 2002, the Company entered into an exclusive metals
processing agreement with Mr. Raymond Looper of Fallon, Nevada, and his Silver
Mountain Mining Company to process gold, platinum, palladium and ruthenium from
certain mining properties located in central Nevada. MR3 owns the exclusive
option to process these metals subject to MR3's independent determination of the
scope and potential of the prospective mining claims. The agreement calls for
Mr. Looper to provide all on-site mining operations and for MR3 to provide all
metals extraction and processing services. All resultant metals sales are to be
split on a 50%-50% basis. The mine site, which as of this date exceeds 3.5
square miles, has not yet been drilled and no firm determination has been made
as to the full size and scope of the mineral deposits. As of November 30, 2003,
the Company had not yet exercised its option and was continuing to evaluate the
potential of the Nevada project.

         In April 2003, Mr. Bradley Rotter joined the Company as President and
Chief Operating Officer. Mr. Rotter is broadly experienced in the financial
capital and commodity markets and has been a private equity investor for twenty
years. Mr. Rotter has been an investor in the Company since 2001. Mr. Rotter
will serve in the Company's San Francisco headquarters. On November 24, 2003,
the Company appointed Bradley N. Rotter, then President and Chief Operating
Officer, as the Company's Chief Executive Officer replacing Mr. Randall S. Reis
who retained his position as Chairman of the Board. At the end of November 2003,
the Company appointed Mr. John King Burns as President. Both Mr. Rotter and Mr.
Burns were subsequently nominated as Directors of the Company.

         The Company has recently retained SRK engineering, an independent,
international consultancy group offering services mainly from earth and water
resource industries. For mining related projects, SRK offers services from
exploration through feasibility, mine planning, and production to mine closure.
SRK, which began as Steffen, Robertson & Kirsten in 1974, employs more than 500
professionals internationally and employs leading specialists in each field of
science and engineering. SRK was retained to review MR3's basic design criteria
for its metals extraction process and provide guidance on improving overall
engineering efficiency for commercial level operations. SRK will also provide
detailed design and engineering support to create definitive operating and cost
estimates for project related plant construction and anticipated performance
estimates. SRK may also provide project management support in instances where
MR3 assumes the leading role in management of a project.

         In October 2003, management arranged a $1,250,000 credit facility which
will allow the Company to further its ability to deploy the first in a series of
plants to utilize its metals separation and purification technology. The Company
received the first tranche of $250,000 in loan proceeds on October 14, 2003. The
credit facility consists of a 14% Promissory Note in the principal amount of
$1,250,000, due March 1, 2006, or an earlier date 24 months from the date the
first plant is completed and operational. The Company is obligated to submit
requests for funds against the credit facility in connection with its financing
needs related to plant development and construction. Attached to the Note are
five-year warrants to purchase 2,000,000 shares of the Company's common stock at
a price of $0.23 per share. The credit facility also has an equity conversion
feature allowing the lender, High Stakes Capital--a private equity and financing
group--to convert the loan into percentage ownership in the plant.

         On November 1, 2003, the Company opened a technical support center
(TSC) in Beverly, Massachusetts and transferred all equipment and technical
resources from its Salem laboratory to the TSC. The TSC is comprised of a
state-of-the-art testing laboratory and customer support facility. The TSC will
include bench-scale MR3 processing systems to simulate actual field applications
on a pilot scale basis, test samples from prospective client projects, provide
the basis for determining practicable solutions for designated applications,
perform quality control, and enable further research and development of the MR3
technology.

                                      -5-
<PAGE>

MR3 Technology

         The Company's proprietary MR3 technology combines high-affinity metal
capture, metal refining, waste decontamination, and water purification into a
single integrated system. This technology is used to separate and recover
valuable metals from industrial wastes and other complex metals sources. The MR3
System is a selective metals removal and reclamation process that extracts
individual metals and separates them into high purity fractions using a
low-temperature, cost-effective, passive process. At present, the MR3 technology
is not protected by any Company owned patents. The Company attempts to protect
its proprietary technology through a combination of trade secrets, proprietary
know-how, non-disclosure agreements, employment and consulting agreements, and
other common law remedies.

         The MR3 System generates little or no waste of its own, and thus is
environmentally beneficial and management believes it is also economically
sound. Low capital, operational, and maintenance costs, in conjunction with
innovative engineering, should generate net revenues from applications
previously considered cost-prohibitive.

         General Overview

         Metal contamination in harbors, lakes and oceans; sewage sludge; mining
tailings, polluted soils, acid mine water, industrial waste waters; photographic
rinse waters, and other sources represent significant environmental problems.
However, these types of pollutants can contain commercially attractive
quantities of concentrated valuable metals.

          At the other end of the concentration spectrum, very minute amounts of
radionuclide metals, e.g., cesium-137 (Cs-137) and strontium-90 (Sr-90), the
by-products of nuclear electrical power and military weapon production, present
an even greater health hazard to the world's human and animal populations due to
their extreme toxicity even in minute amounts. These highly radioactive wastes
are stored in very dilute solution in large volumes of water at various sites
throughout the world.

         The MR3 technology can remove radionuclides over a broad range of
concentration levels, even those that are dispersed as much as parts per
billion. The MR3 technology consists of a continuous operation in which several
process steps, i.e., selective capture, purification, and concentration of
individual metals removed from industrial, radioactive or mining wastes, have
been integrated into one automated modular treatment plant.

         A processing facility that employs MR3's innovative technology uses MR3
ion-exchange media of unique affinity and selectivity to economically remove and
simultaneously purify almost any metal from aqueous solutions. It operates
efficiently with metal concentrations of over 20,000 parts per million (ppm) to
less than one part per billion (ppb). Under laboratory conditions, water has
been successfully cleaned of radionuclides (e.g., Sr-90 and Cs-137) to
undetectable levels, even with starting concentrations as low as parts per
trillion.

         In the MR3 process, hazardous metals in soils, tailings, sediments,
sludge or ashes are brought into solution and moved from their solid state into
an aqueous state in the form of slurry. Solid materials are then separated from
the metal-laden liquid as the solution passes through metal recovery modules
where each module selectively removes a target metal from the mixed metal
stream.

                                      -6-
<PAGE>

         Each separated metal is then processed individually into a non-waste,
metal product (e.g., ferric sulfate [Fe2(SO4)3] for drinking water purification,
zinc sulfate [ZnSO4.H20] corrosion inhibitor and for fertilizers, and copper
sulfate [CuSO4.H20] for algaecide or animal feeds. In instances where the
quantity of metal may be of no commercial interest (e.g., metals from most
contaminated soils), all toxic metals may be simultaneously removed from the
water as a group by a single MR3 module.

         Where a metal-contaminated water is the starting material and thus
already in an aqueous state, the water with its metal load enters the MR3
process, and the cleaned effluent water can be introduced directly into the
environment or used for other purposes. The water used internally as a metal
carrier in the MR3 process is reused repeatedly. The repeated re-use of process
water and the fact that the process generates little or no waste of its own
contributes to the MR3's technology being environmentally beneficial and
economically sound.

                  Development of MR3 Media

         To date, approximately twenty-four (24) MR3 ion-exchange media have
been developed, synthesized and tested. They have all proven to display
excellent capacities for metal capture, each being specific to an individual
metal or group of metals. These MR3 media have high degrees of specificity and
affinity specifically for: aluminum, arsenic, cadmium, cesium, chromium, cobalt,
copper, gold, iron, lead, magnesium, manganese, mercury, molybdenum, nickel,
plutonium, selenium, silver, strontium, thorium, titanium, uranium, vanadium,
and zinc.

         In management's informed opinion, such media are non-toxic and are far
more efficient in capturing metals from aqueous solutions than are the
conventional and commonly used ion-exchange materials. Moreover, metal capture
from MR3 media is highly selective, which represents a distinct advantage over
conventional ion-exchange resins.

         During the development of the MR3 media, the following required
features and characteristics have been established for optimal performance:

--------------------------------------------------------------------------------
                    MR3 Media - Features and Characteristics
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Affinity:                         Very high capture efficiency in solutions
                                  containing low metal concentration.
--------------------------------------------------------------------------------
Specificity and Selectivity:      The ability to capture specific metals while
                                  ignoring others present in the same medium.
--------------------------------------------------------------------------------
Performance:                      High flow rates with freedom from swelling,
                                  shrinking, and compaction due to hydrostatic
                                  or osmotic pressure.
--------------------------------------------------------------------------------
Stability:                        Strong resistance to harsh chemical and
                                  physical treatment.
--------------------------------------------------------------------------------
Regenerability:                   Easy displacement of the captured metals from
                                  charged media, resulting in metal
                                  concentration, high-volume reduction factors,
                                  and re-use of free media.
--------------------------------------------------------------------------------
Capacity:                         The capability to capture substantial amounts
                                  of metal per unit of media while still
                                  maintaining high capture efficiency.
--------------------------------------------------------------------------------
Toxicity:                         Freedom from toxicity as there is no addition
                                  of trace toxic components to the treated
                                  solution.
--------------------------------------------------------------------------------
Cost Efficiency:                  Production costs minimized by media
                                  regenerability.
--------------------------------------------------------------------------------

                                      -7-
<PAGE>

         In instances where it is desirable to remove more than one metal, more
than one metal-specific column may be used in a series. With some media, it is
possible to broaden their specificities by chemical modification or special
conditioning. As a result, a number of different metals can be removed from
solutions simultaneously. The MR3 System can also be used in conjunction with
conventional ion-exchange materials when the simultaneous use of both high and
low capture efficiencies can produce the intended results.

         The design features and characteristics originally sought have been
attained with respect to a relatively large selection of media useful for the
separation of a broad spectrum of metals from solution. The requirements
originally set forth for affinity, specificity, selectivity, performance,
stability, regenerability, capacity, toxicity and cost-efficiency have in all
cases been met successfully and in many instances have been surpassed.

                  Potential Applications

         The MR3 technology can be used to extract and recover metals from a
vast range of sources, originating as both solid and aqueous states. Specific
examples of applications include:

         o        Water purification, metal reclamation, and refining from
                  metal-laden industrial water or sludge waste.
         o        Water purification and metal reclamation from metal-laden acid
                  mine water.
         o        Metal reclamation (including precious metals) from mining
                  tailings and ore.
         o        Cleaning sewage sludge and sewage sludge ash.
         o        Cleaning fly ash and bottom ash.
         o        Cleaning contaminated soils, including silt and clay
                  fractions.
         o        Cleaning ground water of heavy metal contamination, including
                  chromate (Cr-6).
         o        Cleaning harbor and lake sediments.
         o        Recovery of metals and water from plating rinse waters.
         o        Recovery of metals from hydroxide sludge from the metal
                  finishing industry.
         o        High-affinity capture of low concentrations of radionuclides
                  (e.g., Cs-137, Co-60, Sr-90, Pu) from water.
         o        Recovery and purification of precious metals from ore and
                  placer.
         o        Recovery of individual metals from process residuals (e.g.,
                  flue dusts).
         o        Recovery of individual metals from bag-house contents (e.g.,
                  electric arc furnace dust).
         o        Recovery of individual metals from slags and cinder.
         o        Selective recovery of the oxidized iron ion, leaving the
                  non-oxidized ion, from pickling baths used in the auto
                  industry.
         o        Selective removal of iron from electro-galvanizing baths to
                  greatly prolong bath life.
         o        Removal of extremely low concentrations of industrial metals
                  from sewage plant outflows.
         o        Removal and recovery of metals from spent catalysts.
         o        Removal of metals from wastewater of electronics industry
                  (circuit boards, thick films, thin films, wafers).
         o        Recovery of precious metals from computer junk.
         o        Metal decontamination of blasting sand used in paint removal
                  from ships, etc., and recycling of the sand.
         o        Recovery of selenium from agricultural irrigation waters, from
                  water used to wash crude oil, and from waste water from the
                  Xerox production process; and
         o        Selective removal of contaminating iron from any aqueous
                  solution for the prevention of microbial growth.

                                      -8-
<PAGE>

                  Technical Specifications

         The MR3 technology functions over a pH range from 1 to 14 and a
temperature range from 5(degree) C to 95(degree) C. It yields a purity exceeding
99% of the target ion, such that the output is immediately salable with no
further processing. Metal products collected directly from the module typically
achieve up to 99.9% purity. The purity level depends on the quality of the agent
that is used to recover the collected metal. If the separation process is
followed by an electrowinning treatment, purities of 99.99% or greater are
possible

         It works over a concentration range from 1 molar to parts-per-trillion,
yielding removal ratios of 40,000 to 10 million, even in the presence of high
concentrations of competing ions. The media capacity is on the order of 14 moles
(the mass in grams of this amount of a substance, numerically equal to the
molecular weight of the substance) per cubic foot.

Related Markets

         The Company currently utilizes its technology to operate primarily as a
high technology "metals extraction and recovery" company, producer of specialty
chemical products and provider of environmental remediation services. The
Company intends to commercially manufacture certain precious metals, such as
gold, silver and platinum, and various chemical products, such as potassium
dichromate, copper sulfate and zinc sulfate, for sale to third parties. The
Company considers the primary markets for its products to be specialty and
precious metal commodities brokers located domestically and internationally.

         In connection with current client discussions and management's general
outlook for the near future, the Company's primary emphasis will be on the
production and sale of precious metals. According to the most recent United
States Geological Survey ("USGS"), gold mining companies and producers of gold
are beginning to have difficulties in successfully replacing annual production
with new reserves. An estimate by an industry association indicates that
worldwide gold exploration expenditures decreased for the fifth consecutive
year. Consequently, given the above trends and recent uncertainties in global
political matters, management reasonably expects the historical demand for gold
and other precious metals to continue or expand for the foreseeable future. It
is generally accepted that no single company has sufficient market power to
affect the price or supply of gold in the world market. Management reasonably
believes that there will be numerous buyers for its output of gold and other
precious metals once it is fully processed into bars or strips.

         According to the Mine Safety and Health Association ("MSHA"), currently
there are over one hundred active gold and other precious metals mine locations
in the United States. The USGS reports that in 2002 gold was produced at about
52 major lode mines, a dozen or more larger placer (a glacial or alluvial
deposit of sand or gravel containing eroded particles of valuable materials)
mines and numerous smaller placer mines (mostly in Alaska and Western States).
In addition, there are thousands of "inactive" or "shutdown" precious metals
mine sites and other locations where conventional mining would be impractical or
cost inefficient. Management believes that there will be more than adequate
source materials well into the future for its projected precious metals mining
and processing activities.

         Management further believes that there are numerous hazardous chemical,
waste dump and other environmentally challenged sites around the world that
would provide sufficient source materials for the production of specialty
chemicals, as well as numerous sources for the purchase of said resultant
specialty chemicals.

                                      -9-
<PAGE>

Current Operations

MR3 Processing Facilities

         The Company previously reported its intent to establish an MR3
processing facility in Colorado in connection with its planned precious metals
extraction agreement with Consolidated Empire Gold. In February 2003, the
Company leased a site in Lakewood, Colorado for this purpose. As a consequence
of the Company terminating its agreement with CEG, the Company has elected to
not establish the processing facility in Lakewood at this time. Alternatively,
management intends to fabricate a series of MR3 technology processing facilities
("plants") in various geographical locations in accordance with project and
application agreements entered into with other prospective clients. In October
2003, the Company arranged a $1,250,000 credit facility with a private equity
and financing group, to provide the financing for the initial plant or pilot
level system implementations.

         The MR3 process consists of a continuous operation in which various
steps--selective capture, purification and concentration--have been integrated
into one automated modular treatment facility. Plants utilizing the MR3
processing technology can be constructed proportional to the requirements of the
designated application. MR3 plants can range from bench-scale pilot systems,
room size system implementations for small to midsize applications, and full
building size facilities for large scale extraction, production or reclamation
operations. The MR3 technology is modular in design and can be scaled
accordingly to meet the size and scope of the particular application. The nature
of MR3's modular plant construction is such that it facilitates disassembly and
transportation to other locations once the requirements of an application has
been satisfied. For the foreseeable future, the Company intends to focus on
applications where the targeted metals source material is already in a liquid or
slurry form or circumstances where the client assumes that responsibility.
Consequently, projected expenses related to handling, pretreatment, separation
of solids, and converting the raw materials into a saturated solution form
should be dramatically reduced or eliminated.

         MR3 processing plants can be fabricated for practical applications for
as low as several hundred thousand or several million dollars dependent on the
scope and nature (e.g. extraction of precious metals, chemical production or
environmental remediation) of the project under consideration. A MR3 processing
plant consists of a combination of certain standard laboratory equipment,
manufacturing hardware, and "unique" MR3 technology related modules and chemical
media including, but not limited to effluent treaters, filter and vacuum units,
crystallizers, extraction tanks, storage and product tanks, pH controllers,
computer equipment, pumps and motors, chemical reagents, and counter flow
fluidized-bed reactors. It is the "unique" media utilized in the disparate
applications that creates the designation of a unique module. The Company
intends to formulate its application-based media in-house and then outsource the
manufacture of the media in large volume on a subcontract basis. Management
estimates that it would take three to six months to fabricate and equip such
processing plants dependent on the size, scope and nature of the designated
application.

         Consolidated Empire Gold


        On June 18, 2002, the Company entered into a MR3 Metals Extraction
Agreement with Consolidated Empire Gold, Inc. ("Empire Gold"), of Evergreen,
Colorado, an unrelated party, to process gold from the gold tailings and dumps
located at Grace Gold Mine Complex in Empire, Colorado. On October 23, 2002, the
Company signed an amended agreement with Empire Gold, which replaced the prior
agreement, to expand its initial gold extraction agreement to include the
exclusive processing of metal bearing rock at the Empire Complex.


                                      -10-
<PAGE>

         The agreement calls for the Company to initially share on-site
operating expenses with Empire Gold at a rate of 75% (MR3)-25% (EG) and
ultimately evolve to 50%-50% upon reaching certain targets. The Company is also
obligated to pay a $9,500 monthly fee to Empire Gold to cover certain office and
supervisory expenses until such time as Empire begins to receive cash or in kind
payments from operations. Such payments, if any, will begin upon the initiation
of concentration activities at the Empire Gold mine site. The Company and Empire
Gold will share in the net proceeds of operations (gross revenue less sales
commissions, selling expenses, applicable taxes and recovery of on-site
operating expenses) on a 50%-50% basis.


        In accordance with its obligations under the operating agreement with
Consolidated Empire Gold, the Company retained Arrakis, Inc., a mining process
consulting, testing, system design, and equipment fabrication company located in
Englewood, Colorado to perform a feasibility analysis of the project costs
associated with the CEG venture. Arrakis engages in substantial ore testing,
assaying, and process flow sheet development for the domestic and international
mining industry and has performed bench/pilot treatability testing and
full-scale design, fabrication, and operation of environmental remediation
systems. In this consulting capacity, Arrakis was asked to design and estimate
the process and cost parameters of fabricating a gravity concentration plant,
for the mining of 1200 tons per day of mine tailings and other potential
metal-bearing rock located at the CEG mine site. Arrakis' work scope included
bulk treatability testing of various samples taken from tailing dumps located on
CEG's mine property. This enabled Arrakis to determine an efficient design for
the planned gravity concentration plant and a cost analysis for the full-scale
production facility.

         Based on the information provided by Arrakis following their detailed
assessment of the proposed CEG project, the Company elected not to continue with
the project as currently structured. Under its agreement, the Company was
obligated to advance all upfront expenses related to the establishment of
pretreatment operations, concentrating equipment and other costs associated with
a mining project, as well as building out a MR3 technology processing facility
at the Colorado site. Management deemed the upfront expenses related to
conventional mining requirements and pretreatment--to make the raw materials
suitable for processing using the MR3 technology--to be too capital intensive
and involving activity beyond the current scope of the Company's core
competencies at this stage in its corporate development. Consequently, on
October 21, 2003 the Company executed a termination and mutual release agreement
with CEG in connection with the aforementioned operating agreements. The Company
may choose to revisit this opportunity if a suitable mining partner is
identified to handle the mining aspects and pretreatment requirements of the
project or if CEG chooses to pay these expenses of its own accord.


                  Linsa Joint Venture

         Effective April 10, 2002, the Company entered into a Joint Venture and
Technology Transfer Agreement with Linsa Associates Ltd., a British Virgin
Islands Company ("Linsa"), to commercialize the MR3 Technology in Canada,
Australia, Asia and the Middle Eastern Territories. Thirty-six countries (or
territories) are included as reserved jurisdictions under the agreement. A
definitive list of such jurisdictions is included in Exhibit B to the April 10,
2002 agreement filed as an exhibit (#10.7) to this annual report. Under the
agreement and pursuant to a technology license, MR3 transfers right, title, and
interest in and to both the tangible and the intangible property constituting
MR3's technology for use within the designated territories. Both parties agree
to share all the distributable profits resulting from the use of the MR3
Technology to which they are collectively entitled on a 50%-50% basis.

                                      -11-
<PAGE>

         In light of the Company's evolved business strategy since the execution
of this agreement, management is in the process of negotiating an amendment with
Linsa to reduce the number of jurisdictions and fields-of-use exclusively
reserved under the original agreement and to introduce performance standards and
other restrictions in the remaining jurisdictions.

         Linsa is a BVI holding company whose principals are venture capital
investors and consultants. Linsa was established to invest in new and emerging
technologies with specific market focus on the health care and environmental
sectors. Linsa's operational arm, Linsa Ltd., a U.K. company, will be assigned
all operational business activity relating to Linsa's responsibility under its
agreement with MR3. Mr. Samir Gad, a shareholder and contributor to the
Company's business activities was principally involved as a consultant, acting
on behalf of Linsa, in structuring the Joint Venture.

         Linsa has limited experience and expertise in implementing the MR3
Technology. Linsa anticipates broadening its market reach in the designated
jurisdictions by also licensing the technology where applicable and selling or
leasing MR3 Technology related equipment to industrial manufacturers and other
third parties. Linsa management is currently in discussion with several
interested industrial parties, but provides no assurance that such licensing or
leasing programs will be consummated.

         For its first territorial project, the Joint Venture incorporated MR3
Systems Taiwan Co., Ltd., ("MR3 Taiwan"), a Taiwanese corporation formed to
utilize the MR3 technology in Taiwan. MR3 Taiwan's first MR3 facility is
expected to be located in the Zhang Bing Industrial Park, approximately 200 km
south of Taipei. It is projected to ultimately consist of an 80,000 square foot
industrial plant equipped to initially process up to 20 tons per day of metals
wastes generated from Taiwan's electroplating, metal finishing, and printed
circuit board (PCB) industries. Contingent on the financial success of the
project, the plant may be expanded within a two-year period to process an
additional 150 tons per day of metal wastes. These wastes will be processed into
high purity specialty metals chemical products such as Potassium Dichromate,
Nickel Sulfate, Copper Sulfate and Zinc Sulfate for sale domestically, as well
as into international markets. MR3 Taiwan also expects to receive "tipping fees"
for taking delivery of these wastes.

         The Zhang Bing plant is scheduled to be operational in 2004 (Phase I)
and is expected to reach full capacity by 2006 (Phase II). On January 23, 2003,
the Company further announced that MR3 Taiwan had executed a 20-year land lease
for 2.5 acres of industrial land upon which its 80,000 square foot processing
facility will be constructed. The lease includes an option to purchase the
property at any time during the term. MR3 is not obligated to provide any share
of upfront expenses related to the Zhang Bing project.

         Contingent on the availability of required capital, MR3 Taiwan plans to
construct at least three additional MR3 facilities in the five year period
following completion of the Phase II construction of the Zhang Bing facility,
and to expand into markets such as soil remediation and incinerator ash
treatment. These MR3 plants will be built to accept and treat industrial wastes
such as metal hydroxide sludge, fly ashes, spent etchants, and ion exchange
regenerants from a wide range of other industries including Plastic Ball Grid
Array (PBGA) manufacturing, metal foundries, municipal/industrial trash
incineration, surface finishing, semiconductor fabrication, TFT-LCD and other
opto-electrical manufacturing.

Competition

         There are a substantial number of competitors in both the precious
metal mining and chemical production industries, a vast majority of which are
larger and better capitalized than the Company. The Company does not compete
with conventional mining operations for the exploration and acquisition of
mining properties producing or capable of producing gold and other precious
metals. Management believes that there are currently more than sufficient

                                      -12-
<PAGE>

sources of the raw waste materials that comprise the base components that make
up the core of the Company's manufactured products. Management further believes
that such raw waste materials can be reasonably obtained without substantive
mining operations and at little to manageable cost.

         The Company expects that it will achieve a competitive advantage with
such competitors through the cost effective utilization of its proprietary
metals extraction production capabilities at the commercial level. The Company
has yet to prove, however, the cost effectiveness of such operations at
commercial processing levels on a full year basis. Despite its limited
full-scale production level experience, management has no reason to believe that
its MR3 technology could not be implemented on a cost effective basis over a
full year period.

         The sale of precious metals and specialty chemical products in the
commercial marketplace are affected by numerous factors, many of which are
beyond the control of the Company. Such factors include, but are not limited to
the price of the commodity in the marketplace, imports of the commodity from
international sources and the availability of adequate refining and processing
facilities to produce the product. Sales prices for such commodities are
determined by world market forces and may be subject to significant
fluctuations. The Company has not been materially affected by such circumstances
in the past, but believes that price fluctuations, especially in the precious
metals market, could impact revenues in the future. Management believes that
there will be sufficient demand for its manufactured products in the future. In
addition, management believes that no single company has sufficient market power
to materially affect the price or supply of gold or other precious metals in the
world market.

Intellectual Property

         The Company attempts to protect its proprietary technology through a
combination of trade secrets, proprietary know-how, non-disclosure agreements,
employment and consulting agreements, and common law remedies. Such agreements
generally provide that all confidential information developed or made known to
the individual (or entity) by the Company during the course of the individual's
relationship with the Company is not to be disclosed to third parties, except in
specific circumstances, and that all inventions conceived by the individual (or
entity) in the course of rendering services to the Company shall be the
Company's exclusive property. There can be no assurance that confidentiality or
proprietary information agreements will not be breached, that remedies for any
breach would be adequate, or that the Company's trade secrets will not otherwise
become known to, or independently developed, by competitors.

Research and Development

         Research and development expenditures represent internal costs incurred
in connection with the Company's testing, documenting, enhancement and
optimization of its hazardous waste and precious metals recovery processes. The
primary emphasis of the Company's research and development efforts is to tailor
the existing MR3 technology to meet the commercial level processing requirements
of the unique project source materials. Research and development costs are
expensed as incurred and the majority of expenditures in 2002 and 2001 are
directly related to personnel and consulting costs. The Company does not
presently license any third party technology in its operations. Research and
development expenditures for 2002 and 2001 were approximately $130,000 and
$136,000, respectively.

                                      -13-
<PAGE>

         In consideration of its planned activities, the Company expects that
its research and development expenditures will materially increase in 2003 and
beyond. The majority of research and development work will be undertaken at a
technical support facility located in Beverly, Massachusetts. The laboratory
meets and operates under the standards set by the State of Massachusetts
regulatory arm of the Department of Environmental Quality. The Company's
research and development efforts are conducted under the supervision of its
present Chief Science Officer, Dr. Irving DeVoe.

Government Regulation

         The Company's proposed business activities and plant operations are
subject to various federal, state, and local laws and regulations in the United
States and other prospective jurisdictions in which the Company may operate. The
regulating agencies may include, but are not limited to such agencies as the
Environmental Protection Agency ("EPA"), the Mine Safety and Health
Administration ("MHSA"), the Bureau of Land Management ("BLM") the Occupational
Health and Safety Administration ("OSHA") which normally govern mining,
production, exports, taxes, labor standards, occupational health, waste
disposal, protection of the environment, mine safety, hazardous substances and
other matters. Given its proposed environmentally favorable operating
methodology, the Company believes that it will be compliant in all material
respects with applicable mining, health, safety and environmental statutes and
regulations in effect within the jurisdictions it intends to operate. The
Company further intends to make adequate provision for disposal of mine waste
and mill tailings at all of its prospective operating facilities in a manner
that complies with current federal and state environmental requirements.

         "Plant operations" for use of the Company's technology is generally
defined as the basic steps involved from the acquisition of the source material
to production of target metals (or specialty chemical products) to disposal of
residue waste materials. The steps involved in the MR3 procedure typically
include: (i) transfer and handling of the source materials to the MR3 technology
processing site; (ii) milling if required; (iii) mixing of source material with
liquid medium (usually water); (iv) metals extraction through introduction of
chemicals such as acid; (v) separation of solids from metals laden liquid (raw
liquor); (vi) processing of law liquor through unique modules to separate target
metals and chemical products; and (vii) recycling of water base and disposal of
any contaminants and processed sources materials.

         The Company has obtained various permits and authorizations in the past
and will be required to do so in the future with respect to its planned
activities and locations where the Company intends to operate. All on-site
mining permits will be obtained from the various state(s) controlled Department
of Mines. The Company has already received an Exploration Permit for the Empire
Gold mine site, but has no current plans to conduct further mining related
operations at this time. The permits for operating the Company's chemical-based
processing facility at its targeted locations are expected to be standard
industrial-building equipment installation and operating permits. The Company
believes that it will be able to reasonably obtain applicable permits, when
necessary, to conduct its business in a routine manner. Management has further
determined that the acquisition and maintenance of such permits or
authorizations will also not have a material adverse on the Company's results of
operations and financial condition.

Compliance with Environmental Laws

         The Company's precious metals projects are subject to various federal
(Environmental Protection Agency), state and local laws and regulations
governing protection of the environment. These laws are continually changing
and, as a general matter, are becoming more restrictive. The Company's policy is
to conduct its business in a way that safeguards public health and the
environment. Management believes that its future operations will readily be
conducted in material compliance with environmental laws and regulations
applicable to its mechanical and chemical processing technology.

                                      -14-
<PAGE>

         Changes to current local, state or federal laws and regulations in the
jurisdictions where the Company operates, or may operate in the future, could
require additional capital expenditures and increased operating and/or
reclamation costs. Although the Company is unable to predict what additional
legislation, if any, might be proposed or enacted, additional regulatory
requirements could impact the economics of its projects. The Company reasonably
estimates, however, that it will not incur material expenditures for
environmental regulation compliance and education during fiscal year 2003 or for
the foreseeable future.

         The mining and chemical waste processing industry, including the
prospective business of Company, must follow local, provincial and federal
regulations imposed in each foreign jurisdiction where it intends to operate to
maintain environmental quality. As a result, the Company will likely be subject
to certain environmental regulations in Taiwan and elsewhere with regard to its
projected joint venture project with Linsa Associates. Management reasonably
projects that the joint venture will be in substantial compliance with all known
environmental regulations and laws in Taiwan at the time commercial processing
commences. However, it cannot be known at this time what additional future laws
and regulations, if any, might be adopted in Taiwan or elsewhere, nor their
possible effect on the Company.

         The Company has recorded accruals for the estimated future costs
associated with certain environmental remediation activities related to the
overdue disposal of hazardous materials at the Butte, Montana facility.
Substantially all such costs relate to divested operations and to facilities or
locations that are no longer in operation. Due to a number of uncertainties,
including uncertainty of timing, the scope of remediation, future technology,
regulatory changes, and other factors, the ultimate remediation costs may exceed
the amounts estimated. However, in the opinion of management, such additional
costs are not expected to be material relative to liquidity, financial position,
or future operations. These costs were estimated at approximately $38,000 at
December 31, 2002 and are recorded in the Company's financial statements.

Patents, Trademarks and Other Licenses

         The Company claims no patents or trademarks. The Company has no
licenses with the exception of its Joint Venture and Technology Transfer
Agreement with Linsa Associates Ltd., which is more fully disclosed under the
Current Operations section of this annual report.

Royalty or Revenue Sharing Agreements

         In fourth quarter 2002, the Company authorized a series of
non-convertible notes payable, amounting to an aggregate of $464,500 to be used
for general working capital and certain start-up expenses related to the Empire
Gold project and the Lakewood processing facility. The notes payable accrue
interest at a rate of 12% per annum and carry five-year warrants allowing the
note holder to purchase common shares of the Company's stock at a price of
fifteen cents ($0.15) per share. The number of warrants granted is equal to 2
warrants for each dollar provided under the note payable. Note holders as a
group were to be allocated up to 10% of any net income from Empire gold sales
derived from production at the Lakewood facility (less associated costs of sale
and manufacture) until such time as they receive 10 times (10x) their initial
investment. In fourth quarter 2002, the Company received $115,000 in connection
with this authorization and has received an additional $349,500 in the first
half of 2003.

         In light of the subsequent termination of its agreement with Empire
Gold in October 2003, the Company offered alternative financing arrangements to
the Empire note holders. The majority of note holders converted their principal
and interest into restricted shares of the Company's common stock at twelve
cents ($0.12) per share and retained their attached warrants. Two note holders
opted to retain the amount of their Empire note as a loan to the Company for a
five-year period with at an annual interest rate of 12%. In addition, these note

                                      -15-
<PAGE>

holders were granted restricted shares of the Company's common stock equal to
the amount of warrants originally granted pursuant to individual notes. The
original warrants granted to these two note holders were then cancelled.

Employees

         As of the date hereof, MR3 employs eleven full-time employees, seven of
which are in senior or executive management, two in administrative matters and
two in technical services. The Company hires independent contractors on an
as-needed basis. The Company has no collective bargaining agreements or other
such labor contracts with its employees and believes that its employee
relationships are satisfactory. In the long-term, management will likely hire
additional staff to meet its anticipated growth rate requirements. Management
does not anticipate encountering problems in its ability to hire individuals
with the requisite employee skill set.

Financial and Public Relations

         In October 2002, in anticipation of its expansion into global markets,
the Company entered into a non-exclusive arrangement with Synergy International
& Partners S.A. ("SIP"), an unrelated party based in Lugano, Switzerland, to
provide financial, public and investor relation services aimed at investors
throughout Asia, Europe and in North America. SIP will primarily focus on
heightening awareness of the Company and its services in the European private
and institutional investment communities. SIP is also expected to advise the
Company, from time to time, on its current communication efforts with existing
shareholders. The agreement requires the Company to make an advance payment of
$180,000 for the set up and organization of its activities under the Investor
Relation Program. Accordingly, the Company issued 2,000,000 shares of common
stock at $0.07 per share, equal to fair market value at the time the agreement
was executed, for $140,000 and agreed to pay in cash the remaining balance of
$40,000.

         In August 2002, the Company amended a letter of agreement with D.
Weckstein & Company, a private financial consulting firm and unrelated party
located in New York City, to extend the expiration period of 1,000,000
previously granted stock options from December 31, 2003 to December 31, 2006.
The initial agreement, dated February 19, 1999, provided compensation in the
form of stock options for D. Weckstein & Company in consideration of their
efforts to introduce the Company to prospective third parties for financing and
other joint venture opportunities. In addition, pursuant to the amended
agreement, the Company authorized the issuance of 300,000 shares of restricted
common stock to D. Weckstein & Company in second quarter of 2003.

         In September 2003, the Company retained the Wells Group, Inc., a
Scottsdale, Arizona based investor relations consulting firm, to implement a
proactive national investor relations campaign. The Wells Group will actively
participate in developing the Company's perception and positioning activities,
arrange and coordinate presentations and serve as the primary information
resource on behalf of the Company to the professional investment community. The
Wells Group will also provide media relation activities and comprehensive
information fulfillment services for all inquiries by shareholders or
prospective investors. The term of the agreement is for twelve months and either
party may terminate the agreement with thirty days notice after the sixth month.
In compensation for its services, the Wells Group will receive 250,000
restricted shares of the Company's common stock for each three-month period the
Wells Group provides its services under the agreement.

                                      -16-
<PAGE>

Risk Factors Relating to the Company's Business

         Management cannot be certain that the Company's acquisition and
processing activities will be commercially successful.

         As of this date, the Company has no facilities that produce precious
metals or other saleable chemical products in commercial quantities. Substantial
expenditures are required to build and develop MR3 processing facilities capable
of generating such levels of precious metals and specialty chemical products.
There can be no assurance that any probable precious metal reserves predicted in
the Company's current projects will meet expectations or be present in
sufficient quantities to justify commercial operations. In addition, there can
be no assurance that precious metals recovery in small-scale laboratory tests or
pilot plant conditions will be duplicated in commercial production levels under
actual on-site conditions. In addition, there are no assurances that any
additional funds required by the Company for multiple facility developments can
be obtained in a timely manner. Should these events materialize, they could have
a materially adverse impact on the Company's business operations and negatively
affect future potential revenues and/or profitability.

         Since 2000, the Company's technology has only been employed at a
high-rate commercial processing level for a limited period of time in a single
high-level production application. As such, the Company does not have a history
of cost effective commercial level processing with respect to its current
business strategy over a long period or other extended basis. Consequently, the
Company could experience unanticipated expenses resulting from unknown factors
occurring during comprehensive operations over a full year basis. These
unanticipated expenses could have an adverse affect on the Company's
profitability from planned operations.

         The price of precious metals is subject to fluctuations, which could
adversely affect the company's quarterly results of operations and cash flow.

         The Corporation's potential future revenues are expected to be
materially derived from the generation and sale of precious metals, such as
gold, and specialty chemical products from its processing facilities. The price
of precious metals has fluctuated widely over time, and is affected by numerous
factors beyond the control of the Company, including, but not limited to,
international, economic and political trends, expectations of inflation,
currency exchange fluctuations, central bank activities, interest rates, global
or regional consumption patterns and speculative activities. The effect of these
factors on the price of precious metals, and therefore the economic performance
of the Company in any fiscal quarter, cannot accurately be predicted. A material
decline in the price of certain precious metals could adversely affect the
Corporation's potential revenues and profits.

         The Company's growth potential could be impacted by its failure to
adequately protect its intellectual property.

         The Company's proprietary MR3 technology and related processes are not
currently protected by patents. Management has, however, recently initiated
action to explore the feasibility of doing so in the future. In the interim,
there can be no assurance that the Company will be able to protect its
technology from unauthorized use by competitors or other third parties. The
Company relies primarily on a combination of copyright law, industrial design
legislation, trade secret security measures and nondisclosure agreements with
employees and third parties to protect its intellectual property and proprietary
technology. There can be no assurance of effective protection of the Company's
intellectual property and there can be no assurance that others will not
independently develop a similar technology or obtain access to the Company's
technology. Such failure to protect its proprietary technology and intellectual
property could negatively impact the Company somewhat by making it easier for
its competitors to duplicate the Company's service offerings and more actively
compete with the Company for future business opportunities.

                                      -17-
<PAGE>

         Loss of key personnel may negatively affect the Company

         The business of the Company will be dependent upon the active
participation of its officers, directors and other key personnel. To the extent
any of them becomes unavailable for any reason, it could have a serious adverse
impact on the Company. Any officer or employee of the Company can terminate his
or her relationship with the Company at any time with sufficient notice. The
Company's future success will also depend on its ability to attract, train,
retain and motivate highly qualified engineering, marketing, sales and
management personnel. There can be no assurance that the Company will be able to
attract and retain such key personnel.

         Environmental issues and concerns may negatively affect the Company's
ability to perform

         The Company will be subject to stringent standards designed to reduce
air, water and soil emissions through state and local laws and regulations
relating to the protection of human health and the environment. Management
believes that the Company's proposed processing facilities will reasonably meet
standards imposed by various jurisdictions, but cannot assure that such
standards will not become more exacting or draconian over time.

         Short Operating History Could Lead to a Lack of Profitability and Lack
of Business Growth

         The Company has a short operating history with respect to the
processing of precious metals and is considered to be a development stage
company in the early stages of operation. The Company has generated only limited
revenues to date and has incurred operating losses since its inception. Its
likelihood of success must be considered in light of the many costs, expenses,
problems, difficulties and delays frequently associated with new enterprises.
Also, there is no assurance that the Company's business ventures will be
successful or that it will be able to attract and retain sufficient customers
and clients to attain its goals. The Company anticipates that its operating
expenses will increase substantially as its business expands and there will be a
greater need to generate significantly more revenues to achieve profitability.

         Difficulties in Future Funding Could Hinder Growth and Development of
the Company's Business

         In the past, the Company has financed much of its operations from
borrowing and from the sale of its securities pursuant to private placements,
convertible debt instruments, and other warrant agreements It is likely that the
Company will be required to seek additional outside funding sources to satisfy
the Company's future increasing financing demands if its operations do not
produce the anticipated level of profitability. There can be no assurance that
outside funding will be available to the Company at the time and in the amount
to satisfy the Company's needs, or, that if such funds are available, they will
be available on terms favorable to the Company. If the Company issues additional
shares of common stock, current shareholders may experience immediate and
substantial dilution in their ownership of Company shares. In the event the
Company issues securities or instruments other than common stock, it may be
required to issue such instruments with greater rights than that currently
possessed by holders of the Company's common stock.

                                      -18-

<PAGE>

         Concentration of Share Ownership Gives Control of the Company to a
Small Group

         The Company's directors, executive officers and other principal
shareholders own approximately 33.20% of the Company's outstanding common stock
as of October 31, 2003. As a result, these persons possess significant influence
over the Company on matters including the election of directors. This
concentration of share ownership may: (i) delay or prevent a change in control
of the Company; (ii) impede a merger, consolidation, takeover, or other business
involving the Company; or (iii) discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the Company.

         Limited Public Market for the Common Stock

         The Company's common stock is traded on the "pink sheets" and its
securities are quoted and traded by broker-dealers. Because shares of the
Company's common stock are not currently quoted on a recognized national
securities exchange in the United States, the shares are subject to rules
adopted by the Securities and Exchange Commission regulating broker-dealer
practices in connection with transactions in "penny-stocks." Broker-dealers
dealing in penny-stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker-dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. These requirements may reduce the
potential market for the Company's common stock by reducing the number of
potential investors. This may make it more difficult for investors in the
Company's common stock to sell shares to third parties or to otherwise dispose
of them. Accordingly, there can be no assurance that an active trading market in
the Company's shares will be sustained. Additional disclosure on penny-stocks
and related restrictions is provided in Item 5. Market For Registrant's Common
equity and Related Stockholder Matters.

         The Company's limited financial condition could hinder its efforts to
raise new capital.

         The Company has generated only limited revenues to date and has
incurred operating losses since its inception. The Company has not yet
established a source of revenues sufficient to cover its operating costs. For
the years ended December 31, 2002 and 2001, the Company had net losses of
$1,011,350 and $1,191,843, respectively. At fiscal year end 2002, the Company's
liabilities exceeded its assets. There can be no assurance that the Company will
generate revenues in a timely manner in the future, that it will not continue to
have losses, or that it will be able to maintain funding such losses if they
continue. In the past, the Company has successfully raised funds to cover its
expenses through the sale of its securities utilizing various financial
instruments such as private placements, convertible notes, and warrants
agreements despite its lack of profitability and weak financial condition. The
Company reasonably believes that it will be able to raise necessary working
capital in a timely manner to carry out its plan of operations for the
foreseeable future. Should the Company not be able to raise sufficient funds
through these means or through licensing sales, it could adversely impact its
ability to fund all critical operations and new business development activities
in accordance with its existing business strategy.

ITEM 2.  PROPERTIES

         The Company's leases 1,873 square feet of office space at 435 Brannan
Street, Suite #200, San Francisco, California for its executive offices. The
Company is committed under its operating lease for a period of two years
beginning October 1, 2002 and expiring September 30, 2004. This lease requires
monthly rental payments of approximately $2,497.

         On February 15, 2003, the Company entered into an operating agreement
with SICO, LLC, a private company located in Denver, for the lease of a facility
in Lakewood, Colorado. The facility, which consists of a 10,000 square-foot
building, was to be used to process gold and other precious metals from the
materials provided by the Company's various metals extraction agreements. The
lease term is for a three-year period commencing in April 2003 and ending in

                                      -19-
<PAGE>

March 2006 and requires a monthly payment of approximately $4,583. In light of
the subsequent termination of its agreement with Empire Gold in October 2003,
the Company is seeking to either mutually terminate its lease agreement with
SICO or have a third party assume the Company's lease obligations.

         The Company leases 3,700 square feet of commercial office space within
the Cummings Center located in Beverly, Massachusetts for its testing
laboratory, research and development, and customer support requirements. The
Company is committed under its commercial lease for a period of three years
beginning November 1, 2003 and expiring on October 30, 2006. The lease requires
monthly rental payments of approximately $6,432. In connection with this lease,
the Company terminated its month-to-month laboratory lease arrangement in Salem,
Massachusetts.

         Each property is leased from an unaffiliated party. The Company
maintains tenant fire and casualty insurance on its properties in an amount
deemed appropriate by the Company.


ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to any material pending legal proceedings
and, to the best of its knowledge, no such action by or against the Company has
been threatened.


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

         No matters were submitted to a vote of the Company's security holders
during the fiscal year ending December 31, 2002 and the Company did not hold an
annual meeting of shareholders during that same period.

                                      -20-

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

         The Company's common stock is currently traded over-the-counter in the
pink sheets and quoted through the National Quotation Bureau's ("NQB")
Electronic Quotation System under the symbol "MRMR". Quotations in the Company's
stock commenced in October 1998, when trading began on NASD's "Electronic
Bulletin Board" ("OTCBB") under the symbol "BPON". Effective October 8, 1999,
the stock traded only in the pink sheets and no longer on the OTCBB. The
Company's symbol was changed to "MRMR" in July 2000 to reflect the change in the
Company's name to MR3 Systems, Inc.

         The following table sets forth, for the periods indicated, the range of
quarterly high ask and low bid prices of the Company's common stock based on
intraday trading as derived through Prophet Financial Systems, Inc. for the past
two years and through the date set forth for the current year. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.

   Year             Quarter Ending                  High Bid         Low Bid
   ----             --------------                  --------         -------
   2001             March 31, 2001                  $  0.34          $  0.08

                    June 30, 2001                   $  0.19          $  0.05

                    September 30, 2001              $  0.22          $  0.05

                    December 31, 2001               $  0.22          $  0.05


   2002             March 31, 2002                  $  0.20          $  0.02

                    June 30, 2002                   $  0.32          $  0.04

                    September 30, 2002              $  0.28          $  0.10

                    December 31, 2002               $  0.36          $  0.12


   2003             March 31, 2003                  $  0.26          $  0.09

                    June 30, 2003                   $  0.28          $  0.11

                    September 30, 2003              $  0.33          $  0.17

                    Through December 8, 2003        $  0.50          $  0.22

         The ability of an individual shareholder to trade their shares in a
particular state may be subject to various rules and regulations of that state.
A number of states require that an issuer's securities be registered in their
state or appropriately exempted from registration before the securities are

                                      -21-
<PAGE>

permitted to trade in that state. Presently, the Company has no plans to
register its securities in any particular state. Further, most likely the
Company's shares will be subject to the provisions of Section 15(g) and Rule
15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.

         The Commission generally defines penny stock to be any equity security
that has a market price less than $5.00 per share, subject to certain
exceptions. Rule 3a51-1 provides that any equity security is considered to be a
penny stock unless that security is: registered and traded on a national
securities exchange meeting specified criteria set by the Commission; authorized
for quotation on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at least $5.00 per
share) or the issuer's net tangible assets; or exempted from the definition by
the Commission. If the Company's shares are deemed to be a penny stock, trading
in the shares will be subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors, generally persons with assets in excess of $1,000,000
or annual income exceeding $200,000, or $300,000 together with their spouse.

         For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in the Company's common stock and may affect the
ability of shareholders to sell their shares.

Record Holders

         As of December 31, 2002 there were approximately 388 shareholders of
record of MR3 Systems, Inc. Common Stock. The Company believes that the number
of beneficial owners is substantially greater than the number of record holders
because a portion of its outstanding common stock is held in broker "street
names" for the benefit of individual investors or other nominees.

         As of December 31, 2002 there were approximately 77 shareholders of
record of MR3 Systems, Inc. Series A Preferred Stock. As of October 31, 2003,
there are 245,684 shares of preferred stock issued and outstanding. Preferred
stock is convertible into common shares on a one-to-one ratio. There is no
market for the trading of the Company's preferred stock.

Dividends

         The Company has never paid any cash dividends on its common stock and
does not anticipate paying cash dividends within the next two years. The Company
anticipates that all earnings, if any, will be retained for development of its
business. Any future dividends will be subject to the discretion of the board of
directors and will depend on, among other things, future earnings, MR3's
operating and financial condition, MR3's capital requirements and general
business conditions.

                                      -22-
<PAGE>


Equity Compensation Table

        The following table provides information about the Company's common
stock that may be issued upon the exercise of options and warrants under all of
the Company's equity compensation arrangements as of December 31, 2002. Through
the end of fiscal year 2002, the Company had not adopted any formal equity based
compensation plan for the benefit of employees and/or non-employees. With the
one exception noted below, all securities disclosed in the table below resulted
from individual grants of options and warrants for services provided to the
Company or expected to be provided to the Company. Such grants were unrelated to
any written compensation plan or agreement. In the case of Mr. Irving DeVoe,
Chief Science Officer of MR3, the majority of his options and warrants were
granted pursuant to an employment agreement and related non-dilution rights
granted to him. Terms of Mr. DeVoe's employment agreement are more fully
detailed and disclosed in the Company's Registration Statement on Form 10-SB
filed with the Securities and Exchange Commission on February 12, 2001.

<TABLE>
<CAPTION>

                      EQUITY COMPENSATION PLAN INFORMATION

          Plan category             Number of securities to       Weighted average         Number of securities
                                    be issued upon exercise       exercise price of       remaining available for
                                    of outstanding options,      outstanding options,         future issuance
                                      warrants and rights        warrants and rights

                                              (a)                        (b)                        (c)
<S>                                       <C>                          <C>                           <C>
Equity compensation plans                     -0-                        -0-                        -0-
approved by security holders
Equity compensation plans not             17,270,305                   $ 0.086                      -0-
approved by security holders
Total                                     17,270,305                   $ 0.086                      -0-
</TABLE>



Recent Sales of Unregistered Securities

         Funding and Dilutive Instruments

         In July 2003, the Company concluded a private placement with eleven
accredited investors for total net proceeds of $735,000. The proceeds are to be
used for working capital and general corporate purposes. Pursuant to this
private placement, investors purchased restricted shares of the Company's common
stock at a price of twelve cents ($0.12) per share. Each share of common stock
purchased carried two attached purchase warrants, "A" and "B." The A warrant
allows the holder to purchase common shares at an exercise price of thirty-six
cents ($0.36) per share for a term of four years. The B warrant allows the
holder to purchase common shares at price of twenty-five cents ($0.25) per share
for a term of four years. The Company has the option of accelerating the term of
the B warrant from four years (or the remaining term) to nine months if it
achieves all of the following benchmarks: (i) the Company becomes current with
its reporting requirements to the Securities and Exchange Commission (ii) the
Company files and becomes effective on a registration statement for said
underlying shares; and (iii) the Company achieves listing on the OTC Bulletin
Board exchange. Mr. Bradley Rotter, the Company's President and Chief Operating
Officer, participated in the private placement in the amount of $100,000.

         In April 2003, the Company authorized a convertible debenture for an
aggregate of $30,000 to two unrelated parties. The debenture carries a 12% per
annum interest rate payable upon maturation of the debenture. The debenture
provides for a five-year conversion period in which the debenture holder may
convert advanced funds into shares of the Company's common stock at a conversion
price of ten cents ($0.10). As additional consideration for entering into the
debentures, the Company granted the parties common stock purchase warrants
allowing the holder the right to purchase an additional 900,000 common shares of
the Company at a price of $0.10. The common share purchase warrants are valid
for a period of five years after the date of issuance. The conversion price of
the debenture and the related common stock purchase warrants were granted at
fair market value at the time of issuance.

                                      -23-
<PAGE>

         In February 2003, the Company authorized a convertible debenture for
$15,000 to Zevtec Canada, Inc. ("Zevtec"), a privately held company located in
North Vancouver, British Columbia. The debenture carries a 12% per annum
interest rate payable upon maturation of the debenture. The debenture provides
for a five-year conversion period in which the debenture holder may convert
advanced funds into shares of the Company's common stock at a conversion price
of seven cents ($0.07). As additional consideration for entering into the
debentures, the Company granted Zevtec common stock purchase warrants allowing
the holder the right to purchase an additional 642,858 common shares of the
Company at a price of $0.07. The common share purchase warrants are valid for a
period of five years after the date of issuance. The conversion price of the
debenture and the related common stock purchase warrants were granted at fair
market value at the time of issuance.

         In fourth quarter 2002, the Company authorized a series of
non-convertible notes payable, amounting to an aggregate of $464,500. The
Company utilized the proceeds for general working capital and certain startup
expenses related to the Empire Gold project. These startup expenses included,
but were not limited to rent, deposits, property taxes, roads and grading, ore
sampling and testing, bonds and permits, travel and engineering. The notes
payable accrue interest at a rate of 12% per annum and carry five-year warrants
allowing the note holder to purchase common shares of the Company's stock at a
price of fifteen cents ($0.15) per share. The number of warrants granted is
equal to 2 warrants for each dollar provided under the note payable. Note
holders as a group were to be allocated up to 10% of any net income from gold
and other precious metals sales derived from production at the Empire Gold plant
less associated costs of sale and manufacture, until such time as they receive
10 times (10x) their initial investment. In fourth quarter 2002, the Company
received $115,000 in connection with this authorization and received an
additional $349,500 in the first half of 2003.


        In light of the subsequent termination of its agreement with Empire Gold
in October 2003, the Company offered alternative financing arrangements to the
Empire note holders. Seventeen note holders converted their principal and
interest, as of September 30, 2003, into 3,568,667 restricted shares of the
Company's common stock at twelve cents ($0.12) per share and retained their
attached warrants. Two note holders opted to retain the amount of their Empire
note as a loan to the Company for a five-year period with at an annual interest
rate of 12%. In addition, these two note holders were granted 105,000 restricted
shares of the Company's common stock, which was equal to the amount of warrants
originally granted pursuant to the placement of the individual notes. The
warrants granted to these two note holders were subsequently cancelled.


         In October 2002, the Company authorized a convertible debenture to
Zevtec for $50,000 that carries a 12% per annum interest rate payable upon
maturation of the debenture. The debenture provides for a five-year conversion
period in which the debenture holder may convert advanced funds into shares of
the Company's common stock at a conversion price of seven cents ($0.07). As
additional consideration for entering into the debenture, the Company granted
Zevtec common stock purchase warrants allowing the holder the right to purchase
an additional 2,142,857 common shares of the Company at a price of $0.07. The
common share purchase warrants are valid for a period of five years after the
date of issuance. The conversion price of the debenture and the related common
stock purchase warrants were granted at fair market value at the time of
issuance.

         Fiscal Year 2002 Stock Issuances

         In fiscal year 2002, the Company issued 7,899,070 shares of its common
stock to eighteen individuals or entities pursuant to stock sales, conversion of
preferred stock, conversion of notes payable, conversion of accrued interest,
exercise of warrants, and stock issued for compensation and services rendered.
The Company received an aggregate of $370,597 in either cash or equivalent
services in exchange for the common stock issued. The detailed transactions are
more fully disclosed below and related parties identified as appropriate:

                                      -24-
<PAGE>

  a.     2,960,190 shares were sold to Mr. Mel Kelm over the course of 2002 at
         prices ranging from two cents ($0.02) to five cents ($0.05). In
         addition, Mr. Kelm also converted the principal of a note payable into
         200,000 shares of common stock at $0.02 per share. With the above
         transactions, Mr. Kelm now owns greater than 5.0% of the Company's
         common stock and his beneficial ownership position is disclosed in Item
         11. Security ownership of certain Beneficial Owners and Management.

  b.     632,333 common shares were sold to six individuals over the course of
         2002 at prices ranging from $0.02 to $0.05.

  c.     In third quarter of 2002, 2,000,000 shares of common stock were issued
         to Synergy International & Partners in exchange for services rendered
         at a value of $140,000, equivalent to seven cents ($.07) per share.

  d.     In fourth quarter 2002, 50,000 common shares were issued to a
         shareholder as an exercise of previously issued warrants at three cents
         ($0.03) per share.

  e.     In the second half of 2002, seven individuals or entities converted the
         principal of certain convertible notes payable into 1,666,667 shares of
         common stock at a conversion price of $0.03. In addition, these 7
         individuals or entities converted the associated interest into 46,130
         shares of common stock at $0.03 per share.

  f.     In the second half of 2002, 13,750 shares of common stock were issued
         to three individuals pursuant to the conversion of preferred shares
         valued at an average price of $3.24 per share. The preferred shares
         were converted to common shares on a one-to-one ratio.

  g.     During 2002, the Company authorized 330,000 restricted common shares to
         be issued, in connection with the replacement of an equal amount of
         "unrestricted" common shares that were provided to an unrelated third
         party by certain shareholders on behalf of the Company, for public
         relation and financial consulting services. These shares were
         authorized in 2002 as a bookkeeping update to bring business activities
         conducted in a prior year current. In 1998, the Company entered into an
         agreement with Wall Street Trading Group, an unrelated privately held
         consulting firm based in San Francisco, California, that was engaged in
         the business of providing public relation services, such as increasing
         the awareness of the Company in the financial and institutional
         investment community, as well as the identification of potential
         sources of investment capital. The 330,000 shares were provided to Wall
         Street Trading Group on a non-contingent success basis and the Company
         did not issue any further shares pursuant to this agreement. The
         Company did not have any pre-arrangement or understanding in connection
         with the 1988 transaction that required it to issue these shares.

         The above issuances were not registered under the Act. Each issuance of
convertible debt instruments, common stock, or warrants was made in a private,
isolated transaction with either an affiliate of the Company or a person
familiar with the operations of the Company. There was no general solicitation
of potential purchasers, rather, securities were offered only to persons known
by directors, employees or agents of the Company. The Company also made
available to prospective purchasers general information about the business,
including financial statements and other information that might be requested.
The issued securities were deemed "restricted" as defined by the Act and all
certificates representing the issued securities bore appropriate restrictive
legends. Accordingly, the issuances were made in transactions not involving a
public offering and were exempt from registration under Section 4(2) of the Act.

                                      -25-
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         The following discussion should be read in conjunction with the
attached financial statements and notes thereto. Except for the historical
information contained herein, any statements that refer to expectations,
projections or other characterization of future events or circumstances, and
especially those which include variations of the words "believes," "intends,"
"estimates," "anticipates," "expects," "plans," or similar words or variations
thereof, are likely to be forward-looking statements, and as such, are likely to
concern matters involving risk, uncertainty, unpredictability and other factors
that could materially and adversely affect the outcome or results indicated by
or inferred from the statements themselves. Therefore, the reader is advised
that the following discussion should be considered in light of the discussion of
risks and other factors contained in this annual report on Form 10-KSB and in
the Company's other filings with the Securities and Exchange Commission, and
that no statements contained in the following discussion or in this Form 10-KSB
should be construed as a guarantee or assurance of future performance or future
results.

Overview

         Since 1997, the Company has been engaged in developing and applying its
technology for the efficient recovery, separation and purification of metals
from various aqueous streams of source material. The Company intends to produce
these metals and metal products in facilities wholly owned and operated by the
Company or in facilities jointly owned and operated with other third party
principals. Such facilities may be limited to the placement of integrated
engineering hardware and MR3 technology components in a leased building or a
specially built plant corresponding to a unique project requirement. The
resultant manufactured products are then offered for sale to metals and
specialty chemical commodities-brokers and other client end-users. Where
feasible, the Company also plans to license its technology to third parties in
consideration for licensing fees and possible revenue sharing arrangements. In
addition, the Company may elect to charge contract fees for various waste
removal and remediation services related to its proprietary technology.

         The Company is presently migrating its technology to new industries and
has incurred losses from its inception through December 31, 2002. From second
quarter 1999 to fourth quarter 2001, the Company processed zinc waste dust on a
commercial level at its MR3 treatment facility located in Butte, Montana and
generated only limited revenues during that period. In fourth quarter of 2001,
the Company discontinued operation of the Butte facility for economic reasons.

         In June 2002, the Company entered into a Metals Extraction Agreement
with Consolidated Empire Gold, Inc., of Evergreen, Colorado, to process gold
from the gold tailings located at an old mining site, the Grace Gold Mine
Complex in Empire, Colorado. On October 23, 2002, the Company entered into an
expanded ten-year Metals Extraction Agreement with Consolidated Empire Gold,
Inc., which included the processing of the gold ore. On October 21, 2003 the
Company executed a termination and mutual release agreement with CEG in
connection with the aforementioned operating agreements. The Company may choose
to revisit this opportunity if a suitable mining partner is identified to handle
the mining aspects and pretreatment requirements of the project or if CEG
chooses to pay these expenses of its own accord.

         In May 2002, the Company entered into a Joint Venture and Technology
Transfer Agreement with Linsa Associates Ltd, a BVI Company, to commercialize
the MR3 Technology in certain jurisdictions of Canada, Australia, Asia and the
Middle Eastern Territories. Under the agreement and pursuant to a technology

                                      -26-
<PAGE>

license, MR3 transfers right, title, and interest in and to both the tangible
and the intangible property constituting MR3's technology for use within the
designated territories. Both parties agree to share all the distributable
profits resulting from the use of the MR3 technology to which they are
collectively entitled on a 50%-50% basis.

         Further detail and discussion of these projects and MR3's plans for its
intended processing facilities are provided under the Current Operations section
of Item 1 of this annual report.

Results of Operations

         Information is presented for the Company's most recent two fiscal years
ended December 31, 2002.

Fiscal year Ended December 31, 2002 Compared to Fiscal Year Ended December 31,
2001

         The Company recognizes revenue when manufactured product is shipped to
a customer or at the time other services are rendered. The Company did not
realize any revenues from its waste processing and recovery operations during
fiscal year 2002 as the Company elected to discontinue its processing operations
in Butte, Montana and relocate its facility to Lakewood, Colorado to take
advantage of potentially more lucrative prospects. The Company realized revenues
of $57,749 in fiscal year 2001 primarily from the sale of pure liquid zinc
sulfate resulting from its waste processing operations in Butte.

         Cost of goods sold for 2002 amounted to $87,802 as compared to $387,635
for $2001. The components that make up cost of goods sold include, but are not
limited to chemicals and materials used in the processing of wastes, rent at the
site processing facility, removal and disposal of post processing waste
materials and residues, and salaries of personnel and contractors utilized in
the Company's processing activities. Cost of sales for 2001 represented expenses
incurred for the full fiscal year of operations in Butte, Montana while those in
2002 represented certain costs associated with the ramping down of operations in
Butte and $30,000 of accrued expenses related to an environmental compliance
matter. Gross margin for fiscal year 2002 amounted to a loss of $87,802 as
compared to a loss of $329,886 for fiscal year 2001. Given the lack or revenues
in 2002 and the disparate degree of operations, comparison of gross margin over
the two periods is not meaningful.

         General operating expenses--less depreciation, amortization and
consideration for impairment loss--declined 8.5% from $753,936 in fiscal year
2001 to $689,478 for the comparable period in 2002. The decline is primarily
attributable to a decrease in personnel and office expenses related to the
discontinuance of the Butte, Montana operations and a decrease in rent
associated with the closure of the Pittsburg office. The decline in general
operating expenses from 2001 to 2002 was offset somewhat by an increase in
professional and consulting services, notably including $75,000 in amortized
expense related to Synergy International. Research and development expenses
remained comparable over the two periods and amounted to $129,921 for 2002 as
compared to $136,365 for 2001.

         Depreciation and amortization decreased substantially in 2002 to a
level of $4,015 as compared to $63,472 for the comparable period in 2001. The
difference is directly attributed to the material write-off of certain property
and equipment at the beginning of 2002.

         The Company recorded an extraordinary expense item of $202,907 under
operating expenses for 2002. The expense item related to the valuation of
property and equipment in light of the closure of the Company's Butte, Montana
facility. Some equipment was designated for sale, while other equipment and
property were scheduled for transfer to Lakewood. Upon review of the state of
the property and equipment, it was determined that certain MR3 manufacturing
property and equipment were impaired, as determined based on the quoted market
prices for similar assets. Consequently, the carrying value of MR3 property and

                                      -27-
<PAGE>

equipment was written down and an impairment loss in the amount of $202,907 was
included in operating expenses during the year ended December 31, 2002. There
was no such write down of property and equipment in 2001.

         The Company recorded net interest expense of $53,863 in 2002 and
$20,749 for 2001. Interest expense related primarily to accrued interest on
notes payable to shareholders, related parties and other third party holders of
debt instruments. The Company expects its interest expense to increase in fiscal
year 2003 with the addition of certain convertible debentures and other debt
instruments. In 2002, The Company realized a gain on the sale of certain
equipment and recorded $27,515 in other income for the period. In 2001, the
Company recorded a one-time charge of $23,000 related to a stock issuance
matter.

         The Company's net loss for fiscal year 2002 declined 15.1% to
$1,011,350 as compared to $1,191,843 for fiscal year 2001. The decrease was
primarily attributed to the decline in cost of goods sold from $387,635 in 2001
to $87,802 in 2001 related to the discontinuation of the Company's Butte
operations in late 2001 and the delay in the anticipated 2002 start of mining
operations in Colorado. Consequently, overall operating expenses declined
accordingly in 2002.

Net Operating Losses

         At December 31, 2002, 2001, and 2000, the Company has available
approximately $7,174,000, $6,525,000,and $5,595,000 in net operating loss
carryforwards available to offset future federal and state income taxes,
respectively, which expire through 2021. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards. This
and other components of deferred tax asset accounts are described above. At
December 31, 2002, 2001, and 2000, the Company has provided a valuation
allowance to reduce its net deferred tax asset to zero. The amount of deferred
tax asset considered realizable, however, can be revised in the near term based
upon future operating conditions during the carryforwards period.

Liquidity and Capital Resource

         Historically, the Company's working capital needs have been satisfied
primarily through the Company's private placement of securities, convertible
debentures and other debt instruments, such as short and long-term notes with
certain shareholders. The Company reasonably expects to continue to do so in the
future, but cannot guarantee that such financing activities will be sufficient
to fund its current and future projects and its abilities to meet its cash and
working capital needs

         At December 31, 2002, the Company had a working capital deficit of
$1,151,612 compared to a working capital deficit of $931,485 at December 31,
2001. The 19.5% increase in working capital deficit is primarily attributed to a
$165,506 increase in accounts payable and a $124,708 increase in accrued
expenses related to general operations of the Company's business activities. The
increase in working capital deficit was somewhat offset by a $105,000 accrual in
prepaid expenses at December 31, 2002 related to the Company's public relations
agreement with Synergy International. At December 31, 2002, the Company had
$12,496 in cash compared to $55 at December 31, 2001. The increase in cash is
attributed to receipt of funds during the fiscal year from sales of securities
and various debt instruments.

         As of December 31, 2002, the Company had total assets of $239,022 and a
total shareholder's holder's deficit of $1,192,939 compared with total assets of
$343,476 and total stockholder's deficit of $651,512 at December 31, 2001. Total
assets decreased primarily due the $202,907 impairment loss recorded in fiscal
year 2002 of certain manufacturing property and equipment in connection with the
closure of the Butte, Montana facility. The increase in total shareholder's
deficit over the two periods is principally the net result of the increase in

                                      -28-
<PAGE>

accumulated deficit of approximately $1 million related to the loss from
operations of the Company's business activities in 2002.

         For the year ended December 31, 2002, cash used by operating activities
decreased to $321,540 from $664,733 for the comparable period ended December 31,
2001. This 56.1% decrease is attributed to a decrease in overall operating
expenses and corporate general and administrative expenses related to the
Company's decision to close its zinc waste dust processing facility in Butte,
Montana in fourth quarter 2001. The Company's operating expenses in 2002 were
primarily associated with discontinuing the Butte operations and shifting its
business strategy to other venues and strategic products to be processed.

         In fiscal year ended 2002, the Company realized cash flow from
financing activities of $333,981 compared with $663,385 for the comparable
period in 2001. In fiscal year 2002, the Company realized net proceeds (receipts
less partial principal payments) from notes payable to certain shareholders of
$226,000 and proceeds from the sale of common stock and the exercise of warrants
of $107,981. In fiscal year 2001, the Company realized all of its cash flow from
financing activities, amounting to $663,385, as a result of the sale of its
common stock and the exercise of warrants. In addition, in fiscal year 2002, the
Company had no cash flow provided or used by investing activities compared with
net cash used by investing activities of $1,798 related the purchase of property
and equipment.

         The Company leases its facilities either on a month-to-month basis
without a minimum commitment or on a lease basis with certain timeframe
commitments and obligations. The Company believes that its existing facilities
will be sufficient to meet the Company's current needs. Should the Company need
additional space to accommodate increased activities, management believes it can
secure such additional space on reasonable terms.

Plan of Operation

         In August 2003, the Company raised approximately $735,00 pursuant to a
private placement with various accredited investors. The funds have been used to
retire certain liabilities and for general working capital. Management does not
deem this cash reserve to be sufficient to satisfy its cash requirements for
2004 if the Company aggressively follows its current business strategy. The
primary and most significant expenditures for 2004 are expected in the area of
salaries, consulting, professional fees, research and development, rent, travel,
reduction of payables, fabrication of processing systems and certain engineering
costs related to its current operating agreements.

         The Company intends to meet its ongoing cash requirements for this
period through a combination of funding sources including, but not limited to
private placements, debt instruments with private parties, sales of technology
licenses and anticipated revenues generated from contractual applications of its
technology. Management can provide no assurance that any funds will be derived
from such sources, but reasonably believes that it will be successful in doing
so. Management intends to adjust its monthly rate of expenditures proportional
to its cash reserves and funds raised over the next twelve months. In addition,
potential revenues derived from its technology related engineering and
consulting fees, are expected to supplement the cash reserves of the Company.

         The Company has arranged a $1,250,000 credit facility with a private
equity and financing group to further its ability to construct, equip and deploy
the first in a planned series of MR3 processing plants. The Company received the
first $250,000 of loan proceeds on October 14, 2003. The location of the first
processing plant will depend to a large degree on the first contract entered
into by the Company for its metals processing or environmental remediation
services. Management intends to use this processing plant for multiple purposes
including research and development, project specific validation, and processing
of precious metal bearing concentrates from domestic sources (primarily from the

                                      -29-
<PAGE>

western portion of the United States). The Company will also use its Technical
Support Center in Beverly, Massachusetts for its sample testing, media
development, project validation and research and development.

         The Company expects engineering, design, construction and equipping
costs to exceed $1 million in connection with the establishment of the first MR3
processing plant and envisions a schedule of completion within six months of
initiation. Follow on plants are likely to vary in cost as a function of the
plant size related directly to the particular project or application. The
Company may require additional funds over and above the current credit facility
if sufficient revenues are not generated from contractual applications during
2004. Development expenses for the MR3 technology will be limited to adapting
the technology to specific field applications and are likely to be proportional
to the number of projects contracted by the Company. The Company does not expect
these technology development costs to exceed the revenues contemplated by each
specific project.


        Although the geographical location for this first MR3 processing plant
has yet to be determined, the Company has already expended funds toward its
engineering development and design. The Company is in the process of selecting a
fabricator for its unique MR3 related equipment and expects to shortly initiate
orders for long lead-time equipment fabrication. The Company has also
established strategic relationships with mining and engineering consulting
firms--such as Arrakis, Inc. and SRK Engineering--to assist the Company in its
pre-engineering and assessment activities and fine tuning of its process
technology to commercial operating levels.

        Management is in discussion with seven prospects for processing precious
metal concentrates from their source locations. In addition, management is
reviewing prospects for specialty chemical production in two international
locations and two nuclear-related domestic environmental remediation projects.
The Company is currently evaluating source samples from certain of these
aforementioned parties to determine the viability of the project application and
is in various stages of negotiation with regards to structuring related
compensation agreements. The operations of any MR3 processing facility is not
expected to be labor intensive and accordingly management expects to hire only a
limited number of additional employees, if any, in association with each of
these projects.

        The Company's licensing activities are directed toward three primary
sectors--Mining, Industrial and Environmental. The Company's direct effort in
identifying mining related prospects has yielded numerous interested parties.
The Company's preliminary strategy is to price its licensing fees in the range
of $3 million for an initial site master license with an option to expand to
additional site licenses at $1 million each. The design of the MR3 System lends
itself to be scalable without material difficulty. The Company will supply the
initial materials and provide for recurring materials (equipment, reagents, and
media) to the licensee at its cost plus a reasonable markup. In addition, the
Company will also likely provide technical consulting services, over and above
normal services in line with the original license, at a predetermined price to
the licensee. The Company further expects to charge a negotiated percentage of
the precious metals extracted from the concentrates as well as a monthly fee
related to the licensee savings in capital and operating costs from their normal
operations. In addition, management recognizes that it may be required to adjust
its pricing strategy for its licensing product due to market demand and other
economic considerations.


                                      -30-

<PAGE>

Effects of Inflation

         In the opinion of management, inflation has not had a material effect
on the operations of the Company.

Recent Accounting Pronouncements

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations," which supercedes Accounting Principles Board ("APB") Opinion No.
16, "Business Combinations." SFAS 141 requires the purchase method of accounting
for business combinations initiated after June 30, 2001, and eliminates the
pooling-of-interests method. In addition, SFAS 141 establishes specific criteria
for the recognition of intangible assets separately from goodwill and requires
unallocated negative goodwill to be written off immediately as an extraordinary
gain. The provisions of SFAS 141 are required to be adopted July 1, 2001. The
adoption of SFAS 141 will not change the method of accounting used in previous
business combinations including those the Company accounted for under the
pooling-of-interests method. The adoption of this statement did not have any
impact on the Company's financial condition or results from operations.

         In July 2001, the FASB also issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is
effective for fiscal years beginning after December 15, 2001. Certain provisions
shall also be applied to acquisitions initiated subsequent to June 30, 2001.
SFAS 142 supercedes APB Opinion No. 17, "Intangible Assets," and requires, among
other things, the discontinuance of amortization related to goodwill and
indefinite-lived intangible assets. These assets will then be subject to an
impairment test at least annually. In addition, the standard includes provisions
upon adoption for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles and reclassification of certain intangibles out of previously
reported goodwill. The adoption of this statement did not have a material impact
on the Company's financial condition or results from operations.

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires liability recognition for
obligations associated with the retirement of tangible long-lived asset and the
associated asset retirement costs. The Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002 with earlier
application encouraged. The implementation of SFAS No. 143 will not have a
material affect on the Company's results of operations or financial position.

         In August 2001, the FASB issued SFAFS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of", in that it removes goodwill from its impairment scope
and allows for different approaches in cash flow estimation. However, SFAS No.
144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and
measurement of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of. SFAS No. 144 also supersedes the business
segment concept in 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," in
that it permits presentation of a component of an entity, whether classified as
held for sale or disposed of, as a discontinued operation. However, SFAS No. 144
retains the requirement of APB Opinion No. 30 to report discontinued operations
separately from continuing operations. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001 with earlier application encouraged. The Company adopted the
provisions of SFAFS No. 144 effective January 1, 2002.

                                      -31-
<PAGE>

         In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS 145"), "Rescission of FASB Statements Nos. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS 145
eliminates the requirement that gains and losses from the extinguishment of debt
be aggregated and, if material, classified as an extraordinary item, net of the
related income tax effect.

         The Company adopted SFAS 145 in the fourth quarter of fiscal 2002. The
adoption of SFAS 145 is not expected to have a material impact on the Company's
results of operations or financial position.

         In December 2002, the FASB issued SFAS No.148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This statement amends
SFAS No.123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation.


ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The attached financial statements commencing on page F-1 have been
audited by Pohl, McNabola, Berg & Company (formerly Berg & Company), independent
certified public accountants, to the extent and for the periods set forth in
their reports appearing herein.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         There have been no changes in or disagreements with the Company's
accountants, Pohl, McNabola, Berg & Company, for the reporting period.


                                    PART III


ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The current Executive Officers and Directors of the Company are as
follows: (1)


          Name                 Age                    Position
          ----                 ---                    --------

  Randall S. Reis               61          Chairman of the Board
  Bradley N. Rotter             47          Chief Executive Officer and Director
  John K. Burns                 53          President and Director
  Jody J. Sitkoski              44          Senior Vice President
  Gary Abreim                   61          Chief Financial Officer
  Irving W. DeVoe               66          Chief Science Officer


1.   Pursuant to the terms of his employment agreement, the Company elected to
     terminate the employment of Mr. Larry Hopper, President and Chief Operating
     Officer, on March 15, 2003. On August 8, 2003, the Company executed a

                                      -32-
<PAGE>

     settlement agreement with Mr. Hopper whereby the Company settled any and
     all potential claims against the Company related to his period of
     employment with the Company and subsequent termination. In consideration of
     the settlement, Mr. Hopper was paid a lump sum of $65,000 and was issued
     vested warrants to purchase 800,000 shares of the Company's common stock at
     an exercise price of twenty cents ($0.20).

     On January 12, 2002, Dr. Irving DeVoe resigned his positions as Director
     and Chief Science Officer of the Company. Dr. DeVoe continued, however, to
     provide technical, management and advisory services to the Company as Chief
     Scientist on a consulting basis. In June 2003, Dr. DeVoe entered into a
     full time employment agreement with the Company and resumed the position of
     Chief Science Officer.

     On October 8, 2003, Mr. David DeVoe resigned his position as Vice President
     to pursue other interests. Mr. David DeVoe has agreed to provide the
     Company with consulting services from time to time primarily related to
     feasibility modeling and cost analysis.

     In November 2003, Mr. Bradley N. Rotter was appointed Chief Executive
     Officer and Mr. John K. Burns was appointed President. Both were also
     nominated to be Directors of the Company.

         There is no family relationship between any director or executive
officer of the Company. There are no known arrangements or understandings
between any director or executive officer and any other person pursuant to which
any of the above-named executive officers or directors was selected as an
officer or director of the Company. All directors hold office until the next
annual meeting of stockholders and until their successors have been duly elected
and qualified. Aside from expenses to attend the Board of Directors meetings,
the Company has not compensated its directors for service on the Board of
Directors or any committee thereof. As of the date hereof, no director has
accrued any expenses or other compensation. The Board of Directors appoints
officers annually and each executive officer serves at the discretion of the
Board of Directors. The Company does not have any standing committees at this
time.

         With the exception of Mr. John Burns, none of the officers and /or
directors of the Company are currently officers or directors of any other
publicly traded corporation. Mr. Burns serves as an independent director on the
boards of Emgold Mining Corporation (EMR, TSX) and Northern Orion Resources
(NNO, TSX) both of Vancouver, Canada. None of the directors, officers,
affiliates or promoters of the Company have filed any bankruptcy petition, been
convicted in or been the subject of any pending criminal proceedings, or the
subject of any order, judgment, or decree involving the violation of any state
or federal securities laws within the past five years.

         The business experience of each of the persons listed above, as well
other significant persons and contributors to the Company, are as follows:

         Randall S. Reis. Mr. Reis co-founded MR3 and has been Chairman of the
Board since its inception in July 1991. He served as MR3's Chief Executive
Officer from 1991-2003. Mr. Reis has over 35 years of executive level management
and legal experience in entrepreneurial, private and public companies. Mr.
Reis's areas of responsibility typically focused on business start-up,
acquisition, IPO strategies, capital raising activities, overall business plan
development and implementation, SEC compliance matters, and the negotiation of
all major contracts. From 1986 to 1991, Mr. Reis was co-founder, CEO, and a
director of Vitafort International Corporation ("VIT"), a publicly traded
company, located in Mill Valley, CA. VIT was primarily engaged in the business
of developing nutritionally enhanced food and beverage products, including
vitamin fortified products for the Crystal Geyser Water Company and Power Burst,
a nutritionally fortified sports drink. From 1981 to 1985, Mr. Reis was
co-founder, CEO and a director of Edwards Ridge, Lt., a private California
corporation, which was engaged in the business of developing multi-unit luxury

                                      -33-
<PAGE>

single-family home real estate projects in Sausalito, CA. From 1970 to 1980, Mr.
Reis was a co-founder and senior partner of Burden and Reis, a San Francisco
based law firm specializing in corporate, securities, and real estate matters.
Mr. Reis is a member of the California, New York and Connecticut State Bars
Association, and a graduate of Amherst College (B.A.) and the Stanford School of
Law (J.D.).

         Bradley N. Rotter. Mr. Rotter joined the Company on April 1, 2003 as
President and Chief Operating Officer. In November 2003, Mr. Rotter was
appointed Chief Executive Officer and nominated to be a Director of the Company.
Mr. Rotter has over 25 years of experience in the capital, commodity and
securities markets where he was instrumental in arranging financing for various
companies including public and private placement of debt and equity, as well as
other financing instruments. From 1988 to the present, Mr. Rotter has served as
a principal officer and/or managing partner of various equity and
specialty-financing companies, including Point West Capital Corporation, a San
Francisco based publicly traded entity; and the Echelon Group and Presage
Corporation, both privately operated companies based in San Francisco. In
recognition of one innovative securitization, Mr. Rotter was awarded the Private
Deal of the Year Award in 1995 by the Investors Dealers Digest publication. Mr.
Rotter currently serves on the board of directors of Authentisure, a privately
held company located in San Francisco involved in the business of digital
authentication. Mr. Rotter's undergraduate education was at the United States
Military Academy at West Point and he holds an MBA degree from the University of
Chicago.

         John K. Burns. Mr. Burns joined the Company in November 2003 as
President and was subsequently nominated to be a Director of the Company. He has
over 30 years of management, financial and consulting experience with both
domestic and international firms. He has acted as an advisor or consultant to
numerous financial and mining related firms in the areas of business management,
fund raising, and financial consulting. Such firms include, but are not limited
to Ettuscan Minerals Ltd, Halifax Nova Scotia; Emgold Mining Corporation,
Vancouver, Canada; Coexis Limited, Rickmansworth, England; Societe General De
Surveillance, Geneva; Stone and Webster International Engineering, Denver,
Colorado; Wheaton River Minerals Ltd, Toronto, Canada and Toth Aluminum Company,
New Orleans, Louisiana. From March 2000 to December 2002, Mr. Burns served as
President and CEO, and then Chairman, of Global Fiduciary Trade Services (GFTS -
now called EcoNovo). GFTS was established to provide global fiduciary trade,
trust and corporate services over the Internet. In February of 1997, Mr. Burns
became President and CEO of Frontier Resources Management, a special purpose,
natural resources project management company with US$18M in capital. From 1992
to 1997 Mr. Burns was Global Head and Managing Director of the Derivative
Trading and Finance Group at Barclays Metals London, a unit of Barclays Bank
PLC, London, England. He was responsible for building and managing the team and
the systems necessary to support the trading of derivatives and the paper
created from related structured financings. From 1982 to 1990, Mr. Burns worked
in a number of trading positions on the equity options, FX and commodity desks
at Drexel Burnham and developed the trading and risk management systems used to
support derivative trading activities on each desk. In 1986, Mr. Burns took the
position of Vice President, Senior Risk Manager and CFO of the Drexel
Commodities Group at Drexel Burnham Lambert Inc., New York, New York and of
Drexel Burnham Lambert Trade Finance Ltd, New York.

Mr. Burns serves as an independent director on the boards of Emgold Mining
Corporation (EMR, TSX) and Northern Orion Resources (NNO, TSX) both of
Vancouver, Canada. He is also a US Director of Coexis Ltd., Rickmansworth, U.K.
and a Director of Equinom Inc. Chicago, Illinois; both privately held technology
companies and software authors. Mr. Burns is an Associated Person of FRM
Management LLC in Chicago Ill. Mr. Burns is the author of a number of option and
volatility related financial products including: DIVAs (Drexel Implied
Volatility Agreements) and DRAFTs (Drexel Range Adjusted Forward Transactions).
He is the author and sponsor of the World Commodity Banking System proposal. Mr.
Burns is a graduate of the University of Pennsylvania (B.S., 1973). He also
completed non-major courses in accounting, finance, marketing and computer
science at Wharton while as an undergraduate and in continuing postgraduate, but
non-degree studies.

                                      -34-
<PAGE>

         Gary Abreim. Mr. Abreim assumed the role of Chief Financial Officer on
April 1, 2003. From first quarter 2001 through 2002, Mr. Abreim provided
financial consulting services to the Company from time to time on an as needed
basis. From 1999 to the present, Mr. Abreim worked as a business development
consultant and interim chief financial officer to various early stage private
companies. His emphasis was in the areas of financial reporting, planning,
systems implementation and monitoring, cash management, asset recovery and
workouts. Prior to that, from 1990 to 1999, Mr. Abreim was Chief Financial
Officer of Ally Capital Group; a California based private asset management
company, merchant bank and SBIC, where he was responsible for managing the
multiple operating functions, financial reporting and regulatory compliance for
$70 million of portfolio assets. Mr. Abreim is also Treasurer of Arete Relief
Services; a Northern California based registered charity that provides medical,
educational, and hunger relief in less developed countries. Mr. Abreim received
his BS and MBA degrees from UCLA in California. He also achieved his CPA
certificate in 1967 while working with Arthur Andersen & Co, but is not
presently certified.

         Jody J. Sitkoski. Mr. Sitkoski joined the Company in January 2003 as
Senior Vice President. Prior to that, he provided advisory services to the
Company from time to time over a five-year period as a consequence of his being
an original shareholder of MR3, Inc., the predecessor to MR3 Systems, Inc. Along
with providing technical and mechanical guidance on mining operations, Mr.
Sitkoski was instrumental in identifying potential candidate projects for the
Company's technology and was principally involved in any subsequent
negotiations. Mr. Sitkoski brings to the Company over 20 years of hands on
business experience in mining facilities construction and maintenance; and
environmental technology processes including electro coagulation systems, UV,
ozone, EC Fuel for municipal waste water/ drinking water system cleaning,
landfill leaching, industrial waste water and precious metal/rare earth mine
processes for metals extraction and the purification of mining concentrates. For
the past five years Mr. Sitkoski has been self-employed as a private real estate
developer and personal investor. Mr. Sitkoski received an Associate degree in
Computer Science from Control Data Institute in Milwaukee, Wisconsin and holds
numerous real estate certifications in real estate law, development and
brokerage.

         Irving W. DeVoe, Ph.D. Dr. DeVoe currently serves as the Chief Science
Officer of the Company and is the inventor of the MR3 technology and author of
26 U.S. and International patents. He has over nineteen years of experience in
technology development, management, and direct supervision of R&D operations
related to hazardous chemical technology. Dr. DeVoe joined the Company in
October 1997 in connection with the acquisition of MR3, Inc., the predecessor to
MR3 Systems, Inc. In January 2002, due to the limited operations of the Company
at the time, Dr. DeVoe elected to resign his positions as a Director and Chief
Science Officer of the Company. He continued to fulfill the duties of Chief
Scientist of the Company, as a principal consultant from leased laboratory
facilities in Salem, Massachusetts. From 1993 to 1995, Dr. DeVoe was engaged as
a technical consultant to Metanetix Technical Services ("MTS"), a subsidiary of
Hariston, Inc., a British Columbia public company. MTS was located in Butte,
Montana and provided engineering process design R&D services for Metanetix
Corporation, also a subsidiary of Hariston, Inc. From 1991 to 1993, he founded
and acted as President of DeVoe Environmental Laboratory ("DVL"), a private
company located in Palm Springs, California. DVL was created to design,
construct, deliver and operate a pilot plant facility to provide soil cleaning
technology and services for the Toronto Harbor Commission. Formerly a Research
Associate at Argonne National Laboratory, U.S. Atomic Energy Commission, Dr.
DeVoe has acted as a consultant to government and industry, has made numerous
contributions to scientific journals, and has been an invited speaker at
scientific symposia throughout the world. He earned a B.S. degree from Aurora
University and a Ph. D. from the University of Oregon Medical School. Dr (Oregon
Health Science University). Dr. DeVoe was also awarded a Post Doctorate Fellow
from the National Research Council of Canada in 1969.

                                      -35-
<PAGE>

         Other Senior Management, Significant Persons and Contributors

Rainer Bauder. Mr. Bauder joined the Company in July 2001, to support Dr. DeVoe
at the Salem research laboratories and was appointed a Vice President in October
2003. Mr. Bauder has over 15 years of European experience as a chemical research
technician, with special skills in chromatography. From 1986 to 1988 he served
as an analytic technician at Nuclear Power Plant KKL, CH-Leibstadt, monitoring
plant fluids and emergency systems, handling and analytical determinations of
open radioactive sources, monitoring of ground water and river water for cooling
systems, and supervising of gas and water sampling units. From 1988 to 1993 he
was an agrochemical research technician working with metabolism studies in soil,
plant and animals according to OECD and FDA guidelines using HPLC and TLC. From
1993 to 1994 he was a research technician for Ciba-Geigy Ltd., in Basel,
Switzerland, also conducting metabolism studies in soil, plant and animals, and
examining the behavior of (formulated) agrochemicals in the environment using
14C radio-tracer technique (HPLC/TLC/GC). From 1994 to 1998 he was a senior
technician for Techform Engineering Ltd., Embrach, Switerland, where he headed
the analytical laboratory, analytical support for research and development, laid
out and realized laboratory experiments, including chemical development of
industrial processes like fly ash treatment of incineration plants, and
monitored pilot plants and technical support. From 1998 until joining the
Company in 2001, Mr. Bauder was a service engineer for Shimadzu Switzerland
Ltd., working with instruments, including Total Carbon Analyzers (TOC) and
Gaschromatographs (GC-GC/MS).

Peter Odintsov. Mr. Odintsv joined the Company in December 2003 as Vice
President of Operations and is chiefly responsible for managing the information
requirements of the Company. Mr. Odintsov has over a decade of experience in
information systems and related operations. In addition he has had extensive
experience in modeling and database management. In 1991, as a Portfolio Analyst
for Allegiance Capital, located in San Francisco, he administered a $40 million
loan portfolio and managed the interface with the Trustee and investor group. He
also served as head of the Information Systems at Point West Capital
Corporation, a San Francisco based publicly traded venture capital firm from
1999 to 2003. In 1998, Mr. Odintsov became a founder of Prominvest Consulting in
Tomsk, Russia, where he conducted the feasibility studies and provided
consulting services for the acquisition of the Tomsk Pencil Factory by a private
Russian company. He has also worked as a consultant to many Russian businesses
on foreign exporting and fundraising activities. Mr. Odintsov is a graduate of
Polytechnic University in Tomsk, Russia, with a B.S. in Management Information
Systems in Banking (1996), along with courses toward a Masters Degree in
Information Systems in Economics.

Samir Gad. Mr. Gad has provided management, business and financial consulting
services to the Company since 1999. Mr. Gad has international business
experience in the world optical market. From 1979 to 1986 he held sales related
positions with two of the five major U.S. contact lens manufacturers, including
Eastern Regional Manager with Bausch & Lomb Canada. In 1986 he launched his own
contact lens distribution business based in Montreal, Quebec. Mr. Gad
established strategic relationships with associates in the United States, Europe
and the Middle East, including founding and establishing the first independent
European contact lens distributor based in Paris, France. Mr. Gad also
distributed contact lenses from a U.S. based company, Imperial Optical, Inc. As
President and CEO of Imperial Optical, he has evolved his company's focus from
classical contact lens distribution practices to more innovative relationships
including exclusive distribution agreements with buying groups and joint
ventures leading to the launching of private label disposable lenses. In
addition to Imperial Optical's core business activity, it also holds an
exclusive agency agreement with one of the five major U.S. contact lens
manufacturers for its management of the entire Middle Eastern region including
the Arab Gulf area. Mr. Gad is a graduate of the Microbiology and Immunology
Department, Faculty of Medicine, McGill University.

                                      -36-
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Exchange Act requires our directors, executive
officers, and the persons who beneficially own more than ten percent of our
common stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Copies of all filed reports are required to
be furnished to the Company. Based solely on the reports received by us and on
the representations of the reporting persons, we believe that these persons have
complied with all applicable filing requirements during the fiscal year ended
December 31, 2002.

Audit Committee

         As of the date of this Annual Report, the Company has not appointed
members to an audit committee and, therefore, our Board of Directors has
conducted the respective role of an audit committee. When established, the audit
committee's primary function will be to provide advice with respect to our
financial matters and to assist the Board of Directors in fulfilling oversight
responsibilities regarding finance, accounting, tax and legal compliance. The
audit committee's primary duties and responsibilities will be to: (i) serve as
an independent and objective party to monitor our financial reporting process
and internal control system; (ii) review and appraise the audit efforts of our
independent accountants; (iii) evaluate our quarterly financial performance as
well as compliance with laws and regulations; (iv) oversee management's
establishment and enforcement of financial policies and business practices; and
(v) provide and open avenue of communication among the independent accountants,
management and the board of directors.

ITEM 10. EXECUTIVE COMPENSATION

         The following Summary Compensation Table indicates certain compensation
information for the Chief Executive Officer, President and Chief Operating
Officer and Chief Science Officer (collectively referred to as the "Named
Executive Officers"). Compensation data for other executive officers is not
presented in the table because aggregate compensation for such executive
officers does not exceed $100,000 for services rendered in all capacities during
the fiscal year. This information provided below includes the dollar value of
base salaries, bonus awards, the number of SARs/options granted, and certain
other compensation, if any.

                                      -37-

<PAGE>

<TABLE>
<CAPTION>
                           Summary Compensation Table
                                                                 Long Term Compensation Awards
                                                                -------------------------------
                        Annual Compensation                          Awards             Payout
                                                                ------------------     --------
                                                                                      Securities
                                                              Restricted              Underlying    All Other
        Name and                                                 Stock      LTIP       Options/      Compen-
   Principal Position     Year       Salary    Bonus   Other    Awards     Pay-out     SARs (#)      sation
   ------------------     ----       ------    -----   -----    ------     -------     --------      ------
                                       ($)      ($)     ($)                                           ($)
<S>                       <C>       <C>        <C>     <C>      <C>        <C>        <C>            <C>
Randall S. Reis           2002       79,730                                                  --
Chairman & Chief          2001       47,594                                                  --
Executive Officer(1)      2000      122,500                                                  --

Larry J. Hopper           2002       11,929                                                  --
President, COO,           2001       25,500                                                  --
and Senior Vice           2000       28,000                                             500,000
President(2)

Irving W. DeVoe           2002       35,000                                             998,884
Chief Science Officer     2001       37,000                                           1,774,067
and Director(3)           2000      120,000                                             967,138
</TABLE>
---------------

   1.    Includes advances made during the period and excludes deferred
         compensation. Balance of deferred compensation accrued on the Company's
         financial statements at fiscal year ended December 31, 2002, 2001, and
         2000 was $6,176, $37,906 and $25,500, respectively. Mr. Reis'
         employment agreement with the Company specifies a gross annual salary
         of $120,000. At December 31, 2002, Mr. Reis has waived $192,000 of
         compensation, which represents the unpaid balance owed to him in excess
         of amounts paid during the noted periods and any accrued deferred
         compensation.

   2.    Includes advances made during the period and excludes deferred
         compensation. Balance of deferred compensation accrued on the Company's
         financial statements at fiscal year ended December 31, 2002, 2001, and
         2000 was $122,066, $46,566 and $0, respectively. On January 15, 2003,
         pursuant to Mr. Hopper's employment agreement, he was provided with a
         60-day notice of employment termination. Securities underlying options
         include warrants granted during the noted period at $0.25 per share
         with a five-year exercise period.

   3.    Includes advances made during the period and excludes deferred
         compensation. Balance of deferred compensation accrued on the Company's
         financial statements at fiscal year ended December 31, 2002, 2001, and
         2000 was $64,000, $51,000 and $28,000, respectively. Dr. DeVoe's
         employment agreement with the Company specifies a gross annual salary
         of $120,000. At December 31, 2002, Dr. DeVoe has waived $192,000 of
         compensation, which represents the unpaid balance owed to him in excess
         of amounts paid during the noted periods and any accrued deferred
         compensation. Securities underlying options include warrants granted
         during the noted period at $0.10 per share with a five-year exercise
         period.

                                      -38-

<PAGE>

<TABLE>
<CAPTION>
                      Option/SAR Grants in Last Fiscal Year

                                Individual Grants
                                -----------------

                            Number of        % of Total
                           Securities       Options/SARs
                           Underlying        Granted to
                          Options/SARs      Employees in      Exercise or Base     Expiration
           Name            Granted (#)       Fiscal year      Price ($/Share)         Date
           ----            -----------       -----------      ---------------         ----
<S>                         <C>                <C>                 <C>             <C>
Irving W. DeVoe               998,884          38.73%              $ 0.10          12/31/2007
Jody Sitkoski, VP(1)           30,000          01.16%              $ 0.15          12/29/2007
Gary Abreim, CFO(2)         1,000,000          38.77%              $ 0.03          12/31/2007
</TABLE>

   1.    At the time of the grant, Mr. Sitkoski was not a designated officer of
         the Company, but became a Senior Vice President in January 2003.

   2.    At the time of the grant, Mr. Abreim was not a designated officer of
         the Company, but became the Chief Financial Officer in April 2003.


                 Aggregated Option Exercises in Last Fiscal Year

                                 None exercised.

Employment Agreements

         In January 2003, the Company entered into a three-year employment
agreement with Jody J. Sitkoski for the position of senior vice president. Upon
completion of the initial three-year term, the employment agreement
automatically renews on a month-to-month basis until terminated or until the
parties negotiate a new term. During the first year of the initial agreement,
Mr. Sitkoski will be paid an annual sum of $75,000. During the second and third
year of this agreement, Mr. Sitkoski will be paid a base salary equal to 80% of
the salary paid by the Company to its highest-paid employee, but no less than
$75,000 per year. Either the Company or Mr. Sitkoski may terminate the agreement
with or without cause or reason with 60-calendar day's written notice to the
other party. In connection with this employment agreement, Mr. Sitkoski was
granted options to purchase 1,000,000 shares of the Company's common stock at an
exercise price of five cents ($0.05) per share. Such options immediately vest
upon his execution of the agreement. Mr. Sitkoski was also granted options to
purchase an additional 2,000,000 shares at an exercise price of fifteen ($0.15)
per share, which vest immediately upon completion of the initial three-year term
of the agreement.

         In second quarter 2003, the Company entered into three-year employment
agreements with Randall S. Reis, the Company's Chairman and CEO and Bradley N.
Rotter, the Company's President and Chief Operating Officer. Upon completion of
the three-year term, the employment agreements automatically renew on a
month-to-month basis until terminated or until the parties negotiate a new term.
The agreements specify an annual salary of $120,000 for Mr. Reis and Mr. Rotter,
which may be accrued and converted into shares of the Company's common stock at
the market price in effect at the end of the applicable pay period. In addition,
Mr. Reis and Mr. Rotter receive an automobile allowance of $500 per month and
are reimbursed for ordinary and necessary expenses incurred in performance of
their duties on behalf of the Company. Either the Company or the employed party
may terminate the agreement with without cause or reason with 60-calendar days
written notice to the other party. Upon termination of the employee's agreement
by the Company without cause, the Company is obligated to pay the employee his
then base salary for six (6) months at the rate of the base salary then in
effect, which six month period shall begin on the effective date of the
termination.

                                      -39-
<PAGE>

         As further consideration for entering into the employment agreement,
Mr. Reis was granted 1,000,000 warrants, vesting immediately, to purchase shares
of the Company's common stock at an exercise price of ten cents ($0.10) for a
five-year period. Mr. Rotter was granted 3,000,000 warrants, vesting
immediately, at a price of $0.10 for a five-year period. Mr. Rotter was also
granted an additional 3,000,000 warrants at a price of $0.10 for a five-year
period, which vest at a rate of 83,334 warrants per month for the three-year
term of the agreement. Monthly vesting of the 3,000,000 warrants to accelerate
to 166,667 warrants per month for each month following the month in which the
Company either; (i) sells its first bar of gold produced in a commercial MR3
gold extraction facility, or (ii) receives its first revenue from a license
sale.

         In June 2003, the Company entered into a three-year employment
agreement with Dr. Irving DeVoe, who is employed as Chief Science Officer and is
the inventor of the MR3 technology. The agreement specifies an annual salary of
$120,000 for Dr. DeVoe, which may be accrued and converted into shares of the
Company's common stock at the market price in effect at the end of the
applicable pay period. In addition, Dr. DeVoe receives an automobile allowance
of $500 per month and is reimbursed for ordinary and necessary expenses incurred
in performance of his duties on behalf of the Company. Also, during the term of
the agreement, the Company is obligated to pay Dr. DeVoe an annual royalty equal
to 5% of the net profits of the Company received from the sale or utilization of
its MR3 technologies during each of the Company's fiscal years ending December
31. Such royalties shall be paid on or before January 31 of each year covered by
the agreement, and shall terminate once a cumulative total of $2,500,000 in
royalties has been paid to Dr. DeVoe. The agreement further specifies that Dr.
DeVoe may not compete with the Company or any of its affiliates in the offer,
sale or marketing of products or services that are competitive with the products
or services offered by the Company, during the term of the agreement or for a
six month period following termination of the agreement.

         Effective December 31, 2002, Dr. DeVoe waived any and all rights
previously granted to him pursuant to an Antidilution Agreement entered into
with the Company on October 19, 1999. In exchange for the waiver, the Company
agreed to issue Dr. DeVoe 200,000 shares of the Company's restricted common
stock.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth information, to the best knowledge of
the Company, as of October 31, 2003, certain information with respect to shares
beneficially owned by: (a) each person who is known by us to be the beneficial
owner of more than 5% of our outstanding shares of common stock; (b) each of our
directors; (c) the executive officers named in the Summary Compensation Table
above and (d) all current directors and executive officers as a group.

         Information as to beneficial ownership is based upon statements
furnished to the Company by such persons. To our knowledge, except as indicated
in the footnotes to this table and pursuant to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.
Unless otherwise indicated, the business address of the individuals named below
is c/o MR3 Systems, Inc., 435 Brannan Street, Suite 200, San Francisco,
California 94107.

                                      -40-
<PAGE>

   Name and Address                         Amount and Nature        Percent of
   of Beneficial Owner                     of Beneficial Owner         Class 1
   -------------------                     -------------------         -------

   Randall S. Reis *                           6,621,687 (2)             8.27%

   Irving W. DeVoe*                            6,983,489 (3)             8.73%
   100 Cummings Center, S-336-H
   Beverly, MA 01915

   Bradley N. Rotter *                         9,333,330 (4)            11.66%

   Gary Abreim *                               1,277,450 (5)             1.60%

   Rainer Bauder*                                100,000 (6)             0.12%
   100 Cummings Center, S-336-H
   Beverly, MA 01915
   Jody Sitkoski *                             1,332,964 (7)             1.41%

   Steven M. Schorr                            5,278,181 (8)             6.84%
   P.O. Box 2120
   Kihei, HI 96753

   Mel Kelm                                    5,783,357 (9)             7.22%
   Pfeiffer Ridge, #7
   Big Sur, CA 93920

   Zevtec Canada, Inc.                         3,714,287 (10)            4.64%
   Mr. Michael Cartmel
   1055 West 14th street
   N. Vancouver, BC V7P 3P2

   All directors and executive officers       40,072,708 (11)           50.00%
   as a group

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

    * Director and/or executive officer or executive management

1.  Based upon 59,316,816 shares of common stock outstanding on October 31,
    2003, and includes consideration of stock options, warrants, conversion
    privileges or similar obligations owned by certain officers, directors
    and/or principal shareholders entitling the holders to purchase an aggregate
    of 20,750,479 shares of common stock which are exercisable within sixty
    days. This figure does not include the 1,000,000 warrants granted to Mr.
    John Burns in November 2003 that are exercisable for a five year period at a
    price of $0.35 per share. Therefore, for the purposes of calculating
    percentage ownership as indicated in the table above 80,067,295 shares of
    common stock are deemed to be issued and outstanding in accordance with Rule
    13d-3 adopted by the Securities and Exchange Commission under the Securities
    Exchange Act of 1934, as amended.

2.  Includes 1,000,000 shares that may be acquired by Mr. Reis pursuant to the
    exercise of warrants priced at $0.10 per share and expiring 5/1/08.

3.  Includes 5,440,089 shares that may be acquired by Dr. DeVoe pursuant to the
    exercise of warrants priced at $0.10 per share and expiring during the
    period 10/30/04 through 12/31/07.

4.  Includes 5,999,997 shares that may be acquired by Mr. Rotter pursuant to the
    exercise of warrants priced between $0.10 to $0.36 per share and expiring
    during the period 2/11/06 through 10/01/08.

                                      -41-
<PAGE>

5.  Includes 1,000,000 shares that may be acquired by Mr. Abreim pursuant to the
    exercise of warrants priced at $0.03 per share and expiring 12/31/07.

6.  Includes 100,000 shares that may be acquired by Mr. Bauder pursuant to the
    exercise of warrants priced between $0.10 and $0.12 per share and expiring
    during the periods 5/18/06 and 5/18/07.

7.  Includes 1,065,000 shares that may be acquired by Mr. Sitkoski pursuant to
    the exercise of warrants priced between $0.05 and $0.20 and expiring during
    the period 2/25/05 and 1/1/08.

8.  Includes 1,590,439 shares that may be acquired by Mr. Schorr pursuant to the
    exercise of warrants between $0.07 and $0.10 and expiring during the period
    11/30/04 and 09/1/07.

9.  Includes 830,667 shares that may be acquired by Mr. Kelm pursuant to the
    exercise of warrants priced between $0.02 and $0.05 and expiring during the
    period 7/15/06 and 5/9/07.

10. Includes 2,785,715 shares that may be acquired by Zevtec Canada, Inc.
    pursuant to the exercise of warrants priced at $0.07 and expiring during the
    period 10/1/07 and 2/18/08. Also includes 928,572 shares that may be
    acquired through the conversion of various convertible notes priced at $0.07
    and expiring during the period 10/1/07 and 04/10/08.

11. Includes 14,615,086 shares that may be acquired by the Company's directors
    or executive officers pursuant to the exercise of warrants exercisable at
    various prices and expiring during the period 10/30/04 and 10/1/08.

     As of the date thereof, there are no known arrangement, agreements or
understandings that may at a later date result in a change in control or delay
in change in control of the Company. On October 19, 1999, the Company entered
into agreements with Dr. Irving DeVoe and David Blythe, an employee, to grant
them anti-dilution protection against any further stock issuances by the
Company. Mr. Blythe's anti-dilution rights expired on June 1, 2001 with his
termination as an employee. On June 14, 2003, Dr. DeVoe entered into a new
employment agreement with the Company concurrent with which he waived his
anti-dilution rights.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         There have been no transactions between the Company and any officer,
director, nominee for election as director, or any shareholder owning grater
than five percent (5%) of the Company's outstanding shares, nor any member of
the above referenced individual's immediate family, except as set forth below:

         During 2002, the Company granted warrants to purchase common shares of
the Company's stock to certain officers. The warrants were issued in
consideration for services rendered, or expected to be rendered to the Company.

         In December 2002, the Company entered into a $15,000 note payable to
Mr. Jody Sitkoski in connection with an aggregate $500,000 financing with
various other unrelated parties. The note payable accrues interest at 12% per
annum and carries two five-year warrants priced at fifteen cents ($0.15) per
share. In addition, Mr. Sitkoski will receive a portion of the net income from
sales of gold product from the Lakewood processing facility (see further
disclosure in Royalty or Revenue Sharing Agreements).

                                      -42-
<PAGE>

         In January 2003, the Company granted Mr. Jody Sitkoski, Vice President,
3 million warrants to purchase common shares of the Company's common stock at a
price of fifteen cents ($0.15) per share. 1 million of the warrants vested
immediately and the balance of 2 million warrants vest as of 12/31/2005.

         In April 2003, the Company granted Mr. Bradley Rotter, then President
and COO as of April 2003, 6 million warrants to purchase common shares of the
Company's stock at a price of ten cents ($0.10) per share. 3 million warrants
vest immediately and the balance of 3 million warrants vest, beginning April 1,
2003, at a rate of 83,333 per month until such time as the Company sells its
first gold bar from production or receives revenue from a license sale. At that
point the vesting schedule increases to a rate of 166,666 per month.

         In June 2003, in connection with Dr. Irving DeVoe's waiver of his
anti-dilution agreement with MR3, the Company granted him 200,000 shares of
restricted common stock of the Company.

         In November 2003, the Company granted John K. Burns, Chief Executive
Officer, 1,000,000 warrants to purchase common shares of the Company's stock at
a price of thirty-five cents ($0.35) per share over a five-year period.


                                     PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

2.0(1)   Plan and Agreement of Reorganization, dated October 3, 1997

3.1(1)   Articles of Incorporation of Company, filed July 3, 1991

3.2(1)   Certificate of Amendment of Articles of Incorporation of Company, filed
         March 9, 1992

3.3(1)   Amended and Restated Articles of Incorporation of Company, filed
         February 26, 1997

3.4(1)   Certificate of Incorporation of Emarethree Corporation, a wholly owned
         subsidiary of the Company, filed June 8, 2000

3.5(1)   Amended and Restated Certificate of Incorporation of Emarethre
         Corporation changing name to MR3 Systems, Inc., filed March 31, 2000

3.6(1)   Delaware Certificate of Ownership and Merger Merging Bioponic
         International into MR3 Systems, Inc. filed, April 28, 2000

3.7(1)   By-Laws of MR3 Systems, Inc., filed as Exhibit to Form 10-SB dated
         February 12, 2001

10.1     Randall S. Reis Employment Agreement, dated May 1, 2003(2)

10.2     Irving W. DeVoe Employment Agreement, dated June 13, 2003(2)

10.3     Jody J. Sitkoski Employment Agreement, dated January 1, 2003(2)

10.4     Bradley N. Rotter Employment Agreement, dated April 1, 2003(2)

                                      -43-
<PAGE>

10.5     MR3 Metals Extraction Agreement between the Company and "CEG", dated
         October 23,2002.(2)

10.6     Amendment #1, dated May 1, 2003, to the MR3 Metals Extraction Agreement
         between the Company and "CEG" dated October 23, 2002.(2)

10.7     MR3 Technology Acquisition Agreement between the Company and Linsa
         Associates, Ltd., dated April 10, 2002.(2)

10.8     Amendment #1, dated October 28, 2002, to the MR3 Technology Acquisition
         Agreement between the Company and Linsa Associates, Ltd., dated April
         10, 2002.(2)

10.9     MR3 Metals Extraction Agreement between the Company and Raymond L.
         Looper, dated December 13, 2002.(2)

10.10    Amendment #1, dated May 6, 2003, to the MR3 Metals Extraction Agreement
         between the Company and Raymond L. Looper, dated December 13, 2002.(2)

10.11    Termination Agreement and Mutual Release between CEG and the Company
         dated October 21, 2003.

10.12    Loan Agreement (Credit Facility) between High Stakes Capital LLC and
         the Company dated October 7, 2003.


21.1     Subsidiary of the Company(2)

23.1     Consent of Pohl, McNabola, Berg & Company

         (1) Incorporated by reference from Registration Statement on Form 10-SB
filed with the Securities and Exchange Commission on February 12, 2001.

         (2) Incorporated by reference from the annual report on Form 10-KSB for
the period ended December 31, 2002 filed with the Securities and Exchange
Commission on August 19, 2003.


Reports on Form 8-K

The Company filed no reports on Form 8-K during the last twelve months of its
fiscal year ended December 31, 2002.

                                      -44-

<PAGE>

ITEM 14. CONTROLS AND PROCEDURES

         As required by Rule 13a-15 under the Securities Exchange Act of 1934
(the "Exchange Act"), an evaluation was carried out pursuant to the
effectiveness of the design and operation of our disclosure controls and
procedures within the 90 days prior to the filing date of this report. This
evaluation was carried out under the supervision and with the participation of
the Chief Executive Officer. Based upon that evaluation and consistent with the
size of the current organization, our Chief Executive Officer concluded that our
disclosure controls and procedures are effective alerting management in a timely
manner to material information relating to the Company required to be included
in our periodic SEC filings. There have been no significant changes in our
internal controls or in other factors that could significantly affect such
controls subsequent to the date our evaluation was carried out.

         Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.

                                      -45-

<PAGE>

                                   SIGNATURES



         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                             MR3 Systems, Inc.


Date:  December 22, 2003
                                             By: /s/ RANDALL S. REIS
                                                 -------------------------------
                                                 Randall S. Reis
                                                 Chairman of the Board



         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.


         Signature                          Title                     Date
         ---------                          -----                     ----


/s/ RANDALL S. REIS               Chairman of the Board        December 22, 2003
--------------------------
Randall S. Reis

/s/ BRADLEY N. ROTTER             Chief Executive Officer      December 22, 2003
--------------------------        and Director
Bradley N. Rotter

/s/ JOHN K. BURNS                 President and Director       December 22, 2003
--------------------------
John K. Burns

/s/ GARY ABREIM                   Chief Financial Officer      December 22, 2003
--------------------------
Gary Abreim


                                      -46-
<PAGE>

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER


I, Bradley N. Rotter, certify that:

1. I have reviewed this annual report on Form 10-KSB of MR3 Systems, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

         b) any fraud, whether or not material, that involves management or
         other employees who have a significant role in the registrant's
         internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



                                             /s/ BRADLEY N. ROTTER
                                             -----------------------------------
Date: December 22, 2003                      Bradley N. Rotter
                                             Chief Executive Officer


                                      -47-
<PAGE>

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER


I, Gary Abreim, certify that:

1. I have reviewed this annual report on Form 10-KSB of MR3 Systems, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
         and procedures as of a date within 90 days prior to the filing date of
         this annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

         b) any fraud, whether or not material, that involves management or
         other employees who have a significant role in the registrant's
         internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



                                             /s/ GARY ABREIM
                                             -----------------------------------
Date: December 22, 2003                      Gary Abreim
                                             Chief Financial Officer


                                      -48-
<PAGE>

                                MR3 SYSTEMS, INC

                              FINANCIAL STATEMENTS

                        DECEMBER 31, 2002, 2001, AND 2000







                                 C O N T E N T S

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





    Report of Independent Certified Public Accountants                 F-1

    Balance Sheets                                                     F-2

    Statements of Operations                                           F-3

    Statements of Shareholders' Equity                                 F-4

    Statements of Cash Flows                                     F-5 - F-6

    Notes to Consolidated Financial Statements                   F-7 - F-35


                                      -49-

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors and Shareholders
MR3 Systems, Inc

We have audited the balance sheets of MR3 Systems, Inc, as of December 31, 2002,
2001 and 2000, and the related statements of operations, shareholders' equity
and cash flows for the years 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MR3 Systems, Inc, as of
December 31, 2002, 2001 and 2000, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 15, MR3 Systems, Inc.'s management concluded that an
intangible asset should be written off at December 31, 2000. Accordingly, the
Company recorded an impairment loss of $70,051 in the financial statements for
the period ended December 31, 2000.


Pohl, McNabola, Berg & Company LLP
San Francisco, CA
March 20, 2003, except for Note 14 and Note 15, which are dated December 1, 2003

<PAGE>

                                MR3 SYSTEMS, INC
                                 BALANCE SHEETS
                        DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                                                      2002           2001           2000
                                                                   -----------    -----------    -----------
<S>                                                                <C>            <C>            <C>
ASSETS
   Cash                                                            $    12,496    $        55    $     3,201
   Accounts receivable                                                      --             --          9,167
   Inventory                                                                --             --         18,355
   Prepaid expenses                                                    105,000             --             --
                                                                   -----------    -----------    -----------

       Total current assets                                            117,496             55         30,723
                                                                   -----------    -----------    -----------

   Property, equipment and leaseholds,
     net of accumulated depreciation and amortization                  113,029        325,951        387,625
   Property held for sale                                                6,000             --             --
   Deposits                                                              2,497         17,470          3,818
                                                                   -----------    -----------    -----------

       Total non-current assets                                        121,526        343,421        391,443
                                                                   -----------    -----------    -----------

         TOTAL ASSETS                                              $   239,022    $   343,476    $   422,166
                                                                   ===========    ===========    ===========


LIABILITIES
   Accounts payable                                                $   526,731    $   361,125    $   212,949
   Payroll taxes payable                                               196,696        168,406        115,271
   Accrued expenses                                                    302,819        178,111         97,139
   Note payable                                                         84,254         84,254         84,254
   Short term notes payable                                            158,608        139,644        128,767
                                                                   -----------    -----------    -----------

       Total current liabilities                                     1,269,108        931,540        638,380
                                                                   -----------    -----------    -----------

   Long term notes payable                                              99,405             --             --
   Liabilities related to discontinued division                         63,448         63,448         63,448
                                                                   -----------    -----------    -----------

       Total long term liabilities                                     162,853         63,448         63,448
                                                                   -----------    -----------    -----------

         TOTAL LIABILITIES                                           1,431,961        994,988        701,828
                                                                   -----------    -----------    -----------

SHAREHOLDERS' DEFICIT
   Common stock: 100,000,000 shares authorized; par value $0.01
     issued and outstanding 48,382,171 shares in 2002,
     40,483,101 shares in 2001, and 31,909,010 shares in 2000          483,822        404,831        319,090
   Preferred stock: 5,000,000 shares authorized; par value $0.01
     Series A, 1,250,000 shares authorized; issued
     and outstanding 245,464 shares in 2002, 259,214 shares
     in 2001, and 320,839 shares in 2000                                 2,455          2,592          3,208
   Additional paid-in capital                                        7,403,600      7,012,531      6,277,663
   Accumulated deficit                                              (9,082,816)    (8,071,466)    (6,879,623)
                                                                   -----------    -----------    -----------

         Total shareholders' deficit                                (1,192,939)      (651,512)      (279,662)
                                                                   -----------    -----------    -----------

         TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT
                                                                   $   239,022    $   343,476    $   422,166
                                                                   ===========    ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-2

<PAGE>

                                MR3 SYSTEMS, INC
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                                  2002            2001            2000
                                              ------------    ------------    ------------
<S>                                           <C>             <C>             <C>
Income
  Sales                                       $         --    $     57,749    $    130,566
  Cost of goods sold                                87,802         387,635         288,267
                                              ------------    ------------    ------------

         Gross margin                              (87,802)       (329,886)       (157,701)
                                              ------------    ------------    ------------

Operating Expenses
  Research and development                         129,921         136,365         481,598
  Mining expenses                                   59,449              --              --
  Office expenses                                   67,243         137,682          94,357
  Personnel expenses                               146,867         204,032         275,185
  Outside services and professional fees           244,642         212,407         195,274
  Rent                                              41,356          63,450          20,200
  Loss on equipment write-down                     202,907              --              --
  Depreciation                                       4,015          63,472          58,772
  Impairment loss                                       --              --          70,051
                                              ------------    ------------    ------------

         Total operating expenses                  896,400         817,408       1,195,437
                                              ------------    ------------    ------------

Other (Income) and Expenses
  Interest (income) and expense                     53,863          20,749          57,112
  Other (income) and expense                       (27,515)         23,000           6,491
                                              ------------    ------------    ------------

         Total other (income) and expense           26,348          43,749          63,603
                                              ------------    ------------    ------------

            Net loss before taxes               (1,010,550)     (1,191,043)     (1,416,741)
                                              ------------    ------------    ------------

            Provision for income taxes                 800             800             800
                                              ------------    ------------    ------------

Net loss                                      $ (1,011,350)   $ (1,191,843)   $ (1,417,541)
                                              ============    ============    ============

  Loss per share:
            Basic - continuing operations     $      (0.02)   $      (0.03)   $      (0.05)
                                              ============    ============    ============
            Diluted - continuing operations   $      (0.02)   $      (0.03)   $      (0.05)
                                              ============    ============    ============

  Weighted average number of shares:
            Basic                               44,061,503      37,393,288      28,647,119
                                              ============    ============    ============
            Diluted                             44,061,503      37,393,288      28,647,119
                                              ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-3

<PAGE>

                                MR3 SYSTEMS, INC
                       STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                         Common                     Preferred
                                         Stock                        Stock               Additional
                              --------------------------    --------------------------      paid-in      Accumulated
                                Shares         Amount         Shares         Amount         Capital        Deficit         Total
                              -----------    -----------    -----------    -----------    -----------    -----------    -----------
<S>                            <C>           <C>               <C>         <C>            <C>            <C>            <C>
Balance December 31, 1999      24,870,964    $   248,710        556,455    $     5,565    $ 4,895,877    $(5,297,786)   $  (147,635)

Sale of common stock            5,284,739         52,847             --             --      1,099,622             --      1,152,469

Conversion of preferred
stock into common stock           235,616          2,356       (235,616)        (2,356)            --             --             --

Conversion of notes payable
into common stock                 200,000          2,000             --             --         18,000             --         20,000

Exercise of warrants into
common stock                    1,313,859         13,139             --             --        118,248             --        131,387

Shares repurchased of
warrants exercised                (58,668)          (587)            --             --       (125,800)            --       (126,387)

Compensation recognized
on options granted                     --             --             --             --        217,341             --        217,341

Warrant issuance                       --             --             --             --         30,000             --         30,000

Common stock issued
for services                       62,500            625             --             --         24,375             --         25,000

Dividends-in-kind                      --             --             --             --             --       (164,296)      (164,296)

Net loss                               --             --             --             --             --     (1,417,541)    (1,417,541)
                              -----------    -----------    -----------    -----------    -----------    -----------    -----------

Balance December 31, 2000      31,909,010    $   319,090        320,839    $     3,208    $ 6,277,663    $(6,879,623)   $  (279,662)
                              ===========    ===========    ===========    ===========    ===========    ===========    ===========


Sale of common stock            8,175,016         81,750             --             --        581,635             --        663,385

Conversion of preferred
stock into common stock            61,625            616        (61,625)          (616)            --             --             --

Compensation recognized
on options granted                     --             --             --             --        134,960             --        134,960

Common stock issued
for services                      337,450          3,375             --             --         18,273             --         21,648

Net loss                               --             --             --             --             --     (1,191,843)    (1,191,843)
                              -----------    -----------    -----------    -----------    -----------    -----------    -----------

Balance December 31, 2001      40,483,101    $   404,831        259,214    $     2,592    $ 7,012,531    $(8,071,466)   $  (651,512)
                              ===========    ===========    ===========    ===========    ===========    ===========    ===========


Sale of common stock            3,592,523         35,925             --             --         70,555             --        106,481

Conversion of preferred
stock into common stock            13,750            138        (13,750)          (138)            --             --             --

Conversion of notes payable
into common stock               1,866,667         18,667             --             --         35,333             --         54,000

Conversion of accrued
interest into common stock         46,130            461             --             --            922             --          1,383

Exercise of warrants into
common stock                       50,000            500             --             --          1,000             --          1,500

Compensation recognized
on options granted                     --             --             --             --         44,096             --         44,096

Warrant issuance                       --             --             --             --         99,463             --         99,463

Common stock issued
for services                    2,330,000         23,300             --             --        139,700             --        163,000

Net loss                               --             --             --             --             --     (1,011,350)    (1,011,350)
                              -----------    -----------    -----------    -----------    -----------    -----------    -----------

Balance December 31, 2002      48,382,171    $   483,822        245,464    $     2,455    $ 7,403,600    $(9,082,816)   $(1,192,939)
                              ===========    ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-4

<PAGE>

                                MR3 SYSTEMS, INC
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                                           2002           2001           2000
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                             $(1,011,350)   $(1,191,843)   $(1,417,541)
   Adjustments to reconcile net loss to net cash used
   by operating activities:
     Depreciation and amortization                            4,015         63,472         58,772
     Impairment loss                                             --             --         70,051
     Net loss on write-down of property and equipment       202,907             --             --
     Compensation expense on stock options granted           44,096        134,960        217,341
     Amortization of warrant issuance                        33,868             --         30,000
     Shares issued for Services                             163,000         21,648         25,000

   Changes in assets and liabilities
     Accounts receivable                                         --          9,167         (4,652)
     Inventory                                                   --         18,355          1,602
     Prepaid expenses and deposits                          (90,027)       (13,652)        25,274
     Accounts payable                                       165,606        148,176         79,903
     Payroll taxes payable                                   28,290         53,135         26,894
     Accrued expenses                                       124,708         80,972       (133,854)
     Accrued interest on shareholder notes                   13,347         10,877         11,198
     Liabilities related to discontinued division                --             --        (36,752)
                                                        -----------    -----------    -----------
       Net cash used by operating activities            $  (321,540)   $  (664,733)   $(1,046,764)
                                                        -----------    -----------    -----------


CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of property and equipment                 $        --    $    (1,798)   $  (108,442)
                                                        -----------    -----------    -----------

       Net cash used by investing activities            $        --    $    (1,798)   $  (108,442)
                                                        -----------    -----------    -----------


CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from notes payable-shareholders             $   247,000    $        --    $        --
   Principal payments on notes payable-shareholders         (21,000)            --             --
   Proceeds from sale of common stock and warrants          107,981        663,385      1,157,469
                                                        -----------    -----------    -----------

       Net cash provided by financing activities        $   333,981    $   663,385    $ 1,157,469
                                                        -----------    -----------    -----------
</TABLE>
                                   (continued)


   The accompanying notes are an integral part of these financial statements.

                                       F-5

<PAGE>

                                MR3 SYSTEMS, INC
                      STATEMENTS OF CASH FLOWS (CONTINUED)
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                                          2002          2001          2000
                                                       -----------   -----------   -----------
<S>                                                    <C>           <C>           <C>
        Increase (decrease) in cash and
        short-term investments                         $    12,441   $    (3,146)  $     2,263
                                                       -----------   -----------   -----------

        Balance at beginning of year                            55         3,201           938
                                                       -----------   -----------   -----------

        Balance at end of year                         $    12,496   $        55   $     3,201
                                                       ===========   ===========   ===========



Supplemental disclosures:

    Cash paid for interest                             $        --   $       984   $    10,297
                                                       ===========   ===========   ===========
    Cash paid for taxes                                $        --   $       800   $       800
                                                       ===========   ===========   ===========


Supplemental Schedule of Non-Cash Investing and Financing Activities:

                                                          2002          2001          2000
                                                       -----------   -----------   -----------

    Conversion of notes payable into common stock      $    54,000   $        --   $    20,000
                                                       ===========   ===========   ===========

    Conversion of accrued interest into common stock   $     1,383   $        --   $        --
                                                       ===========   ===========   ===========

    Common stock issued for services                   $   163,000   $    21,648   $    25,000
                                                       ===========   ===========   ===========

    Compensation expense on stock options and
    warrants granted                                   $    44,096   $   134,960   $   217,341
                                                       ===========   ===========   ===========

    Amortization of warrant issuance                   $    33,868   $        --   $    30,000
                                                       ===========   ===========   ===========

    Conversion of Accounts payable into Note Payable   $        --   $        --   $    84,254
                                                       ===========   ===========   ===========
</TABLE>
    Dividend-in-kind:
      During the year ended December 31, 2000, the net assets of the Company's
      discontinued division, Airponic Growing Systems, of $164,296 have been
      charged to the Company's accumulated deficit.

                                                          2000
                                                       -----------
        Inventory                                      $   120,251
        Property and equipment, net                          1,932
        Intangible assets                                   42,113
        Charge to accumulated deficit                     (164,296)
                                                       -----------
        Total                                          $        --
                                                       ===========

   The accompanying notes are an integral part of these financial statements.

                                       F-6

<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies
         ------------------------------------------

Organization and line of business
---------------------------------

MR3 Systems, Inc., (formerly known as Bioponic International, Inc.), a Delaware
corporation ("the Company" or "MR3") was formed in July 1991 initially for the
purpose of developing, manufacturing and installing its proprietary Airponic
Growing Systems ("AGS"). On October 7, 1997, Bioponic International, Inc.
acquired all of the outstanding shares of MR3, Inc., a Delaware environmental
technology Company, for 2,665,000 shares of the Company's stock. The merger
qualified as a tax-free exchange and was accounted for as a pooling of
interests. MR3, Inc. had nominal assets and liabilities on the date of
acquisition. On June 8, 1999, the Company formed Emarethree Corporation, a
Delaware Corporation, as a wholly owned inactive subsidiary of the Company. On
March 6, 2000, the Company formed Bioponic AGS, Inc., a Delaware Corporation, as
a wholly owned inactive subsidiary of Emarethree Corporation. On March 31, 2000,
the Certificate of Incorporation of Emarethree Corporation was amended and
restated to change its name to MR3 Systems, Inc. In April 2000, the Company
completed a change of domicile from California to Delaware.

MR3 has developed processes that can selectively capture and remove metals from
aqueous streams. The Company has focused its efforts on completing the
development of its products and initial marketing and sales efforts. The
Company's long-term objectives are to focus on the sales and development of its
environmental technology and to expand the worldwide operations of MR3 by
identifying and processing metal-laden source materials appropriate to its
technology.

On April 29, 2000, the Company spun off its Airponic Growing Systems (AGS)
division to its shareholders (shareholders of record as of January 31, 2000).
The AGS division was comprised of agricultural and horticultural production,
plant biotechnology and consumer products. Further, Bioponic International
shareholders received one share of Bioponic AGS, Inc. for every two shares of
Bioponic International as a stock dividend.

In April 2002, the Company entered into a Joint Venture and Technology Transfer
Agreement with Linsa Associates Ltd to commercialize the MR3 Technology in
certain international territories. Both parties agree to share all the
distributable profits to which they are collectively entitled on a 50/50 basis.

In June 2002, the Company entered into a MR3 Metals Extraction Agreement with
Consolidated Empire Gold, Inc., of Evergreen, Colorado, to process gold from the
gold tailings located at a previously mined site. On October 23, 2002, the
Company entered into an expanded MR3 Metals Extraction Agreement with
Consolidated Empire Gold, Inc., which included the processing of the gold ore at
this site.


Basis of accounting
-------------------

The financial statements have been prepared in accordance with Generally
Accepted Accounting Principles in the United States of America ("U.S. GAAP").

                                      F-7
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies (continued)
         ------------------------------------------------------

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 the disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Significant estimates include reserve for obsolete inventory, and
depreciation. Actual results could differ from those estimates.


Contingencies
-------------

Certain conditions may exist as of the date the financial statements are issued,
which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company's management and
its legal counsel assess such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted
claims that may result in such proceedings, the Company's legal counsel
evaluates the perceived merits of any legal proceedings or unasserted claims as
well as the perceived merits of the amount of relief sought or expected to be
sought therein.

If the assessment of a contingency indicates that it is probable that a material
loss has been incurred and the amount of the liability can be estimated, then
the estimated liability would be accrued in the Company's financial statements.
If the assessment indicates that a potentially material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they
involve guarantees, in which case the nature of the guarantee would be
disclosed.


Cash and cash equivalents
-------------------------

For purpose of the statements of cash flows, cash equivalents include amounts
invested in a money market account with a financial institution. The Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are carried at cost,
which approximates market.


Concentration of cash
---------------------

The Company at times maintains cash balances in excess of the federally insured
limit of $100,000 per institution. There were no uninsured balances as of
December 31, 2002, 2001 and 2000.

                                      F-8
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies (continued)
         ------------------------------------------------------

Revenue recognition
-------------------

The Company recognizes revenue when merchandise is shipped to a customer or at
the time services are rendered. Shipping costs for delivery of the Company's
products are recorded as sales revenue.

Accounts receivable and the allowance for doubtful accounts
-----------------------------------------------------------

Accounts receivable were typically unsecured. The Company performs ongoing
credit evaluations of its customers' financial condition. It generally requires
no collateral and maintains reserves for potential credit losses on customer
accounts when necessary. Accounts receivable amounted to $9,167 at December 31,
2000.

The Company establishes an allowance for uncollectible trade accounts receivable
based on historical collection experience and management evaluation of
collectibility of outstanding accounts receivable. It is reasonably possible
that the Company's estimate of the allowance for doubtful accounts will change.
There was no allowance for doubtful accounts at December 31, 2000.

Inventory
---------

Inventory consisted principally of raw materials used in the extraction process
and is stated at the lower of cost (first-in, first-out method) or market.
Management reviews the quality and salability of the inventory on a periodic
basis and establishes reserves based upon the lower of cost or fair market
value. There was no inventory at December 31, 2002 and 2001. Inventory amounted
to $18,355 at December 31, 2000.

Property and equipment
----------------------

Property and equipment are recorded at cost less accumulated depreciation and
amortization. Expenditures for major additions and improvements are capitalized,
and minor maintenance, repairs and replacements are charged to expense as
incurred. When property and equipment are retired or otherwise disposed of, the
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in the results of operations for the
respective period. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the respective assets
using the straight-line method for financial statement purposes. The Company
uses other depreciation methods (generally accepted) for tax purposes where
appropriate. The estimated useful lives for significant property and equipment
are as follows:

           Computer and manufacturing equipment       5-10 years

           Office furniture and fixtures              3-7 years

           Building and improvements                  3-25 years

Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the remaining lease term or the estimated lives of
the improvements.

                                      F-9
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies (continued)
         ------------------------------------------------------

Assets held under capital leases
--------------------------------

Assets held under capital leases are recorded at the lower of the net present
value of the minimum lease payments or the fair value of the leased asset at the
inception of the lease. Amortization expense is computed using the straight-line
method over the shorter of the estimated useful lives of the assets or the
period of the related lease. There were no capital lease obligations at December
31, 2002, 2001 and 2000.


Advertising costs
-----------------

The Company expenses advertising costs as incurred. There were no advertising
costs for the years ended December 31, 2002, 2001, and 2000, respectively.


Basic and diluted net earnings per share
----------------------------------------

Basic net earnings (loss) per common share is computed by dividing net earnings
(loss) applicable to common shareholders by the weighted-average number of
common shares outstanding during the period. Diluted net earnings (loss) per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon exercise of common
stock options. In periods where losses are reported, the weighted-average number
of common shares outstanding excludes common stock equivalents, because their
inclusion would be anti-dilutive.


Income taxes
------------

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes represents the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.

                                      F-10
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies (continued)
         ------------------------------------------------------

Fair value of financial instruments
-----------------------------------

The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash and cash equivalents, accounts payable, and accrued
liabilities, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for notes payable also approximate fair value
because current interest rates offered to the Company for debt of similar
maturities are substantially the same.


Adoption of SFAS-133: Accounting for Derivative Instruments and Hedging
Activities
-----------------------------------------------------------------------

The Company has adopted Financial Accounting Standards Board Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities", which requires
that all derivative instruments be recorded on the balance sheet at fair value.
The Company is currently not engaged in hedging activities nor does it have any
derivative instruments, thus there is no impact on the current periods financial
statements


Intangible assets
-----------------

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." In
accordance with SFAS 142, the Company ceased amortizing the intangible value of
its proprietary rights to metal extraction and separation technology and
performed a transitional test of this intangible asset as of January 1, 2002.
See Note 4 - "Intangible Assets." SFAS 142 requires that intangibles be tested
for impairment on an annual basis and between annual tests in certain
circumstances. The Company generally determines the fair value of its intangible
assets using the expected present value of future cash flows, giving
consideration to the market comparable approach. If the carrying amount of the
Company's reporting units exceeds the reporting unit's fair value, the Company
performs the second step of the goodwill impairment test to determine the amount
of impairment loss. The second step of the goodwill impairment test involves
comparing the implied fair value of the Company's reporting unit's goodwill with
the carrying amount of that goodwill.

The carrying value and useful lives of intangible assets are based on
management's current assessment of recoverability. Management periodically
evaluates whether certain circumstances may affect the estimated useful lives or
the recoverability of the unamortized balance of intangible assets using both
objective and subjective factors. Objective factors include management's best
estimates of projected future earnings and cash flows and analysis of recent
sales and earnings trends. Subjective factors include competitive analysis and
the Company's strategic focus.

Intangible assets subject to amortization include purchased designs and
proprietary rights for the metals extraction and separation technology capable
of processing industrial wastes and other complex metal sources into pure metals
and specialty chemical products. Impairment loss of this intangible asset
amounted to $70,051 for the period ended December 31, 2000.

                                      F-11
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies (continued)
         ------------------------------------------------------

Comprehensive income (loss)
---------------------------

Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under generally accepted accounting principles are
excluded from net income in accordance with Statement on Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The Company, however, does
not have any components of comprehensive income (loss) as defined by SFAS No.
130 and therefore, for the years ended December 31, 2002, 2001, and 2000,
comprehensive income (loss) is equivalent to the Company's reported net income
(loss).


Deferred revenue
----------------

The Company recognizes revenues as earned. Amounts billed in advance of the
period in which service is rendered are recorded as a liability under "Deferred
revenue."


Stock option plan
-----------------

Financial Accounting Standards Board Statement No. 123 (Accounting for
Stock-Based Compensation) encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans based on the fair
value of options granted. The Company has elected to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 (Accounting for Stock Issued to
Employees) and related interpretations and to provide additional disclosures
with respect to the pro forma effects of adoption had the Company recorded
compensation expense as provided in FAS-123.

In accordance with APB-25, compensation cost for stock options is recognized in
income based on the excess, if any, of the quoted market price of the stock at
the grant date of the award or other measurement date over the amount an
employee must pay to acquire the stock. Generally, the exercise price for stock
options granted to employees equals or exceeds the fair market value of the
Company's common stock at the date of grant, thereby resulting in no recognition
of compensation expense by the Company.

In March 2000, the FASB released Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation." This Interpretation addresses
certain practice issues related to APB Opinion No. 25 in regards to options or
warrants granted to employees and other third-parties. The Company's policies
comply with the guidance provided by FIN No.44.


Research and development cost
-----------------------------

Research and development represent internal costs incurred in connection with
the Company's testing, documenting and improving its waste recovery processes.
All research and development costs are expensed when incurred.

                                      F-12

<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies (continued)
         ------------------------------------------------------

Impairment of long-lived assets
-------------------------------

The Company accounts for the impairment and disposition of long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of". Long-lived assets are reviewed
whenever indicators of impairment are present and whenever the undiscounted cash
flows are not sufficient to recover the related asset-carrying amount.


Segment reporting
-----------------

The FASB issued SFAS 131 on "Disclosures about Segments of an Enterprise and
Related Information" effective in 1998. The Company evaluated SFAS 131 and
determined that it operates in only one segment.


Business risks and uncertainties
--------------------------------

The Company operates in the evolving field of materials waste processing. New
developments could affect both significantly and adversely existing and emerging
technologies in the field.

The Company's success in developing additional marketable products and processes
and achieving a competitive position will depend on its ability to retain
qualified management personnel and to raise sufficient capital to meet its
operating and development needs.

While the Company is seeking financing through equity and loans, there can be no
assurance that the Company will be successful in accomplishing its objectives.


Environmental costs
-------------------

Costs related to environmental remediation are charged to expense. Other
environmental costs are also charged to expense unless they increase the value
of the property and/or provide future economic benefits, in which event they are
capitalized. Liabilities are recognized when the expenditures are considered
probable and can be reasonably estimated.

                                      F-13
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies (continued)
         ------------------------------------------------------

Recent accounting pronouncements
--------------------------------

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations,"
which supercedes Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001, and eliminates the
pooling-of-interests method. In addition, SFAS 141 establishes specific criteria
for the recognition of intangible assets separately from goodwill and requires
unallocated negative goodwill to be written off immediately as an extraordinary
gain. The provisions of SFAS 141 are required to be adopted July 1, 2001. The
adoption of SFAS 141 will not change the method of accounting used in previous
business combinations including those the Company accounted for under the
pooling-of-interests method. The adoption of this statement did not have any
impact on the Company's financial condition or results from operations.

In July 2001, the FASB also issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
for fiscal years beginning after December 15, 2001. Certain provisions shall
also be applied to acquisitions initiated subsequent to June 30, 2001. SFAS 142
supercedes APB Opinion No. 17, "Intangible Assets," and requires, among other
things, the discontinuance of amortization related to goodwill and
indefinite-lived intangible assets. These assets will then be subject to an
impairment test at least annually. In addition, the standard includes provisions
upon adoption for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles and reclassification of certain intangibles out of previously
reported goodwill. The adoption of this statement did not have a material impact
on the Company's financial condition or results from operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires liability recognition for obligations
associated with the retirement of tangible long-lived asset and the associated
asset retirement costs. The Statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with earlier application
encouraged. The implementation of SFAS No. 143 will not have a material affect
on the Company's results of operations or financial position.

In August 2001, the FASB issued SFAFS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of", in that it removes goodwill from its impairment scope and
allows for different approaches in cash flow estimation. However, SFAS No. 144
retains the fundamental provisions of SFAS No. 121 for (a) recognition and
measurement of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of. SFAS No. 144 also supersedes the business
segment concept in 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," in
that it permits presentation of a component of an entity, whether classified as
held for sale or disposed of, as a discontinued operation. However, SFAS No. 144
retains the requirement of APB Opinion No. 30 to report discontinued operations
separately from continuing operations. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001 with earlier application encouraged. The Company adopted the
provisions of SFAFS No. 144 effective January 1, 2002.

                                      F-14
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


1.       Summary of Significant Accounting Policies (continued)
         ------------------------------------------------------

Recent accounting pronouncements (continued)
--------------------------------------------

In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145 ("SFAS 145"), "Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." SFAS 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect.

The Company adopted SFAS 145 in the fourth quarter of fiscal 2002. The adoption
of SFAS 145 is not expected to have a material impact on the Company's results
of operations or financial position.

In December 2002, the FASB issued SFAS No.148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This statement amends SFAS No.123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value-based method of accounting
for stock-based employee compensation.


2.       Spin-off
         --------

In 1999, the Company announced plans to spin off its Airponic Growing Systems
business to shareholders in a taxable distribution, and the Company's board of
directors approved the spin-off effective April 29, 2000, to shareholders of
record as of January 31, 2000, through the issuance of shares in a new
corporation, Bioponics AGS, Inc. Common shares were distributed on a basis of
one share of Bioponics AGS, Inc. for every two shares of the Company's common
stock. 13,734,369 common shares of Bioponics AGS, Inc. were issued to 422
shareholders.

The consolidated financial results of the Company reflect the divestiture of
Airponics Growing Systems, Inc. The net assets of the discontinued segment of
$164,296 are noted as follows and have been charged against the Company's
accumulated deficit to reflect the spin-off:

                  Inventory                          $     120,251
                  Property and equipment, net                1,932
                  Intangible assets                         42,113
                                                     -------------

                  Total                              $     164,296
                                                     =============


Operating activity for this discontinued division was minimal during the year
ended December 31, 2000.

                                      F-15
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


3.        Prepaid Expenses
          ----------------

In August 2002, the Company entered into a consulting agreement with Synergy
International & Partners S.A., a Switzerland company, to provide the Company
with public and investor relation services to investors throughout Europe, Asia
and North America. The agreement requires the Company to make an $180,000
advance payment for the set up and organization of the market making facilities
for the Investor Relation Program. Accordingly, the Company issued 2,000,000
shares of common stock at $0.07 per share with a value of $140,000 and agreed to
pay the remaining balance of $40,000 in cash. These prepaid expenses are
amortized monthly over a period of one (1) year. At December 31, 2002 prepaid
expenses amounted to $105,000.


4.       Property and Equipment
         ----------------------

Property and equipment at December 31, 2002, 2001, and 2000 consisted of the
following:


                                              2002         2001         2000
                                           ----------   ----------   ----------

     Office furniture and fixtures         $   57,810   $   70,282   $   70,282
     Computer and manufacturing equipment     119,248      471,991      470,193
     Leasehold improvements                     3,382       19,278       19,278
                                           ----------   ----------   ----------

     Total property and equipment             180,440      561,551      559,753
     Less accumulated depreciation            (67,411)    (235,600)    (172,128)
                                           ----------   ----------   ----------

     Total                                 $  113,029   $  325,951   $  387,625
                                           ==========   ==========   ==========


Depreciation expense for the years ended December 31, 2002, 2001, and 2000 was
$4,015, $63,472 and $58,772, respectively.


5.       Impairment of Long-Lived Assets
         -------------------------------

In June 2002, the Company announced that it would close its Butte, Montana, Zinc
processing plant permanently and move its equipment to Denver, Colorado to
process gold under the agreement with Consolidated Empire Gold, Inc. The Company
intends to sell some of its old manufacturing equipment. These assets have been
reclassified as " Property held for sale" in the Company's balance sheet at
December 31, 2002 and amounted to $6,000.

In 2002, property and equipment were reviewed in light of the decision to close
the MR3 plant in Butte, Montana. The review indicated that MR3 manufacturing
property and equipment were impaired, as determined based on the quoted market
prices for similar assets. Consequently, the carrying value of MR3 property and
equipment was written down and an impairment loss in the amount of $202,907 was
included in operating expenses during the year ended December 31, 2002.

                                      F-16
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


6.       Accrued Expenses
         ----------------

The Company's Board of Director agreed to defer certain salaries and incentives
earned in December 31, 2002, 2001, and 2000 for certain officers and key
employees.

Accrued interest represent the interest earned on the outstanding notes payable
balances at December 31, 2002, 2001, and 2000 due to shareholders and related
parties.

Accrued expenses at December 31, 2002, 2001 and 2000 consisted of the following:

                                              2002         2001         2000
                                           ----------   ----------   ----------

          Deferred compensation            $  240,459   $  171,689   $   82,967
          Accrued interest                     11,560        6,422        4,422
          Accrued payroll                          --           --        9,750
          Accrued audit fees                   50,000           --           --
          State income tax payable                800           --           --
                                           ----------   ----------   ----------

          Total                            $  302,819   $  178,111   $   97,139
                                           ==========   ==========   ==========


7.       Notes Payable
         -------------

The Company has entered into multiple loan agreements with its shareholders and
other related parties.

In 2000, the Company had a 10% note payable with an outstanding principal
balance of $100,000 plus accrued interest of $8,767. The Company reached an
agreement with the lender to modify the terms of the note, due to cash flow
problems experienced by the Company. The lender agreed to convert $20,000 of
principal to common stock at a conversion price of $0.10 per share and receive
additional warrants convertible into 300,000 shares of the Company's common
stock at an exercise price of $0.10 per share and the principal amount of the
note was modified to include the accrued interest balance. The Company charges
included in the Statements of Operations for the year ended December 31, 2000
were $30,000.

In 2001, the Company reached another agreement with this lender to modify the
terms of the note. The outstanding principal balance on the note was $119,644,
which included accrued interest of $10,877.

In 2002, the Company again reached an agreement with the lender to modify the
terms of the note, due to cash flow problems experienced by the Company. The
lender agreed to receive additional warrants convertible into 300,000 shares of
the Company's common stock at an exercise price of $0.05 per share and the
principal amount of the note was modified to include the accrued interest
balance of $11,964. As a result, the amount of the note was modified to $131,608
to reflect the revised terms, and additional interest expense was recognized for
the fair value of the warrants granted to obtain the note payable term
modification. The Company charges included in the Statements of Operations for
the year ended December 31, 2002 were $33,868.

                                      F-17
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


In 2002, the Company issued $50,000 of 12% convertible subordinated notes, due
on October 1, 2007. Interest is due and payable at maturity. The notes are
convertible by the holders into shares of the Company's common stock at any time
at a conversion price of $0.07 per share, which was greater than the fair value
of the Company's common stock on the date of issuance. The notes are
subordinated to all existing and future senior indebtedness, as defined in the
indenture. The notes are redeemable at any time at the option of the Company at
the principal amount plus accrued interest. The proceeds were primarily used to
for general corporate purposes.

During 2002, The Company entered into promissory note agreements with different
investors to finance the operations of the new plant in Colorado. These notes
mature in five (5) five years from the date of issuance and bear a 12 percent
interest rate per year. These notes grant the note holder the right to purchase
common stock warrants at the rate of two (2) warrants per dollar loaned at a
price of fifteen cents ($0.15) per share. The note holders as a group will be
allocated up to 10% of net income of the Company from gold sales from production
at the Colorado plant. The Company is required to make these payments on a
monthly basis until such time as the note holders receive total payments equal
to ten (10) times the principal amount of the note. The total amount received
from these notes as of December 31, 2002 amounted to $115,000.

During the year 2002, the Company issued $75,000 of several convertible
promissory notes to different noteholders. These notes were either repaid or
converted into shares of common stock as of December 31, 2002.


7.       Notes Payable (continued)
         -------------------------

In conjunction with the issuance of the convertible notes in 2002, the Company
issued Common Stock Purchase Warrants to purchase shares of the Company's common
stock at an exercise price that ranges from $0.03 to $0.07 per share. The total
value allocated to the note warrants is being amortized to interest expense over
the term of the notes. At December 31, 2002, the unamortized discount on the
notes amounted to $65,595. All conversion features on the notes payable were
priced at market value or greater at the time of issuance.

                                      F-18
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


Long-term notes payable at December 31, 2002 consisted of the following:


                                                                        2002
                                                                     ----------
                  12% convertible subordinated debenture dated
                  October 2002, due October 2007 with interest
                  due and payable on the maturity date,
                  convertible into 714,286 of common stock at
                  $0.07 per share at any time prior to
                  maturity.                                          $   50,000

                  12% note to a shareholder dated November
                  2002, due November 2007 with interest due and
                  payable on first anniversary date and
                  thereafter on a quarterly basis.                       50,000

                  12% note to a shareholder dated December
                  2002, due December 2007 with interest due and
                  payable on first anniversary date and
                  thereafter on a quarterly basis.                       15,000

                  12% note to a shareholder dated November
                  2002, due November 2007 with interest due and
                  payable on first anniversary date and
                  thereafter on a quarterly basis.                       50,000

                 Less: Unamortized discount                             (65,595)
                                                                     ----------


                 Total long-term notes payable                       $   99,405
                                                                     ==========


There were no long-term notes payable at December 31, 2001 and 2000.

                                      F-19
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


7.       Notes Payable (continued)
         -------------------------

Short-term notes payable at December 31, 2002 consisted of the following:

                                                                        2002
                                                                     ----------

                  10% demand convertible note, due January 2004
                  with interest and principal due and payable
                  on maturity date. Note holder has the option
                  to convert the note into shares of common
                  stock at $0.05 per share if the note becomes
                  overdue.                                           $  131,608

                  Demand note payable, unsecured, interest at 10%.       20,000

                  Demand note payable to a shareholder, unsecured,
                  interest at 10%.                                        7,000
                                                                     ----------
                  Total short-term notes payable                     $  158,608
                                                                     ==========



Short-term notes payable at December 31, 2001 consisted of the following:

                                                                        2001
                                                                     ----------

                  10% demand convertible note, due January 2003
                  with interest and principal due and payable
                  on maturity date. Note holder has the option
                  to convert the note into shares of common
                  stock at $0.10 per share if the note becomes
                  overdue.                                           $  119,644

                  Demand note payable, unsecured, interest at 10%.       20,000
                                                                     ----------

                  Total short-term notes payable                     $  139,644
                                                                     ==========

                                      F-20
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


7.       Notes Payable (continued)
         -------------------------

Short-term notes payable at December 31, 2000 consisted of the following:

                                                                        2000
                                                                     ----------

                  10% demand convertible note, due January 2002
                  with interest and principal due and payable
                  on maturity date. Note holder has the option
                  to convert the note into shares of common
                  stock at $0.10 per share if the note becomes
                  overdue.                                           $  108,767

                  Demand note payable, unsecured, interest at 10%.       20,000
                                                                     ----------

                  Total short-term notes payable                     $  128,767
                                                                     ==========


Accrued interest on these notes amounted to $11,560, $6,422 and $4,422 at
December 31, 2002, 2001, and 2000, respectively.


8.       Shareholders' Equity
         --------------------

Preferred Stock
---------------

The Company has one Series of preferred stock, Series A. The preferred stock is
convertible to common stock on a one-for-one basis.

Dividend rights: Subject to the rights, preferences, privileges and restrictions
of any other class or series of stock, the holders of outstanding shares of the
Series A Preferred Stock shall be entitled to receive dividend, when, as and if
declared by the Board of Directors out of any assets of the Company legally
available, at the rate of $0.40 per share during the Company's fiscal year (as
adjusted for any stock divisions, stock combinations, stock consolidations,
stock distributions or stock dividends with respect to such shares), payable in
preference and priority to any payment of any dividend on the Common Stock of
the Company and payable as the Board of Directors may determine. The right to
such dividend on the Series A Preferred Stock shall not be cumulative

Liquidation: Subject to the rights, preferences, privileges and restrictions of
any other class or series of stock, in the event of any liquidation, dissolution
or winding up of the Company, either voluntary or involuntary, the holder of
each outstanding share of the Series A Preferred Stock shall be entitled to
receive, out of the assets of the Company legally available for distribution to
its shareholders upon such liquidation, dissolution or winding up, whether such
assets are capital or surplus of any nature, the amount of $4.00 per share.

                                      F-21
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


8.       Shareholders' Equity (continued)
         --------------------------------

Preferred Stock (continued)
---------------------------

If the assets to be distributed to the holders of Series A Preferred Stock shall
be insufficient to permit the receipt by such holders of the full preferential
amounts, then all of such assets shall be distributed among such holders ratably
in accordance with the number of such shares then held by each such holder


Common stock
------------

Dividend Rights: dividends may be paid on Common Stock during any fiscal year,
if and when declared by the Board of Directors, after dividends have been paid
to holders of shares of Preferred Stock in accordance with their dividend
preferences. In the event that any dividend is declared on Common Stock, the
holders of the Series A Preferred Stock are entitled to receive dividends in the
amount per share of Series A Preferred Stock as would be payable on the shares
of Common Stock into which each share of Series A Preferred Stock is convertible
on the record date for the dividend on Common Stock. All dividends are
non-cumulative.


Dividends-in-Kind
-----------------

In April 2000, the Company concluded a spin off its Airponic Growing Systems
division to shareholders in a taxable distribution. The Company's board of
directors approved the spin-off to shareholders of record as of January 31,
2000. As of December 31, 2000, the net assets of the discontinued division of
$164,296 have been charged against the Company's accumulated deficit to reflect
the spin-off. (See Note 2)


9.       Income Taxes
         ------------

Significant components of the provision for taxes based on income for the year
ended December 31 are as follows:

                                          2002         2001         2000
                                       ----------   ----------   ----------
          Current
               Federal                 $       --   $       --   $       --
               State                          800          800          800
                                       ----------   ----------   ----------

                                              800          800          800
          Deferred
               Federal                         --           --           --
               State                           --           --           --
                                       ----------   ----------   ----------

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

          Provision for income taxes   $      800   $      800   $      800
                                       ==========   ==========   ==========

                                      F-22
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


9.       Income Taxes (continued)
         ------------------------

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities for income taxes consist of
the following:

<TABLE>
<CAPTION>
                                                          2002           2001           2000
                                                       -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>
   Deferred tax asset
     Net operating loss carryforward                   $ 2,755,891    $ 2,506,679    $ 2,149,268
     Amortization of intangible assets                      23,892         26,340         29,342
     Deferred benefits and other accruals                  241,173        175,629        118,178
                                                       -----------    -----------    -----------

   Total deferred tax asset                              3,020,956      2,708,648      2,296,788

   Deferred tax liability
     Differences between book and tax depreciation          16,307         90,595         89,778
     State income tax benefit                              125,131        105,755         88,023
                                                       -----------    -----------    -----------

   Total deferred tax liability                            141,438        196,350        177,801
                                                       -----------    -----------    -----------

   Net deferred tax asset before valuation allowance     2,879,518      2,512,298      2,118,987
   Less valuation allowance                             (2,879,518)    (2,512,298)    (2,118,987)
                                                       -----------    -----------    -----------
   Net deferred tax asset                              $        --    $        --    $        --
                                                       ===========    ===========    ===========
</TABLE>

A reconciliation of the provision for income tax expense with the expected
income tax computed by applying the federal statutory income tax rate to income
before provision for (benefit from) income taxes for the years ended December
31, 2002, 2001, and 2000 is as follows:

                                             2002         2001         2000
                                          ----------   ----------   ----------

Income tax provision (benefit) computed
at federal statutory rate                     (34.00%)     (34.00%)     (34.00%)

State income tax rate                          (8.84%)      (8.84%)      (8.84%)

Valuation allowance                            42.92%       42.92%       42.92%
                                          ----------   ----------   ----------

Effective income tax rate                       0.08%        0.08%        0.08%
                                          ==========   ==========   ==========

The Company's effective income tax rate is lower than what would be expected if
the federal statutory rate were applied to income before income taxes primarily
because of certain expenses deductible for financial reporting purposes that are
not deductible for tax purposes, and operating loss carryforwards.

                                      F-23
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


9.       Income Taxes (continued)
         ------------------------

At December 31, 2002, 2001, and 2000, the Company has available approximately
$7,174,000, $6,525,000 and $5,595,000 in net operating loss carryforwards
available to offset future federal and state income taxes, respectively, which
expire through 2021. Realization is dependent on generating sufficient taxable
income prior to expiration of the loss carryforwards. A change of greater than
50% of the Company ownership could significantly reduce the availability of the
tax credits. This and other components of deferred tax asset accounts are
described above. At December 31, 2002, 2001, and 2000, the Company has provided
a valuation allowance to reduce its net deferred tax asset to zero. The amount
of deferred tax asset considered realizable, however, can be revised in the near
term based upon future operating conditions during the carryforwards period.


10.      Commitments and Contingencies
         -----------------------------

Office leases
-------------

The Company is committed under an operating lease agreement for its office
facility at 435 Brannan Street, San Francisco, California. The lease is for a
period of two years beginning October 1, 2002 and expiring September 30, 2004.
This lease requires monthly rental payments of approximately $2,497. Future
minimum lease payments required under this non- cancelable operating lease are
as follows:

                  Years ending December 31,            Amount
                                                    -----------

                  2003                              $    29,968
                  2004                                   24,973
                                                    -----------
                  Total                             $    54,941
                                                    ===========

During the years, 2002, 2001 and 2000 The Company rented other facilities in
Salem, Massachusetts and Butte, Montana, which were used as production and
research and development facilities. These rental agreements are month-to-month.

Total rent expense under all these operating leases for the years ended December
31, 2002, 2001, and 2000 amounted to $72,256, $90,400, and $46,700 respectively.

Environmental remediation
-------------------------

The accompanying financial statements include accruals for the estimated future
costs associated with certain environmental remediation activities related to
the past use and disposal of hazardous materials. Substantially all such costs
relate to facilities or locations that are no longer in operation. Due to a
number of uncertainties, including uncertainty of timing, the scope of
remediation, future technology, regulatory changes and other factors, the
ultimate remediation costs may exceed the amounts estimated. However, in the
opinion of management, such additional costs are not expected to be material
relative to liquidity, financial position or future of operations. These costs
were estimated at $38,250 for the year ended December 31, 2002.

                                      F-24
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


11.      Stock Options and Warrants
         --------------------------

The Board of Directors has granted management the authority to issue
non-statutory stock options and/or warrants to employees, officers and
consultants of the Company. As of December 31, 2002, 2001, and 2000, the Company
granted to its employees and other eligible participants options and warrants
exercisable for the Company's common stock and preferred stock. Options and
warrants to purchase shares of its common stock are usually granted at the
prices equal to the current fair value of the Company's common stock at the date
of grant

Under this authority from the Board of Directors, no option may be exercised
after the expiration date of ten years from the date of grant. There are two
types of convertible securities: Non-Qualified Stock Options (NSO) and Warrants.
NSO's may be granted to any eligible participant as determined by the management
of the Company. The non-statutory stock options and warrants are for periods of
four or five years.


Stock options and warrants issued as of December 31, 2002 and 2001 are
summarized as follows:

<TABLE>
<CAPTION>
                                  2002                         2001                          2000
                      --------------------------    --------------------------    --------------------------
                                       Average                       Average                       Average
                                       Exercise                      Exercise                      Exercise
                         Shares         Price          Shares         Price          Shares         Price
                      -----------    -----------    -----------    -----------    -----------    -----------
<S>                    <C>           <C>             <C>           <C>             <C>           <C>
Outstanding at
beginning of year      14,965,657    $      0.29     11,299,090    $      0.35     10,211,691    $      0.37
Granted                 8,740,741           0.05      3,934,067           0.12      2,445,758           0.16
Exercised                 (50,000)         (0.03)            --             --     (1,313,859)         (0.10)
Forfeited/Cancelled      (829,500)         (2.73)      (267,500)         (0.50)       (44,500)         (2.44)
                      -----------    -----------    -----------    -----------    -----------    -----------

Outstanding at end
of year                22,826,898           0.11     14,965,657    $      0.29     11,299,090    $      0.35
                      ===========    ===========    ===========    ===========    ===========    ===========

Exercisable at end
of year                22,826,898    $      0.11     14,965,657    $      0.29     11,299,090    $      0.35
                      ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>

                                      F-25
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


11.      Stock Options and Warrants (continued)
         --------------------------------------

The following tables presents information about stock options and warrants
granted during the years ended December 31, 2002, 2001, and 2000 where the
exercise price of some options and warrants differed from the market price of
the Company's stock on the grant date:

                                                      Weighted
                                                       Number         Average
                                                      of Shares       Exercise
                                                       Granted         Price
                                                     ------------   ------------
          Year ended December 31, 2000:

          Exercise price equals market value            1,367,138   $       0.12
          Exercise price greater than market
           value                                          176,000           0.39
          Exercise price less than market value           902,620           0.18
                                                     ------------   ------------

          Total granted during year                     2,445,758   $       0.16
                                                     ============   ============

          Year ended December 31, 2001:

          Exercise price equals market value            1,693,375   $       0.09
          Exercise price greater than market
           value                                        2,240,692           0.15
          Exercise price less than market value                --             --
                                                     ------------   ------------

          Total granted during year                     3,934,067   $       0.12
                                                     ============   ============

          Year ended December 31, 2002:

          Exercise price equals market value            3,500,667   $       0.03
          Exercise price greater than market
           value                                        4,091,741           0.08
          Exercise price less than market value         1,148,333           0.01
                                                     ------------   ------------

          Total granted during year                     8,740,741   $       0.05
                                                     ============   ============

                                      F-26
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


11.      Stock Options and Warrants (continued)
         --------------------------------------

FASB Interpretation No. 44 of APB-25 Relating to Transactions Involving Stock
Compensation

In March 2000, FASB issued Interpretation No. 44 (FIN-44) (Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB
Opinion No. 25). This Interpretation clarifies the definition of employee for
purposes of applying APB Opinion No. 25 (Accounting for Stock Issued to
Employees), the criteria for determining whether a plan qualifies as a
non-compensatory plan, the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. This
Interpretation was effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. The Company has adopted the provisions of FIN-44.

Pursuant to FASB Interpretation No. 44, the Company applies provisions of SFAS
No. 123 for options and warrants granted to third parties. Accordingly, in 2000,
2001, and 2002, compensation cost has been recognized for its stock options and
warrants granted to outside third parties.


Independent Consultant Stock Options and Warrants

During the years ended December 31, 2002, 2001 and 2000, the Company's board of
directors approved the grant of stock options or warrants to various independent
consultants to purchase an aggregate of 1,483,280, 2,257,710, and 398,201 shares
of its common stock, respectively. These options have an exercise price of $0.02
to $0.07 in 2002, $0.10 to $0.25 in 2001 and $0.20 to $0.50 in 2000. All of
these option or warrants shares were vested immediately. As a result, the
Company recorded $32,613, $134,960 and $87,200 in compensation expense, which is
included in outside services and professional fees in the Statements of
Operations, at December 31, 2002, 2001, and 2000, respectively. These options or
warrants were not issued as part of any of the Company's Stock Option Plans.

                                      F-27
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


11.      Stock Options and Warrants (continued)
         --------------------------------------

The following table summarizes information about options and warrants
outstanding at December 31, 2002:

<TABLE>
<CAPTION>
                               Warrants and Options Outstanding          Warrants and Options Exercisable
                       ------------------------------------------------  ---------------------------------
                                               Weighted
                             Number            Average        Weighted                           Weighted
                        Outstanding as of     Remaining       Average           Number           Average
   Range of Exercise      December 31,       Contractual      Exercise     Exercisable as of     Exercise
        Prices                2002               Life          Price       December 31, 2002      Price
   -----------------   ------------------   --------------   ----------  ---------------------  ----------
<S>                        <C>                   <C>          <C>               <C>              <C>
   $    0.01-0.03           5,065,667            4.55         $   0.02           5,065,667       $   0.02

   $    0.05-0.07           3,142,857            4.55         $   0.07           3,142,857       $   0.07

   $      0.10             11,291,638            2.70         $   0.10          11,291,638       $   0.10

   $    0.12-0.25           2,669,000            3.12         $   0.19           2,669,000       $   0.19

   $    0.38-0.40             250,000            1.81         $   0.39             250,000       $   0.39

   $    0.50-0.53             307,736            2.48         $   0.50             307,736       $   0.50

   $    1.00-4.00             100,000            0.62         $   2.50             100,000       $   2.50
                       ------------------                    ----------  ---------------------  ----------

                           22,826,898                         $   0.11          22,826,898       $   0.11
                       ==================                    ==========  =====================  ==========
</TABLE>

                                      F-28
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


11.      Stock Options and Warrants (continued)
         --------------------------------------

The following table summarizes information with respect to options outstanding
and exercisable at December 31, 2001:

<TABLE>
<CAPTION>
                               Warrants and Options Outstanding          Warrants and Options Exercisable
                       ------------------------------------------------  ---------------------------------
                                               Weighted
                                               Average        Weighted                           Weighted
                             Number           Remaining       Average           Number           Average
       Range of         Outstanding as of    Contractual      Exercise     Exercisable as of     Exercise
    Exercise Prices     December 31, 2001        Life          Price       December 31, 2002      Price
   -----------------   ------------------   --------------   ----------  ---------------------  ----------
<S>                        <C>                   <C>          <C>               <C>              <C>

   $    0.05-0.07             300,000            4.53         $   0.05             300,000       $   0.05

   $       0.10            10,809,421            3.35         $   0.10          10,809,421       $   0.10

   $    0.12-0.25           2,619,000            3.59         $   0.20           2,619,000       $   0.20

   $    0.38-0.40             250,000            2.81         $   0.39             250,000       $   0.39

   $    0.50-0.53             340,236            3.18         $   0.50             340,236       $   0.50

   $    1.00-4.00             647,000            0.90         $   3.77             647,000       $   3.77
                       ------------------                    ----------  ---------------------  ----------

                           14,965,657                         $   0.29          14,965,657       $   0.29
                       ==================                    ==========  =====================  ==========
</TABLE>

The following table summarizes information with respect to options outstanding
and exercisable at December 31, 2000:

<TABLE>
<CAPTION>
                               Warrants and Options Outstanding          Warrants and Options Exercisable
                       ------------------------------------------------  ---------------------------------
                                               Weighted
                                               Average        Weighted                           Weighted
                             Number           Remaining       Average           Number           Average
       Range of         Outstanding as of    Contractual      Exercise     Exercisable as of     Exercise
    Exercise Prices     December 31, 2000        Life          Price       December 31, 2002      Price
   -----------------   ------------------   --------------   ----------  ---------------------  ----------
<S>                        <C>                   <C>          <C>               <C>              <C>
   $       0.10             7,983,354            3.94         $   0.10           7,983,354       $   0.10

   $    0.12-0.25           1,861,000            4.38         $   0.18           1,861,000       $   0.18

   $    0.38-0.40             250,000            3.81         $   0.39             250,000       $   0.39

   $    0.50-0.53             557,736            2.72         $   0.50             557,736       $   0.50

   $    1.00-4.00             647,000            1.90         $   3.77             647,000       $   3.77
                       ------------------                    ----------  ---------------------  ----------

                           11,299,090                         $   0.35          11,299,090       $   0.35
                       ==================                    ==========  =====================  ==========
</TABLE>

                                      F-29
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


11.      Stock Options and Warrants (continued)
         --------------------------------------

The exercise periods for the options range from immediate to five years from the
date of the grant and all options and warrants granted were immediately vested
and exercisable.

The Company has adopted only the disclosure provisions of SFAS No. 123. It
applies APB Opinion No. 25 and related interpretations in accounting for its
stock options and warrants granted to employees or to members of the Company's
Board of Directors. This information is required to be determined as if the
Company had accounted for its employee stock options/warrants granted under the
fair value method of that statement.

Under APB-25, the cost of compensation is measured by the excess of the fair
market price of the stock over the option exercise price on the measurement
date. This is referred to as the intrinsic value method. Accordingly, the
Company recorded compensation expense of $11,483 in 2002 and $130,141 in 2000
for options and warrants granted below fair market value. In December 31, 2001,
The Company did not grant warrants or options below the fair market value.

If the Company had elected to recognize compensation expense based upon the fair
value at the grant date for awards under this plan consistent with the
methodology prescribed by SFAS No. 123, the Company's net loss and loss per
share would be reduced to the pro forma amounts indicated below for the years
ended December 31:

<TABLE>
<CAPTION>
                                                  2002             2001             2000
                                             -------------    -------------    -------------
<S>                                          <C>              <C>              <C>
   Net Loss:
        As reported                          $  (1,011,350)   $  (1,191,843)   $  (1,417,541)
        Pro forma                            $  (1,121,314)   $  (1,302,387)   $  (1,679,517)

   Basic and diluted loss per common share
        As reported
           Basic                             $       (0.02)   $       (0.03)   $       (0.05)
           Diluted                           $       (0.02)   $       (0.03)   $       (0.05)
        Pro forma
           Basic                             $       (0.03)   $       (0.04)   $       (0.06)
           Diluted                           $       (0.03)   $       (0.04)   $       (0.06)
</TABLE>

Options/warrants are generally granted at prices equal to the current fair value
of the Company's common stock at the date of grant. All options and warrants
granted during the years ended December 31, 2002, 2001 and 2000 vested
immediately.

The fair value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 2002: dividend yield of 0%; expected volatility of 200%; risk-free
interest rate of 4.9%, and expected life of 5 years; 2001: dividend yield of 0%;
expected volatility of 200%; risk-free interest rate of 5.8%, and expected life
of 5 years. 2000: dividend yield of 0%; expected volatility of 300%; risk-free
interest rate of 6.8%, and expected life of 5 years The weighted-average fair
value of options and warrants granted were $0.03, $0.07, and $0.17 for 2002,
2001, and 2000, respectively.

                                      F-30
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


11.      Stock Options and Warrants (continued)
         --------------------------------------

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.

Options and warrants repricing

Sharp declines in the market price of the Company's common stock during the
years 2002, 2001 and 2000 resulted in many outstanding employee stock options
and warrants being exercisable at prices that exceeded the current market price,
thereby substantially impairing the effectiveness of such options as performance
incentives. Consistent with the Company's philosophy of using such equity
incentives to motivate and retain management and employees, the Company's board
of directors (the Board) determined it to be in the best interests of the
Company and its shareholders to restore the performance incentives intended to
be provided by employee stock options by repricing such options and warrants at
a price equal to the fair market price since the decline.

In 2002, the Company's Board decided to reprice options and warrants to purchase
766,667 shares, which were granted during 1999 at $0.10 per share, and the
options and warrants were repriced at $0.01. All other terms of the repriced
options and warrants remained unchanged.

In 2000, the Company's Board decided to reprice options and warrants to purchase
2,035,730 shares, which were granted during 1999 or prior at $0.25 to $0.50 per
share; and the options and warrants were repriced at $0.10. All other terms of
the repriced options and warrants remained unchanged. Options and warrants to
purchase 35,000 shares, which were granted during 1997 at $4.00 per share were
repriced at $0.20.

The effect of this option and warrant repricing on the pro forma disclosures is
considered a modification of the terms of the outstanding options and warrants.
Accordingly, the 2002, 2001 and 2000 pro forma disclosure includes compensation
cost for the incremental fair value resulting from such modification.


12.      Concentrations
         --------------

All sales from continuing operations for the years ended December 31, 2001 and
2000 were made to one major customer.

                                      F-31
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


13.      Related Party Transactions
         --------------------------

The Company renewed its employment agreement with the Chief Executive Officer of
the Company on July 5, 1996 for an additional five-year term for a base
compensation of $120,000 per annum. The Chief Executive Officer waived his
rights to a portion of the unpaid annual compensation in the amount of $192,000
through December 31, 2002. Deferred compensation, which is included in accrued
expenses, amounted to $6,176, $37,906 and $25,500 for the years ended December
31, 2002, 2001, and 2000, respectively.

Another officer and major shareholder waived his rights to a portion of the
unpaid annual compensation in the amount of $192,000 through December 31, 2002.
Deferred compensation, which is included in accrued expenses, amounted to
$64,000, $51,000 and $28,000 for the years ended December 31, 2002, 2001, and
2000, respectively.


14.      Subsequent Events
         -----------------

In February 2003, the Company issued a 12% convertible note to one of its
shareholders with a five-year maturity date. The note amounted to $15,000.

In February 15, 2003, the Company entered into an operating lease agreement with
SICO, LLC to lease a 10,000 square-foot building in Colorado. The lease is a
three-year lease commencing in April 2003 and ending in March 2006 and requires
a monthly payment of approximately $4,583. In light of the subsequent
termination of its agreement with Empire Gold in October 2003, the Company is
seeking to either mutually terminate its lease agreement with SICO, LLC or have
a third party assume the Company's lease obligations.

In April 2003, the Company authorized a 12% convertible note for $30,000 to two
unrelated parties with a five-year maturity date.

During 2002, the Company entered into promissory note agreements with different
investors to finance the operations of the new plant in Colorado. These notes
amounted to an aggregate of $464,500, mature in five (5) five years from the
date of issuance and bear a 12 percent interest rate per year. These notes grant
the note holder the right to purchase common stock warrants at the rate of two
(2) warrants per dollar loaned at a price of fifteen cents ($0.15) per share.
The note holders as a group were to be allocated up to 10% of net income of the
Company from gold sales from production at the Colorado plant. The total amount
received from these notes in 2003 amounted to $349,500. In light of the
subsequent termination of its agreement with Empire Gold in October 2003, the
Company offered alternative financing arrangement to the Empire note holders.
The majority of note holders converted their principal and interest into
restricted shares of the Company's common stock at twelve cents ($0.12) per
share and retained their attached warrants. Two note holders opted to retain the
amount of their Empire note as a loan to the Company for a five-year period with
an annual interest rate of 12%. In addition, these note holders were granted
shares of the Company's common stock equal to the amount of warrants originally
granted. As a consequence, the original warrants of these two note holders were
subsequently cancelled.

In July 2003, the Company concluded a private placement with eleven accredited
investors for total net proceeds of $735,000. The proceeds are to be used for
working capital and general corporate purposes. Pursuant to this private
placement, investors purchased restricted shares of the Company's common stock

                                      F-32
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


at a price of twelve cents ($0.12) per share. Each share of common stock
purchased carried two attached purchase warrants, "A" and "B." The A warrant
allows the holder to purchase common shares at an exercise price of thirty-six
cents ($0.36) per share for a term of four years. The B warrant allows the
holder to purchase common shares at price of twenty-five cents ($0.25) per share
for a term of four years. The Company has the option of accelerating the term of
the B warrant from four years (or the remaining term) to nine months if it
achieves all of the following benchmarks: (i) the Company becomes current with
its reporting requirements to the Securities and Exchange Commission; (ii) the
Company files and becomes effective on a registration statement for said
underlying shares and (iii) the company achieves listing on the OTC Bulletin
Board exchange. Mr. Bradley Rotter, the Company's Chief Executive Officer,
participated in the private placement in the amount of $100,000.

In September 2003, the Company retained the Wells Group, Inc., a Scottsdale,
Arizona based investor relations consulting firm to implement a proactive
national investor relations campaign on behalf of the Company. The term of the
agreement is twelve months and either party may terminate the agreement with
thirty days notice after the sixth month. In compensation for its services, the
Wells Group will receive 250,000 restricted shares of the Company's common stock
for each three-month period the Wells Group provides its services under the
agreement.

In October 2003, management arranged a $1,250,000 credit facility which will
allow the Company to further its ability to deploy the first in a series of
plants to utilize its metals separation and purification technology. The Company
received its first $250,000 of loan proceeds on October 14, 2003. The credit
facility consists of a 14% Promissory Note in the principal amount of
$1,250,000, due March 1, 2006, or an earlier date 24 months from the date the
first plant is completed and operational. The Company is obligated to submit
requests for funds against the credit facility in connection with its financing
needs related to plant development and construction. Attached to the Promissory
Note are five-year warrants to purchase 2,000,000 shares of the Company's common
stock at a price of $0.23 per share. The credit facility also has an equity
conversion feature allowing the lender, a private equity and financing group, to
convert the loan into percentage ownership in the plant.

On November 1, 2003, the Company opened a technical support center (TSC) in
Beverly, Massachusetts and transferred all equipment and technical resources
from its Salem laboratory to the TSC.

On November 24, 2003, the Company appointed Bradley N. Rotter as the Company's
Chief Executive Officer replacing Mr. Randall S. Reis who will retain his
position as Chairman of the Board. In November 2003, the Company also appointed
Mr. John K. Burns as President of the Company replacing Mr. Rotter in that
position. Both Mr. Rotter and Mr. Burns were subsequently nominated for
Directors of the Company.

                                      F-33
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


14.      Subsequent Events (continued)
         -----------------------------

Employment Agreements

In January 2003, the Company entered into a three-year employment agreement with
Jody J. Sitkoski for the position of senior vice president. Upon completion of
the initial three-year term, the employment agreement automatically renews on a
month-to-month basis until terminated or until the parties negotiate a new term.
During the first year of the initial agreement, Mr. Sitkoski will be paid an
annual sum of $75,000. During the second and third year of this agreement, Mr.
Sitkoski will be paid a base salary equal to 80% of the salary paid by the
Company to its highest-paid employee, but no less than $75,000 per year. Either
the Company or Mr. Sitkoski may terminate the agreement with or without cause or
reason with 60-calendar day's written notice to the other party. In connection
with this employment agreement, Mr. Sitkoski was granted options to purchase
1,000,000 shares of the Company's common stock at an exercise price of five
cents ($0.05) per share. Such options immediately vest upon his execution of the
agreement. Mr. Sitkoski was also granted options to purchase an additional
2,000,000 shares at an exercise price of fifteen ($0.15) per share, which vest
immediately upon completion of the initial three-year term of the agreement.

In second quarter 2003, the Company entered into three-year employment
agreements with Randall S. Reis, the Company's Chairman and CEO and Bradley N.
Rotter, the Company's President, COO and board member. Upon completion of the
three-year term, the employment agreements automatically renew on a
month-to-month basis until terminated or until the parties negotiate a new term.
The agreements specify an annual salary of $120,000 for Mr. Reis and Mr. Rotter,
which may be accrued and converted into shares of the Company's common stock at
the market price in effect at the end of the applicable pay period. In addition,
Mr. Reis and Mr. Rotter receive an automobile allowance of $500 per month and
are reimbursed for ordinary and necessary expenses incurred in performance of
their duties on behalf of the Company. Either the Company or the employed party
may terminate the agreement with without cause or reason with 60-calendar days
written notice to the other party. Upon termination of the employee's agreement
by the Company without cause, the Company is obligated to pay the employee his
then base salary for six (6) months at the rate of the base salary then in
effect, which six month period shall begin on the effective date of the
termination.

As further consideration for entering into the employment agreement, Mr. Reis
was granted 1,000,000 warrants, vesting immediately, to purchase shares of the
Company's common stock at an exercise price of ten cents ($0.10) for a five-year
period. Mr. Rotter was granted 3,000,000 warrants, vesting immediately, at a
price of $0.10 for a five-year period. Mr. Rotter was also granted an additional
3,000,000 warrants at a price of $0.10 for a five-year period, which vest at a
rate of 83,334 warrants per month for the three-year term of the agreement.
Monthly vesting of the 3,000,000 warrants to accelerate to 166,667 warrants per
month for each month following the month in which the Company either; (i) sells
its first bar of gold produced in a commercial MR3 gold extraction facility, or
(ii) receives its first revenue from a license sale.

                                      F-34
<PAGE>

                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001, AND 2000


14.   Subsequent Events (continued)
      -----------------------------

Employment Agreements (continued)

In June 2003, the Company entered into a three-year employment agreement with
Dr. Irving DeVoe, who is employed as Chief Scientist and is the inventor of the
MR3 technology. The agreement specifies an annual salary of $120,000 for Dr.
DeVoe, which may be accrued and converted into shares of the Company's common
stock at the market price in effect at the end of the applicable pay period. In
addition, Dr. DeVoe receives an automobile allowance of $500 per month and is
reimbursed for ordinary and necessary expenses incurred in performance of his
duties on behalf of the Company. Also, during the term of the agreement, the
Company is obligated to pay Dr. DeVoe an annual royalty equal to 5% of the net
profits of the Company received from the sale or utilization of its MR3
technologies during each of the Company's fiscal years ending December 31. Such
royalties shall be paid on or before January 31 of each year covered by the
agreement, and shall terminate once a cumulative total of $2,500,000 in
royalties has been paid to Dr. DeVoe. The agreement further specifies that Dr.
DeVoe may not compete with the Company or any of its affiliates in the offer,
sale or marketing of products or services that are competitive with the products
or services offered by the Company, during the term of the agreement or for a
six month period following termination of the agreement.


15.      Modification to previously issued audited financial statements
         --------------------------------------------------------------

During 1999, the Company incurred certain costs in connection with the MR3
technology. These costs were capitalized and had a net book value of $70,051 at
December 31, 1999. Subsequently, the Company determined that this asset was
impaired and should have been written off during 2000. The effect of this change
is noted as follows:


                                        2002           2001           2000
                                     -----------    -----------    -----------
          Net loss as previously
          reported                   $(1,011,350)   $(1,198,872)   $(1,354,520)

          Asset write-off                     --             --        (70,051)

          Reversal of amortization            --          7,029          7,030
                                     -----------    -----------    -----------

          Net loss                   $(1,011,350)   $(1,191,843)   $(1,417,541)
                                     ===========    ===========    ===========

                                      F-35