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

                                   FORM 10-KSB
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(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, 2003

[ ]  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 [X]  No [ ]

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. [ ]

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: $ 17,380,659 (Based on price of $0.35 per share on March 1, 2004).

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 March 1, 2004
-----------------------------                    -------------------------------
Common Stock, Par Value $0.01                                60,334,897

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.    Description of Property..........................................  18

Item 3.    Legal Proceedings................................................  18

Item 4.    Submission of Matters to a Vote of Security Holders..............  18

                                        PART II

Item 5.    Market for Common Equity and Related Stockholder Matters.........  19

Item 6.    Management's Discussion and Analysis and Plan of Operation.......  24

Item 7.    Financial Statements and Supplementary Data......................  31

Item 8.    Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure.......................................  31

Item 8A.   Controls and Procedures..........................................  31

                                       PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
             Compliance With Section 16(a) of the Exchange..................  32

Item 10.   Executive Compensation...........................................  38

Item 11.   Security Ownership of Certain Beneficial Officers and Management.  42

Item 12.   Certain Relationships and Related Transactions...................  44

                                            PART IV

Item 13.   Exhibits and Reports on Form 8-K.................................  45

Item 14.   Principal Accountant Fees and Services...........................  46

           Signatures.......................................................  48

           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, Bioponic 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 2003 related to the implementation of
its MR3 technology, as it revamped 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, where
appropriate, for various waste removal and remediation services related to its
proprietary technology. These remediation services are also expected to achieve
efficiencies of greater than 99.9% in extracting the targeted waste metals from

                                      -2-
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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; (ii) plant engineering and construction services;
(iii) fabrication, delivery and installation of fully configured process
components including the necessary proprietary automation systems and medias;
(iv) 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. Targeted metals can be
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.

         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

                                      -3-
<PAGE>

         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, 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, Carus 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.

         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. The Company
further amended the Empire Gold agreement on May 1, 2003 to extend certain dates
within the October agreement. Estimates of gold amounts at the Empire Mine site
were based on the results of ore drilling programs conducted by independent
third parties to a depth of 500 feet below the surface in the 1980-1989
timeframe.

         In the second half of 2003, in connection 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 in 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

                                      -4-
<PAGE>

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 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. The agreement called 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 were to be
split on a 50-50% basis. MR3 owned the exclusive option to process these metals
subject to MR3's independent determination of the scope and potential of the
prospective mining claims. 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. On September 1, 2003, the
Company elected to allow its exclusive option to expire, but is continuing to
assess the precious metals potential of the site. Subject to the degree of
investment by interested parties, the percentage of distribution from metals
sales may change from those originally contemplated.

         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
serves at 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 and Chief Operating Officer.
Both Mr. Rotter and Mr. Burns were subsequently appointed as Directors of the
Company in accordance with MR3's by-laws.

         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 distribution of $250,000 in loan proceeds on October 14,
2003, the second distribution of $250,000 on December 17, 2003 and the third
distribution of $250,000 on February 2, 2004. 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. 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

                                      -5-
<PAGE>

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.

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             The ability to capture specific metals while
Selectivity:                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.
--------------------------------------------------------------------------------

         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.

                                      -7-
<PAGE>

         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. 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.

         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

                                      -8-
<PAGE>
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. A recent estimate by an industry association indicates that
worldwide gold exploration expenditures decreased over the last five years or
so. 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.

Current Operations

MR3 Processing Facilities

         In 2002, the Company announced 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,

                                      -9-
<PAGE>
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.

         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. Under
the agreement and pursuant to a technology license, MR3 was to transfer 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 agreed 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.

         In light of the Company's evolved business strategy since the execution
of this agreement, management negotiated an amendment with Linsa, effective
February 26, 2004 to reduce the number of exclusive jurisdictions to Taiwan and
Egypt, including affiliates or subsidiaries operating outside of the restricted
jurisdictions subject to certain conditions.

         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

                                      -10-
<PAGE>

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. 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 in the
Zhang Bing Park. 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.

         MR3 Taiwan continues to pursue potential MR3 projects, and to expand
into markets such as soil remediation and incinerator ash treatment. They have
proposed MR3 plants to 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. As of this date, other than the Zhang Bing project, MR3 Taiwan
has not entered into definitive agreements with clients for any of the
aforementioned prospective projects.

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 MR3. 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. Due
to intensified research in the field of industrial chromatography in the last
several years, a number of companies are trying commercialize metals recovery
technologies similar to that of MR3. There can be no assurance that other
persons or entities will not succeed in developing technologies that are more
effective than those which the Company is developing or which would render the
Company's technology noncompetitive.

         MR3's unique technology approach is based on applications of its
proprietary biomimetic (mimicking nature) chromatographic media to industrial
scale treatments of concentrated aqueous solutions for metals separation and
recovery. The Company expects that it will achieve a competitive advantage with
the aforementioned competitors through the cost effective utilization of its
uniquely formulated metals-extraction media at commercial production levels. To
date, management is not aware of any competitors using the metal chelating
compounds that MR3 has developed.

         Management believes that there are currently more than sufficient
sources of the raw waste materials that comprise the base components that make
up the core of the Company's targeted manufactured products. Management further
believes that such raw waste materials can be reasonably obtained at little to
minimal cost and without substantive mining operations or extensive mechanical
collection activities. 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

                                      -11-
<PAGE>

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.

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 2003 and 2002 are
directly related to personnel and consulting costs. The Company does not
presently license any third party technology in its operations. Aggregate
development expenses, inclusive of research and development, for 2003 and 2002
were approximately $545,000 and $189,000, respectively.

         In consideration of its planned activities, the Company expects that
its research and development expenditures will materially increase in 2004 and
beyond. The majority of research and development work will be undertaken at its
technical support facility located in Beverly, Massachusetts and at prospective
operating locations. 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

                                      -12-
<PAGE>

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. In May 2003, the Company received an Exploration Permit for the Empire
Gold mine site and subsequently conducted preliminary mining activities, but has
no current plans to conduct further mining related operations there 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 metals extraction and recovery projects are subject to
various federal EPA (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.

         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 2004 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 international jurisdiction where it intends to
operate to maintain environmental quality. As a result, the Company will likely
be subject to certain environmental regulations in such jurisdictions with
regard to prospective joint venture projects with Linsa Associates and other
potential international partners.

                                      -13-
<PAGE>

         Prior to 2003, the Company 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. These costs were estimated at
approximately $38,250 and were recorded in the Company's financial statements
for the period ended December 31, 2002. In January 2004, the Company received
notification of settlement with the Montana Department of Environmental Quality
for the sum of $38,502 payable in six monthly installments commencing on January
30, 2004.

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 was 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 and cancelled the revenue sharing provisions of the
agreement. Twenty note holders converted their principal and interest, as of
September 30, 2003, into 3,657,752 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.

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

                                      -14-
<PAGE>

throughout Asia, Europe and in North America. SIP primarily focused on
heightening awareness of the Company and its services in the European private
and institutional investment communities. The agreement required 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. The agreement with SIP expired in fourth
quarter 2003.

         In September 2003, the Company retained The Wells Group, Inc., a
Scottsdale, Arizona based investor relations consulting firm and unrelated
party, 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.

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 prospective 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

                                      -15-
<PAGE>

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.

         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 specialty chemical products. 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.

                                      -16-
<PAGE>

         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.

         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 32.8% of the Company's outstanding common stock
as of December 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 quoted on the OTC Bulletin Board and its
securities are 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, 2003 and 2002, the Company had net losses of
$1,648,721 and $1,011,350, respectively. At fiscal year end 2003, 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

                                      -17-
<PAGE>

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 was for a three-year period commencing in April 2003 and ending in
March 2006 and required a monthly payment of approximately $4,583. In light of
the subsequent termination of a revenue sharing agreement with Empire Gold in
October 2003, the Company executed a termination and mutual release agreement
with SICO effective December 15, 2003. The termination agreement specifies that
MR3 forfeit its $10,000 security deposit, forfeit the last month's rent deposit
of approximately $4,583 and pay the Company's final share of utilities and
expenses through December 31, 2003.

         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, 2003 and the Company did not hold an
annual meeting of shareholders during that same period.

                                      -18-
<PAGE>

                                     PART II

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

Market Information

         Effective March 23, 2004, the Company's common stock is being quoted
once again on the OTC Bulletin Board under the symbol "MRMR." For calendar years
2002 and 2003, the Company's stock only traded over-the-counter on the Pink
Sheets and was quoted through the National Quotation Bureau's Electronic
Quotation System, also under the symbol "MRMR."

         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
----           --------------           --------       -------
2003           March 31, 2003           $  0.26        $  0.09
               June 30, 2003            $  0.28        $  0.11
               September 30, 2003       $  0.33        $  0.17
               December 31, 2003        $  0.50        $  0.22

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

         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
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.

                                      -19-
<PAGE>

         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, 2003 there were approximately 365 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, 2003 there were approximately 74 shareholders of
record of MR3 Systems, Inc. Series A preferred stock. As of December 31, 2003,
there are 237,464 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.

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, 2003. Through
the end of fiscal year 2003, 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

                                      -20-
<PAGE>

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

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

<S>                                      <C>                     <C>                   <C>
Equity compensation plans
 approved by security holders           -0-                     -0-                   -0-
Equity compensation plans
 not approved by security
 holders                             31,226,753               $0.117                  -0-

Total                                31,226,753               $0.117                  -0-
</TABLE>

Recent Sales of Unregistered Securities

         Funding and Dilutive Instruments

         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 three distributions of $250,000 each on October 14, 2003, December 17,
2003 and February 4, 2004, respectively. 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.

         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 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

                                      -21-
<PAGE>

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 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.

         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.

         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 granted 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 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 arrangements to
the Empire note holders. Twenty note holders converted their principal and
interest, as of September 30, 2003, into 3,657,752 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 previously granted to these two note holders were subsequently
cancelled.

         Fiscal Year 2003 Stock Issuances

         In fiscal year 2003, the Company issued 11,952,726 shares of its common
stock to individuals or entities pursuant to stock sales, conversion of notes
payable, conversion of accrued interest, exercise of warrants, and stock issued
for compensation and services rendered. The Company recognized approximately of
$1,202,000 in either cash or equivalent services in connection with the common
stock issued. The detailed transactions are more fully disclosed below and
related parties identified as appropriate:

    a.   In first quarter 2003, the Company issued 169,000 common shares to four
         qualified or accredited investors pursuant to the private sale of
         securities at an average price of $0.10 per share. The Company received

                                      -22-
<PAGE>

         $18,500 in proceeds related to the sale of securities. The Company
         adjusted the amount of shares issued to reflect a correction of a prior
         period issuance.

    b.   In second quarter 2003, the Company issued 150,000 common shares to two
         qualified or accredited investors pursuant to the private sale of
         securities at a price of $0.10 per share. The Company received $15,000
         in proceeds related to the sale of securities.

    c.   In second quarter 2003, the Company issued 833,333 common shares to Mr.
         Bradley Rotter, Chief Executive Officer, pursuant to a private offering
         with various parties. The Company received $100,000 in proceeds from
         the sale of common stock to Mr. Rotter at a price of $0.12 per share.

    d.   In second quarter 2003, the Company issued 200,000 common shares to Dr.
         Irving DeVoe, Chief Science Officer, in connection with the
         cancellation of his anti-dilution agreement with the Company.

    e.   In third quarter 2003, the Company issued approximately 5,291,667
         shares to ten accredited investors pursuant to a private offering of
         the Company's common stock, at $0.12 per share, for total aggregate
         proceeds of $735,000. The Company received $635,000 of the proceeds in
         third quarter and $100,000 in second quarter.

    f.   In third quarter 2003, the Company issued Mr. Steven Schorr, a
         principal shareholder and former officer of the Company, 196,667 common
         shares as settlement for $29,500 in Company debt at a conversion price
         of $0.15 per share.

    g.   In fourth quarter 2003, the Company issued 71,429 common shares to one
         accredited investor pursuant to a private sale of securities. The
         Company received $25,000 in proceeds from the sale of common stock at a
         price of $0.35 per share.

    h.   In the second half of 2003, the Company issued 3,762,752 shares of
         common stock to the Empire note holders pursuant to the change in
         financial terms (as previously disclosed) of their notes with the
         Company.

    i.   In fiscal year 2003, three shareholders converted 8,000 preferred
         shares into 8,000 common shares.

    j.   In fiscal year 2003, the Company issued 328,000 common shares to three
         individuals in exchange for services to the Company at a price of $0.10
         per share. A fourth individual received 3,272 shares in exchange for
         services at an average price of $0.29 per share.

    k.   In the second half of 2003, the Wells group received 500,000 shares of
         common stock pursuant to their public relations agreement with the
         Company.

    l.   In fourth quarter 2003, Zevtec Canada, Inc. was issued 442,857 common
         shares pursuant to the conversion of $31,000 in accrued interest on
         debentures and certain accounts payable at a price of $0.07 per share.

         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

                                      -23-
<PAGE>

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.

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 technology originated from
research in microbiology on how microbial cells efficiently acquire their
essential nutrient metals such as calcium, copper, zinc, etc. 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. MR3 has developed a proprietary
process for the recovery, separation and purifying of a broad range of metals.
The key aspect of the MR3 system is its unique affinity and selectivity for an
individual target metal, such as gold and platinum, even within multiple metal
ion environments

         The Company intends to produce these metals and metal-compund 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.

         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. The

                                      -24-
<PAGE>

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 Company is presently migrating its technology to new industries and
has incurred losses from its inception through December 31, 2003. 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.

Results of Operations

Fiscal year Ended December 31, 2003 Compared to Fiscal Year Ended December 31,
2002

         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 metals separation and recovery technology during
fiscal years 2003 and 2002 as the Company elected to discontinue its zinc
sulfate processing operations in Butte, Montana and revamp its business strategy
to more lucrative prospects for its metals recovery technology, especially in
the area of precious metals. In 2003, management concentrated its efforts on
developing the necessary infrastructure toward meeting its obligations under its
then existing mining-related precious metals agreements. Management also
intensified marketing its services to new industrial prospects in the specialty
chemical and nuclear-related industries and further adapted the MR3 process
technology to meet the opportunities presented by these targeted industries.

         Cost of goods sold amounted to $0 and $87,802 for 2003 and 2002,
respectively. 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 2002 represented certain
costs associated with the ramping down of operations in Butte and approximately
$30,000 of accrued expenses related to an environmental compliance matter, which
was resolved in February 2004. Gross margin for fiscal year 2002 amounted to a
loss of $87,802. Given the lack of revenues for the two periods and the limited
degree of process related operations in 2002, comparison of gross margin for
2003 and 2002 is not meaningful.

         General operating expenses--less depreciation, amortization and
consideration for impairment loss--increased $897,227 from $689,478 in 2002 to
$1,586,705 for 2003. The increase is attributable to increases in most operating
categories related to the Company's larger workforce and expanded business
operations in 2003. Development expenses increased by 188% in 2003 to $545,335
compared to $189,370 in 2002. Increases in development expenses related to the
adaptation and further development of the MR3 Technology in connection with the
various project applications under review and consideration by the Company.
Development expenses also include expenses incurred in connection with site
preparation at the Company's affiliated mining projects located in Nevada and
Colorado, as well as certain expenses in connection with its then anticipated
processing facility in Lakewood, Colorado.

         In connection with its expanded business activities to acquire new
contractual commitments and perform on existing obligations, the Company
incurred increases in both personnel expenses and external consulting and
professional fees. Personnel expenses increased $342,110 to a level of $488,977
in 2003 compared with $146,867 in 2002, as the Company more than doubled its

                                      -25-
<PAGE>

workforce to a level of eleven people in 2003. External services and
professional fees increased $187,749 to a level of $432,391 in 2003 compared to
$244,642 in 2002. Notable components of external services and professional fees
were $155,000 in expense related to the Company's public relations efforts and
$25,800 in compensation expense recorded to reflect the grant of options or
warrants to independent consultants. In addition, office expenses increased
26.7% to a level of $85,200 in 2003 compared to $67,243 in 2002. Office rent
declined 15.8% to a level of $34,802 compared with $41,356 in 2002 primarily due
to the closure of the Company's development office in Pittsburg during 2002.

         Depreciation expense amounted to $9,113 in 2003 compared to $4,015 in
2002. The Company also recorded certain write-downs of equipment in 2003 and
2002 amounting to $105,813 and $202,907, respectively. These write-downs related
to the valuation of property and equipment in light of the closure of the
Company's Butte, Montana facility. Upon review of the state of the property and
equipment at year end 2002 and third quarter 2003, it was determined that the
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 impairment losses were included
in operating expenses for 2003 and 2002.

         The Company recorded net interest expense of $168,533 in 2003 and
$53,863 for 2002. This increase of $114,670 is attributed to interest accrued on
new and continuing notes payable to shareholders, related parties and other
third party holders of debt instruments. These debt obligations were incurred
primarily in late 2002 and throughout the year in 2003. The Company also
recorded interest expense in 2003 in connection with the amortization of warrant
issuance costs related to continuing and converted note payables. The Company
anticipates that interest expense may increase in fiscal year 2004 on the
aforementioned debt obligations and the potential addition of new debt
instruments, provided that existing note holders do not convert their notes into
shares of the Company's common stock through their conversion privileges. In
2002, The Company realized a gain on the sale of certain equipment and recorded
$27,515 in other income for the period. In 2003, the Company recorded gains
under other income of $223,843 related to debt forgiveness and reduction in
accrued liabilities, in connection with the settlement of various longstanding
obligations and claims against the Company.

         The Company's net loss for fiscal year 2003 increased 63.0% to
$1,648,721 as compared to $1,011,350 for fiscal year 2002. The increase is
attributed to the material increase in operating expenses incurred by the
Company in implementing its revamped operating strategy for the precious metals
extraction and recovery market and the staffing up of additional management and
technical personnel to oversee its business activities and technical
development.

Net Operating Losses

         At December 31, 2003 and 2002, the Company has available approximately
$8,969,000 and $7,174,000 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. At December 31, 2003 and 2002, 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.

                                      -26-
<PAGE>

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, 2003, the Company had a working capital deficit of
$982,347 compared to a working capital deficit of $1,151,612 at December 31,
2002. The 14.7% decrease in working capital deficit is primarily attributed to
increases in cash and the Company's ability to reduce accounts payable and other
accrued expenses from investment funds received by the Company and the
cancellation or forgiveness of certain liabilities during the 2003 period. At
December 31, 2003, the Company had $288,674 in cash compared to $12,496 at
December 31, 2002. The increase in cash is attributed to receipt of funds during
the fiscal year from the sale of securities and closure of various debt
instruments.

         As of December 31, 2003, the Company had total assets of $701,260 and a
total shareholder's holder's deficit of $1,182,390 compared with total assets of
$239,022 and total stockholder's deficit of $1,192,939 at December 31, 2002.
Total assets increased due to the increase in cash, property and equipment
related to the receipt of operating funds from notes and other debt instruments.
Total shareholders' deficit decreased by less than 1% in 2003 due to the
Company's additions to accumulated deficit in 2003 offset to a material degree
by the contributions of its sale of common securities during the period.

         For the fiscal year ended December 31, 2003, cash used by operating
activities increased to $1,272,447 from $321,540 for the comparable period ended
December 31, 2002. This increase is attributed to the material expansion of the
Company's business activities in 2003. 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 $220,476 in 2003 related the purchase
of property and equipment.

         In fiscal year ended 2003, the Company realized cash flow from
financing activities of $1,769,101 compared with $333,981 for the comparable
period in 2002. In 2003, the Company realized $980,661 in aggregate proceeds
(less principal payments) from notes payables and $793,500 from the sale of
common stock and warrants. In 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.

         During fiscal year 2004, the Company expects to meet its cash and
working capital needs primarily from cash generated from operations, license
sales, the private sale of its securities, convertible debt instruments, note
payables and credit facilities with private lenders.

         The Company presently leases its facilities on a contractual 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.
From time to time, the Company has committed to leases on a month-to-month basis
without a minimum commitment and may elect to do so in the future.

                                      -27-
<PAGE>

Off-Balance Sheet Arrangements

         The Company does not have any off balance sheet arrangements that have
or are likely to have a material current or future effect on the Company's
financial condition, or changes in financial condition, liquidity or capital
resources or expenditures.

Plan of Operation

         In fiscal year 2003, the Company continued to develop opportunities for
the separation and recovery of precious metals from mining sources and other
viable metals-related environmental remediation prospects. Management entered
into discussions with both domestic and international prospective candidates for
its metals extraction and recovery services and specialty chemical production.
In addition, the Company entered into discussions with several candidates in the
nuclear industry with a focus on environmental remediation projects. In
anticipation of the need for working capital to provide marketing, preliminary
sample testing and project validation services related to the aforementioned
client prospects, the Company concluded a private placement in July with eleven
accredited investors for total net proceeds of $735,000.

         In early third quarter 2003, the Company continued with the preliminary
tasks of sampling, laboratory testing, gold media development, mining and zoning
permits, water rights acquisition, grade control program planning, equipment
purchase and facility build out in connection with its metals extraction
agreement with Consolidated Empire Gold ("CEG"), which was entered into in June
of 2002. Concurrent with these activities, the Company retained an independent
mining consultancy firm, Arrakis, Inc, to perform an in-depth feasibility study
of all projected costs related to the Company's fulfilling its obligations under
the specified agreement.

         Upon review of the data generated by the feasibility study in third
quarter 2003, 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.

         In fiscal year 2003, the Company raised approximately $1,300,000
pursuant to various notes, convertible debentures and the private sale of
securities to qualified investors. The funds have primarily been used to retire
past liabilities and for general working capital. Management does not deem these
funds to be sufficient to satisfy its cash requirements for fiscal year 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,
fabrication of processing systems and certain engineering costs related to its
current operating agreements.

         The Company intends to meet its ongoing cash requirements for the 2004
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.

                                      -28-
<PAGE>

         In October 2003, the Company further arranged a $1,250,000 credit
facility with High Stakes Capital LLC--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. To date, the Company has received an aggregate total
of $750,000 pursuant to this financing vehicle. 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
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 has selected a
contractor--Toltec Engineering Services, LLC of Payson, Arizona--to fabricate
its unique MR3 related equipment (e.g. modules, tanks, pumps, flow transmitters,
etc.) and has submitted its initial order, valued at approximately $262,000, for
long lead-time hardware. 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,
assessment activities and fine-tuning of its process technology to commercial
operating levels.

         The Company is presently evaluating a strategy whereby it would place a
"mobile" processing plant on site with a prospective user of its MR3 Technology
for a limited period of time. The Company may not charge the prospective client
a fee for use of the processing plant at the time of placement so that user may
validate the their specific application of the technology with no risk or
material cost. The Company may, however, elect to charge the client for
supplemental materials such as reagents or MR3 unique media. If the processing
plant is deemed to be acceptable for the prospective client's requirement, the
Company would then sell, lease or otherwise enter into a revenue sharing
arrangement for use of the plant. If the application is not deemed to be
practical, them the Company would move the plant to another prospective client
location.

         Management is in discussion with seven prospects for the processing of
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. As of this date, the Company has not obtained a firm
contractual commitment for its services from these prospective sources. 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.

                                      -29-
<PAGE>

         The Company is in the process of collecting and/or testing samples for
the processing of slag deposits (the vitreous mass left as a residue by the
smelting of metallic ore) located in various domestic and international
locations. In many cases, slag deposits owned by third parties are shipped to
jurisdictions outside the country of origin for processing. Management believes
that it can offer a more economically favorable alternative to these parties by
processing the deposits on site for the extraction of metals such as copper (Cu)
and zinc (Zn). The Company is also testing samples from an international
location for the processing of gold ore samples encapsulated with certain
amounts of copper and zinc. The Company's processing of the encapsulated ores is
intended to resolve both an economical metals separation problem, as well as an
environmental one for acid mine drainage caused by the presence of these metals.
In addition, the Company is testing metallic ores containing nickel, gold,
platinum, and cobalt with high concentrations of sulfides from a prospective
Canadian client. The Company is developing a pre-treatment process for the
reduction of such sulfides so as to facilitate the extraction and recovery of
the valuable metals.

         The Company is leveraging its strategic relations with its industrial
consultants and its personal network to create visibility for the Company in the
mining, metals and environmental remediation industries. In addition, the
Company plans on increasing exposure to the Company by participation and
exhibiting at industry related trade shows, such as the Prospectors and
Developers Association of Canada ("PDAC"). Management will feature the benefits
of the MR3 Technology, as well as discussing results of its laboratory testing
of the technology, pre-engineering economics and service/pilot agreements
available to prospective clients.

         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. However, management cannot provide
any guarantees that such a licensing model will be acceptable to prospective
clients.

         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.

         Pursuant to its aforementioned business strategy, the Company elected
to strengthen its technical management team in 2003, through the hiring of
qualified individuals in related technical fields. The Company added a vice
president of environmental remediation, a vice president of operations and
information systems, a chief metallurgist & research chemist and a senior
consulting engineer for mining related matters.

                                      -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 2001, 2002, and 2003, the Company adopted certain accounting
pronouncements, the results of which are reflected, as applicable, in the
Company's financial statements and accompanying notes for fiscal years 2003 and
2002. Disclosure on the various accounting pronouncements adopted by the Company
during 2001, 2002, and 2003 are more fully detailed in Section 1 (Summary of
Significant Accounting Policies; Recent Accounting Pronouncements) of the
Company's financial statements included with this annual report and incorporated
by reference.

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.


ITEM 8A. CONTROLS AND PROCEDURES

         The Company's Chief Executive Officer and Chief Financial Officer
("Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for the Company. The Certifying Officers have
concluded (based on their evaluation of these controls and procedures as of a
date within 90 days of the filing of this report) that the design and operation
of the Company's disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934) adequately meet intended
objectives and are effective. As of this date, given the small size of the
Company and its limited operations and over the last year, the Company utilized
a preliminary and basic standard of internal controls and procedures related to
its financial reporting for the period covered by this report. Management is in
the process of developing and adopting new and more stringent controls and
procedures and anticipates such controls and procedures to be in place prior to
the end of fiscal year 2004.

         Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in Company
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 Company reports filed under the Exchange
Act are accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.

         No significant changes were made in the Company's internal controls or
in other factors that could significantly affect those controls subsequent to
the date of the evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

                                      -31-
<PAGE>

                                    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                62           Chairman of the Board
Bradley N. Rotter              48           Chief Executive Officer and Director
John K. Burns                  53           President, COO and Director
Gary K. 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 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 and Chief Operating
     Officer. Both were also subsequently appointed to be Directors of the
     Company.

     In first quarter 2004, Mr. Gary Abreim provided the Company with his notice
     of resignation as the Chief Financial Officer effective on or about the
     filing date of the Company's Annual Report on Form 10-KSB for the period
     ended December 31, 2003. Mr. Abreim's resignation is not related to any
     disagreement or discord with the Company on its financial matters. The
     Company expects to utilize an interim Chief financial Officer until such
     time as a qualified individual can be hired consistent with the needs of
     the Company and its available resources.

         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

                                      -32-
<PAGE>

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
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 Protostar Satellite
Services, LLC, a privately held company located in San Francisco involved in the
business of satellite services. 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,

                                      -33-
<PAGE>

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.

         Gary K. 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.

         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. In June 2003, Dr. DeVoe resumed his position
as Chief Science Officer. From 1993 to 1995, Dr. DeVoe was engaged as a

                                      -34-
<PAGE>

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.

         Other Senior Management, Significant Persons and Contributors

         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.

         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

                                      -35-
<PAGE>

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.

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 no Form 5
documents needed to be filed at year-end and these persons are presently in
compliance with all applicable filing requirements for the fiscal year ended
December 31, 2003. The Company determined, however, that certain individuals did
not file these documents in a timely manner pursuant to the two and ten-day
window allocated for Form 4 and Form 3 filings, respectively. Messrs. Abreim,
Burns and Rotter filed Form 3 documents and Messrs. DeVoe, Reis and Rotter filed
Form 4 documents subsequent to the aforementioned time constraints.

Committees

         It is the intention of the Company's management to have its board of
directors ultimately structured to comply with the directives of Sarbanes-Oxley
Act of 2002. Presently, the Company's common stock is quoted on the OTC Bulletin
Board. As such, the Company is not currently obligated to meet certain
compliance requirements of Sarbanes-Oxley associated with national stock
exchanges. The Company intends, however, to seek and attract potential
independent directors to its board and to ask its shareholders to elect these
potential directors at future annual meeting(s). At this time, the Company's
board of directors consists of three directors, all of which are insiders (the
Chairman and founder of the Company, the Chief Executive Officer, and the
President-Chief Operating Officer). All three individuals have been nominated
for election at the Company's next annual meeting scheduled for May 21, 2004.

         The Company anticipates using NASDAQ's Rule 4200(a)(15) as a guideline
to determine independent status. It should be noted that the Company may
experience difficulties attracting independent directors given its current stage
of corporate development and level of resources. Once sufficient independent
directors are in place, the Company expects to form a minimum of three
committees--an Audit Committee, a Nominating and Corporate Governance Committee,
and a Compensation and Benefits Committee. In the interim, the Company expects
to carry out the responsibilities of those committees, as practicable, with
inside directors and support of individuals from its Board of Advisors. The
Company is in the process of developing charters for each of the aforementioned
committees.

Audit Committee

         As of the date of this Annual Report, the Company has no independent
directors and thus it is not feasible to appoint such members to an audit
committee. Therefore, in the interim, the Company's existing Board of Directors
has and will conduct the respective role of an audit committee with support from
a financially knowledgeable representative of the Board of Advisors. 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

                                      -36-
<PAGE>

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.

Nominating and Corporate Governance Committee

         The purpose of the Committee shall be to: (i) identify qualified
individuals for membership on the board; (ii) recommend to the board the
director nominees for the next annual meeting of shareholders; (iii) develop and
recommend to the board a set of corporate governance guidelines for the board;
and (iv) provide oversight of the corporate governance affairs of the board and
the Company. In the absence of independent directors, the Company has requested
three members of its board of advisors to serve in an advisory role as a
nominating committee for the election of future board members.

         The Company is in the process of developing corporate governance
guidelines that meets both its current and anticipated future operating
conditions and corporate structure. Such guidelines, when adopted by the board
of directors, will be posted on the Company's web site under the caption of
Corporate Governance.

Compensation and Benefits Committee

         When formed and adopted by the Company's Board of Directors, this
committee's responsibilities will relate to compensation of the Company's
directors and executive officers and oversight of the management of the various
plans, if any, that are implemented for the benefit of the Company's employees.

Code of Ethics

         MR3 has recently adopted a Code of Ethics ("Code") applicable to all
its employees regardless of position or stock ownership. The Company has
historically operated under informal ethical guidelines, under which the
Company's principal executive, financial and accounting officer, are held
accountable. In accordance with these informal guidelines, the Company has
always promoted honest, ethical and lawful conduct throughout the organization.
Certain of the Company's senior executive and financial officers--Chairman,
Chief Executive Officer, President and Chief Operating Officer, Chief Financial
Officer and Chief Science Office--provide services and perform functions that
merit a more detailed expression of their duties, because they are singularly
responsible for the integrity, accuracy and timeliness of our periodic financial
reports to regulators and the investing public. Thus the Company has provided as
an exhibit to this Annual Report, a signed acknowledgement of their
understanding and acceptance of the Code.

Board of Advisors

         MR3 has assembled an experienced and accomplished group of advisors to
provide guidance to management on various corporate, technical and financial
matters. These executive level individuals, whose profiles are listed on the
Company's web site, have agreed to serve on the Company's recently formed Board
of Advisors. Their experience in both entrepreneurial ventures and large-scale
public companies will provide added insight and experience to MR3's current
management team. These executives will provide guidance to management on such
matters as business development, investment banking and financial services,
equity markets, general technology and chemical-related industries. From time to

                                      -37-
<PAGE>

time the Company anticipates drawing upon the experience of these individuals to
fulfill certain roles on corporate committees in the absence of independent
directors.

Shareholder Communication With the Board of Directors

         The Company maintains a process for shareholders to communicate with
the Board of Directors. Shareholders wishing to communicate with the Board
should send any communication to Corporate Secretary, MR3 Systems, Inc., 435
Brannan Street, Suite 200, San Francisco, CA 94107. Any such communication must
state the number of shares beneficially owned by the stockholder making the
communication. The Corporate Secretary will forward such communication to the
full Board of Directors or to any individual director or directors to whom the
communication is directed. Alternatively, the Company maintains contact
information, both telephone and email, on its website under the heading "Contact
MR3". By following the Contact MR3 link, a shareholder will be given access to
the Company's telephone number as well as a link for providing email
correspondence to Investor Relations. Communications sent to Investor Relations
and specifically marked as a communication for the Board will be forwarded to
the Board or specific members of the Board as directed in the shareholder
communication.

ITEM 10. EXECUTIVE COMPENSATION

         The following Summary Compensation Table indicates certain compensation
information for the Chairman, 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.

<TABLE>
<CAPTION>
                                    Summary Compensation Table

                                                          Long Term Compensation Awards
                                                          -----------------------------
                  Annual Compensation                          Awards         Payout
                  -------------------                          ------         ------
                                                                             Securities     All
                                                         Restricted   LTIP   Underlying    Other
      Name and                                             Stock      Pay    Options/     Compen-
 Principal Position   Year    Salary     Bonus    Other    Awards     out      SARs       sation
 ------------------   ----    ------     -----    -----  ----------   ----   ----------   ------
                                ($)       ($)      ($)                          (#)        ($)

<S>                   <C>     <C>         <C>      <C>    <C>          <C>   <C>           <C>
Randall S. Reis       2003    101,122                                        1,000,000
Chairman(1)           2002     79,730                                            -
                      2001     47,594                                            -

Bradley N. Rotter     2003     33,000                                        6,000,000
Chief Executive(2)    2002       -                                               -
Officer & Director    2001       -                                               -

John K. Burns         2003       -
President, COO &      2002       -
Director(3)           2001       -

Irving W. DeVoe       2003     87,500                                            -
Chief Science         2002     35,000                                          998,884
Officer(4)            2001     37,000                                        1,774,067
</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, 2003,

                                      -38-
<PAGE>

          2002, and 2001 was $18,878, $6,176, and $37,906, 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. Securities underlying options include warrants
          granted during the noted period at $0.10 per share with a five-year
          exercise period.

     (2)  Excludes deferred compensation. Balance of deferred compensation
          accrued on the Company's financial statements at fiscal year ended
          December 31, 2003 was $57,000. Mr. Rotter's employment agreement with
          the Company specifies a gross annual salary of $120,000. Securities
          underlying options include warrants granted during the noted period at
          $0.10 per share with a five-year exercise period. 3,000,000 of the
          warrants vest equally over a three-year period. The above referenced
          securities do not include 1,866,666 warrants granted in fiscal year
          2003 pursuant to financing arrangements entered into by Mr. Rotter
          with the Company (see Related Transactions).

     (3)  Securities underlying options include warrants granted during the
          noted period at $0.35 per share with a five-year exercise period.

     (4)  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, 2003,
          2002, and 2001 was $32,500, $64,000, and $51,000, 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.

                            Option/SAR Grants in Fiscal Year 2003

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

<TABLE>
<CAPTION>
                            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>
Randall S. Reis             1,000,000          08.30%              $0.10           05/01/08
Bradley N. Rotter           3,000,000          24.89%              $0.10           04/01/08
Bradley N. Rotter(1)        3,000,000          24.89%              $0.10           04/01/08
John K. Burns               1,000,000          08.30%              $0.35           11/04/08
</TABLE>

(1) Mr. Rotter's warrants vest at a rate of 83,333 per month beginning 5/1/2003.

The Company granted 12,054,722 warrants to employees in 2003, of which 5,710,000
are on vesting schedules. The above table does not include warrants associated
with separate financing instruments entered into by the Company and Mr. Rotter
(See related Party Transactions).

                                      -39-
<PAGE>


                   Option Exercises and Fiscal Year-End Values

         The following table sets forth information with respect to the number
of unexercised stock options held by the named executive officers on December
31, 2003, and the value of the unexercised in-the-money stock options on that
date.

                           Aggregated Option/SAR Exercises in Fiscal Year 2003
                                 and December 31, 2003 Option/SAR Values

<TABLE>
<CAPTION>
                                                Number of Securities
                                               Underlying Unexercised         Value of Unexercised
                                                       Options                In-The-Money Options
                       Shares        ($)       At December 31, 2003 (#)     At December 31, 2003 ($)(1)
                     Acquired on    Value     ---------------------------  ----------------------------
       Name         Exercise (#)  Realized    Exercisable   Unexercisable  Exercisable    Unexercisable
       ----         ------------  --------    -----------   -------------  -----------    -------------

<S>                      <C>         <C>       <C>              <C>             <C>            <C>
Gary K. Abreim            -           -        1,000,000         -              350,000         -
John K. Burns             -           -        1,000,000         -               30,000         -
Irving W. DeVoe           -           -        5,440,089         -            1,523,225         -
Randall S. Reis           -           -        1,000,000         -              280,000         -
Bradley N. Rotter         -           -        6,366,663     2,249,991        1,278,499      629,997
</TABLE>

    (1)   Represents the difference between the option exercise price of
          in-the-money options and the fair market value per share of the
          Company's Common Stock at December 31, 2003 ($0.38 per share) as
          quoted on the National Quotation Bureau's ("NQB") Electronic Quotation
          System at the close of trading on that date, multiplied by the number
          of shares underlying the option.

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

                                      -40-
<PAGE>

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.

         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.


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 December 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.

                                      -41-
<PAGE>

     Name and Address                 Amount and Nature
    of Beneficial Owner              of Beneficial Owner        Percent of
  as of December 31, 2003          as of December 31, 2003        Class(1)
  -----------------------          -----------------------      ----------

Randall S. Reis *                        6,521,687(2)              8.01%

Irving W. DeVoe*                         6,983,489(3)              8.58%
100 Cummings Center, S-336-H
Beverly, MA 01915

Bradley N. Rotter *                      9,866,662(4)             12.12%

John K. Burns *                          1,000,000(5)              1.23%

Gary K. Abreim *                         1,277,450(6)              1.57%

Steven M. Schorr                         4,932,647(7)              6.06%
P.O. Box 2120
Kihei, HI 96753

Mel Kelm                                 5,783,357(8)              7.11%
Pfeiffer Ridge, #7
Big Sur, CA 93920

Theodore H. Swindells &                  4,499,999(9)              5.53%
High Stakes Capital, LLC
11400 S.E. 8th St.; Unit 420
Belleuve, WA 98004

All directors and executive             25,649,288(10)            31.51%
officers as a group(5)

* Director and/or executive officer

(1)  Based upon 60,334,897 shares of common stock outstanding on December 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 21,061,190 shares of common stock which are exercisable within
     sixty days. Therefore, for the purposes of calculating percentage ownership
     as indicated in the table above 81,396,087 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 6,533,329 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 2/01/09

(5)  Includes 1,000,000 shares that may be acquired by Mr. Burns pursuant to the
     exercise of warrants priced at $0.35 per share and expiring 11/04/08.

                                      -42-
<PAGE>

(6)  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.

(7)  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.

(8)  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.

(9)  Includes 3,666,666 shares that may be acquired by Mr. Swindells and High
     Stakes Capital, LLC pursuant to the exercise of warrants priced between
     $0.23 and $0.36 and expiring during the period 7/21/08 and 10/06/08.

(10) Includes 14,973,418 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 2/1/09.

         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 an agreement with Dr. Irving DeVoe to grant him anti-dilution protection
against any further stock issuances by the Company. 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 2003, the Company granted warrants to purchase common shares of
the Company's stock to certain officers as noted in Item 10 - Executive
Compensation. The warrants were issued in consideration for services rendered,
or expected to be rendered to the Company.

         In January 2003, in connection with an employment agreement, the
Company granted Mr. Jody Sitkoski, Vice President, two million warrants to
purchase common shares of the Company's common stock at a price of fifteen cents
($0.15) per share and one million warrants at five cents ($0.05) per share. The
one million warrants at $0.05 vest immediately and the balance of two million
warrants vest as of 12/31/2005.

         In April 2003, in connection with an employment agreement, the Company
granted Mr. Bradley Rotter, then President and COO as of April 2003, six 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 second quarter 2003, in connection with an employment agreement, the
Company granted Mr. Reis, then Chairman and CEO, 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.

                                      -43-
<PAGE>

         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 July 2003, Mr. Bradley Rotter, the Company's Chief Executive
Officer, participated in a private placement with other third party qualified
investors for total aggregate proceeds of $735,000. Mr. Rotter participated at a
level of $100,000 and purchased restricted shares of the Company's common stock
at a price of twelve cents ($0.12) per share. Mr. Rotter received 833,333 shares
pursuant to this purchase. Each share of common stock carried two attached
purchase warrants, "A" and "B." The A warrant allows Mr. Rotter to purchase
common shares at an exercise price of $0.36 per share for a term of four years.
The B warrant allows Mr. Rotter to purchase common shares at price of $0.25 per
share for a term of four years.

         Pursuant to the terms of his employment agreement, The Company elected
to terminate the employment of Mr. Larry Hopper, then President and Chief
Operating Officer, on March 15, 2003. On August 8, 2003, management executed a
settlement agreement with Mr. Hopper whereby the Company settled any and all
potential claims against the Company related to his period of employment with
MR3 and subsequent termination. In consideration of the settlement agreement,
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).

         In November 2003, the Company granted John K. Burns, President and
Chief Operating 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.

         In December 2003, the Company entered into an agreement with Toltec
Engineering Services LLC ("Toltec") of Payson, Arizona, for the manufacture and
installation of certain MR3 Technology related equipment. The agreement totaled
approximately $260,000 and obligated Toltec to manufacture and install the
equipment to MR3's specification. The agreement further obligated Toltec to
supply supporting printed documentation to the Company upon delivery of the
manufactured equipment. Mr. David DeVoe, President of Toltec, is a former
officer of the Company and is related to Dr. Irving DeVoe, the Company's Chief
Science Officer.

         In December 2003, the Company entered into a $100,000 promissory note
with The Aberdeen Trust, Grosvenor Trust Company Limited, as Trustee, for the
purpose of a bridge loan to the Company. Mr. Bradley Rotter, Chief Executive
Officer, is the beneficial owner of the Aberdeen Trust. The Company is obligated
to pay back the full amount of the note plus any interest accrued at 12% per
annum on or before April 15, 2004. In consideration for entering into the
promissory note, Aberdeen Trust was granted warrants to purchase 200,000 shares
of the Company's common stock at $0.35 per share for a five-year period.

         Pursuant to his employment agreement, Mr. Bradley Rotter, Chief
Executive Officer, has the right to convert deferred salary for the 2003
timeframe into restricted common shares at the fair market price per share at
the end of each applicable pay period. As of 12/31/03, Mr. Rotter has deferred
$57,000 in salary payments, which may be convertible in 236,826 common shares.

         Pursuant to his employment agreement, Mr. Jody Sitkoski, Senior Vice
President, has the right to convert deferred salary for the 2003 timeframe into
restricted common shares at the fair market price per share at the end of each
applicable pay period. As of 12/31/03, Mr. Sitkoski has deferred $65,625 in
salary payments, which may be convertible in 322,323 common shares.

                                      -44-
<PAGE>

                                     PART IV

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

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

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

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

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

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

3.5      Amended and Restated Certificate of Incorporation of Emarethree
         Corporation changing name to MR3 Systems, Inc., filed March 31, 2000(5)

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

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

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)

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

10.8     Termination Agreement and Mutual Release between CEG and the Company
         dated October 21, 2003(3)

10.9     Loan Agreement (Credit Facility) between High Stakes Capital LLC and
         the Company dated October 7, 2003(4)

10.10    Amendment #2, dated February 26, 2004, to the April 2002 Joint Venture
         and Technology Transfer Agreement between Linsa Associates, Ltd. and
         the Company

14.1     Code of ethics

21.1     Subsidiary of the Company(2)

23.1     Consent of Pohl, McNabola, Berg & Company

                                      -45-
<PAGE>

31.1     Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act
         of 2002

31.2     Certification of CFO pursuant to Section 302 of the Sarbanes Oxley Act
         of 2002

32.1     Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

         (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.

         (3)  Incorporated by reference from the annual report on Form 10-KSB
(Amendment #1) for the period ended December 31, 2002 filed with the Securities
and Exchange Commission on December 12, 2003.

         (4)  Incorporated by reference from the annual report on Form 10-KSB
(Amendment #2) for the period ended December 31, 2002 filed with the Securities
and Exchange Commission on December 22, 2003.

         (5)  Filed to reflect the current version on file with the Delaware
Office of Secretary of State.

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, 2003.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit fees

         The aggregate fees billed for professional services rendered by our
principal accountant for the audit of our annual financial statements, review of
our financial statements included in our quarterly reports and other fees that
are normally provided by our accountant in connection with our audits for the
fiscal year ended December 31, 2003 were $58,985.

Audit Related Fees

         There were no aggregate fees billed for assurance and related services
by our principal accountant that are reasonably related to the performance of
the audit or review of our financial statements, other than amounts previously
reported in this Item 14 for the fiscal year ended December 31, 2003.

Tax Fees

         The aggregate fees billed for professional services rendered by our
principal accountant for tax compliance, tax advices and tax planning for the
fiscal year ended December 31, 2003 were $11,825.

All Other Fees

         There were no other fees billed by our principal accountant for the
fiscal years ended December 31, 2003 except as provided above.

                                      -46-
<PAGE>

Audit Committee

         The Company's sole director, acting as its audit committee,
pre-approved all of the above amounts billed to the Company prior to incurring
the expenses associated therewith.

                                      -47-
<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:  March 26, 2004
                                            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             March 26, 2004
---------------------
Randall S. Reis

/s/ BRADLEY N. ROTTER           Chief Executive Officer and       March 26, 2004
---------------------           Director
Bradley N. Rotter

/s/ JOHN K. BURNS               President, COO and Director       March 26, 2004
---------------------
John K. Burns

/s/ GARY K. ABREIM              Chief Financial Officer           March 26, 2004
---------------------
Gary K. Abreim

                                      -48-
<PAGE>

                                MR3 SYSTEMS, INC

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 2003 AND 2002


                                 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-33

                                      -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, 2003
and 2002, 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, 2003 and 2002, 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.



/s/ Pohl, McNabola, Berg & Company LLP
--------------------------------------
Pohl, McNabola, Berg & Company LLP
San Francisco, CA
February 26, 2004

                                      F-1
<PAGE>

                                MR3 SYSTEMS, INC
                                 BALANCE SHEETS
                           DECEMBER 31, 2003 AND 2002


<TABLE>
<CAPTION>
                                                           2003            2002
                                                       ------------    ------------
<S>                                                    <C>             <C>
ASSETS
  Cash                                                 $    288,674    $     12,496
  Prepaid expenses                                               --         105,000
                                                       ------------    ------------
      Total current assets                                  288,674         117,496
                                                       ------------    ------------

  Property, equipment and leaseholds,
    net of accumulated depreciation and amortization        391,089         113,029
  Property held for sale                                         --           6,000
  Deposits                                                   21,497           2,497
                                                       ------------    ------------
      Total non-current assets                              412,586         121,526
                                                       ------------    ------------
       TOTAL ASSETS                                    $    701,260    $    239,022
                                                       ============    ============

LIABILITIES
  Accounts payable                                     $    417,371    $    526,731
  Payroll taxes payable                                     179,739         196,696
  Accrued expenses                                          294,470         302,819
  Note payable                                               84,254          84,254
  Capital lease obligation                                   50,418              --
  Short term notes payable                                  244,769         158,608
                                                       ------------    ------------
      Total current liabilities                           1,271,021       1,269,108
                                                       ------------    ------------

  Long term notes payable                                   501,597          99,405
  Capital lease obligation - long term                      111,032              --
  Liabilities related to discontinued division                   --          63,448
                                                       ------------    ------------
      Total long term liabilities                           612,629         162,853
                                                       ------------    ------------
         TOTAL LIABILITIES                                1,883,650       1,431,961
                                                       ------------    ------------

  SHAREHOLDERS' DEFICIT
    Common stock: 100,000,000 shares authorized;
      par value $0.01 issued and outstanding
      60,334,897 shares in 2003 and 48,382,171
      shares in 2002                                        603,350         483,822
    Preferred stock: 5,000,000 shares authorized;
      par value $0.01 Series A, 1,250,000 shares
      authorized; issued and outstanding 237,464
      shares in 2003 and 245,464
      Shares in 2002                                          2,375           2,455
    Additional paid-in capital                            8,943,422       7,403,600
    Accumulated deficit                                 (10,731,537)     (9,082,816)
                                                       ------------    ------------
         Total shareholders' deficit                     (1,182,390)     (1,192,939)
                                                       ------------    ------------

         TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT   $    701,260    $    239,022
                                                       ============    ============
</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, 2003 AND 2002


                                                      2003             2002
                                                  ------------     ------------

Sales                                             $         --     $         --
Cost of goods sold                                          --           87,802
                                                  ------------     ------------
    Gross margin                                            --          (87,802)
                                                  ------------     ------------

Operating Expenses:
  Development expenses                                 545,335          189,370
  Office expenses                                       85,200           67,243
  Personnel expenses                                   488,977          146,867
  Outside services and professional fees               432,391          244,642
  Office rent                                           34,802           41,356
  Loss on equipment write-down                         105,813          202,907
  Depreciation                                           9,113            4,015
                                                  ------------     ------------
    Total operating expenses                         1,701,631          896,400
                                                  ------------     ------------

Other (Income) and Expenses:
  Interest expense                                     168,533           53,863
  Other (income) and expense                          (223,843)         (27,515)
                                                  ------------     -------------
    Total other (income) and expense                   (55,310)          26,348
                                                  ------------     -------------
        Net loss before taxes                       (1,646,321)      (1,010,550)
                                                  ------------     -------------
        Provision for income taxes                       2,400              800
                                                  ------------     -------------
Net loss                                          $ (1,648,721)    $ (1,011,350)
                                                  ============     ============

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

  Weighted average number of shares:
     Basic                                          53,060,616       44,061,503
                                                  ============     ============
     Diluted                                        53,060,616       44,061,503
                                                  ============     ============

   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, 2003 AND 2002


<TABLE>
<CAPTION>
                                             Common Stock             Preferred Stock      Additional
                                        ----------------------       ------------------     paid-in      Accumulated
                                          Shares      Amount         Shares     Amount      Capital        Deficit        Total
                                        ----------   ---------       -------    -------    -----------   ------------  ------------

<S>                                     <C>          <C>             <C>        <C>        <C>           <C>            <C>
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)

Sale of common stock                     6,511,178      65,112            --         --        544,638            --        609,750

Warrants issued with sale of
  common stock                                  --          --            --         --        183,750            --        183,750

Conversion of preferred stock
  into common stock                          8,000          80        (8,000)       (80)            --            --             --

Conversion of notes payable and
  accrued interest into common stock     4,297,276      42,973            --         --        460,455            --        503,428

Shares issued for cancellation of
  warrants                                 105,000       1,050            --         --         11,550            --         12,600

Shares issued for settlement of
  ant-dilution agreement                   200,000       2,000            --         --         18,000            --         20,000

Compensation recognized on
  options granted                               --          --            --         --         25,800            --         25,800

Compensation recognized on
  repriced options                              --          --            --         --         85,475            --         85,475

Warrant issuance                                --          --            --         --        129,729            --        129,729

Common stock issued for services           831,272       8,313            --         --         80,425            --         88,738

Net loss                                        --          --            --         --             --    (1,648,721)    (1,648,721)
                                        ----------   ---------       -------    -------    -----------   ------------  ------------

Balance December 31, 2003               60,334,897   $ 603,350       237,464    $ 2,375    $ 8,943,422   $(10,731,537) $(1,182,390)
                                        ==========   =========       =======    =======    ===========   ============  ===========
</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, 2003 AND 2002


                                                         2003           2002
                                                     -----------    -----------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                           $(1,648,721)   $(1,011,350)
  Adjustments to reconcile net loss to net
    cash used by operating activities:
    Depreciation and amortization                          9,113          4,015
    Net loss on write-down of property and
      equipment                                          105,813        202,907
    Compensation expense on stock options
      granted                                            111,275         44,096
    Amortization of warrant issuance                      62,021         33,868
    Shares issued for services                            88,738        163,000
    Shares issued on settlement of
      anti-dilution agreement                             20,000             --

  Changes in assets and liabilities
    Prepaid expenses and deposits                         86,000        (90,027)
    Accounts payable                                     (80,360)       165,606
    Payroll taxes payable                                (16,957)        28,290
    Accrued expenses                                      24,579        124,708
    Accrued interest on shareholder notes                     --         13,347
    Liabilities related to discontinued
      division                                           (33,948)            --
                                                     -----------    -----------
      Net cash used by operating activities          $(1,272,447)   $  (321,540)
                                                     -----------    -----------


CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                 $  (220,476)   $        --
                                                     -----------    -----------
      Net cash used by investing activities          $  (220,476)   $        --
                                                     -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from notes payable-shareholders           $ 1,007,661    $   247,000
  Principal payments on notes
    payable-shareholders                                 (27,000)       (21,000)
  Payments on capital lease obligations                   (5,060)            --
  Proceeds from sale of common stock and
    warrants                                             793,500        107,981
                                                     -----------    -----------
      Net cash provided by financing activities      $ 1,769,101    $   333,981
                                                     -----------    -----------

                                   (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, 2003 AND 2002


                                                        2003            2002
                                                     -----------    -----------

Increase (decrease) in cash and
  short-term investments                             $   276,178    $    12,441
                                                     -----------    -----------
    Balance at beginning of year                          12,496             55
                                                     -----------    -----------
    Balance at end of year                           $   288,674    $    12,496
                                                     ===========    ===========

Supplemental disclosures:
  Cash paid for interest                             $        --    $        --
                                                     ===========    ===========
  Cash paid for taxes                                $     2,400    $        --
                                                     ===========    ===========

Supplemental Schedule of Non-Cash Investing
  and Financing Activities:
                                                        2003            2002
                                                     -----------    -----------

  Conversion of notes payable and accrued
    interest into common stock                       $   503,428    $    55,383
                                                     ===========    ===========
  Common stock issued for services                   $    88,738    $   163,000
                                                     ===========    ===========
  Compensation on stock options and warrants
    granted                                          $   111,275    $    44,096
                                                     ===========    ===========
  Amortization of warrant issuance                   $    62,021    $    33,868
                                                     ===========    ===========
  Shares issued on settlement of
    anti-dilution agreement                          $    20,000    $        --
                                                     ===========    ===========
  Shares issued for cancellation of warrants         $    12,600    $        --
                                                     ===========    ===========

                                                        2003
                                                     -----------
  Acquisition of equipment under capital leases      $   200,425
  Less: equipment loans and capitalized leases          (166,510)
                                                     -----------
  Cash used for acquisition of equipment
  under capital leases                               $    33,915
                                                     ===========

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

                                      F-6
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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.(CEG), 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. On October 21, 2003, the Company executed a termination and mutual
release agreement with CEG in connection with the aforementioned operating
agreements.

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, 2003 AND 2002


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 accrued expenses, 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 time maintains cash balances in excess of the federally insured
limit of $100,000 per financial institution. There were no uninsured balances at
December 31, 2002. Uninsured balances amounted to $202,531 at December 31, 2003.

                                      F-8
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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.

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.

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.

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

The Company expenses advertising costs as incurred. There were no advertising
costs for the years ended December 31, 2003 and 2002, respectively.

                                      F-9
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

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.

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.

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

The Company is currently not engaged in hedging activities nor does it have any
derivative instruments, thus there is no impact on the current period financial
statements.

                                      F-10
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

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.
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.

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, 2003 and 2002 comprehensive
income (loss) is equivalent to the Company's reported net income (loss).

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 SFAS-123.

                                      F-11
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

Stock option plan (continued)
-----------------

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.

The Company's policies comply with the guidance provided by 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.

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

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

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.

                                      F-12
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

Business risks and uncertainties (continued)
--------------------------------

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.

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

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 did 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. The Company recorded
impairment losses of $202,907 and $105,813, which were included in operating
expenses, during the years ended December 31, 2002 and December 31, 2003,
respectively (See Note 4).

                                      F-13
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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 did not 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. Pursuant to SFAS No.123, the Company
would expense the fair market value of stock options newly granted to third
parties and disclose the pro forma results based on the fair value of
options/warrants granted to employees.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45") "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees. It also
clarifies that at the time a company issues a guarantee the Company must
recognize an initial liability for the fair value, or market value, of the
obligations that it assumes under that guarantee. However, the provisions
related to recognizing a liability at inception of the guarantee for the fair
value of the guarantor's obligations does not apply to product warranties or to
guarantees accounted for as derivatives. The initial recognition and initial
measurement provisions apply on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements of FIN 45 are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company did not have any impact from adopting FIN 45 on
its results of operations or financial position.

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21 ("EITF 00-21"), "Revenue Arrangements with Multiple
Deliverables." EITF 00-21 provides guidance on how to account for arrangements
that involve the delivery or performance of multiple products, services and/or
rights to use assets. The provisions of EITF 00-21 will apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company does not believe the adoption of EITF 00-21 will have a material impact
on its financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46") "Consolidation
of Variable Interest Entities." Until this interpretation, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. FIN 46 requires a variable
interest entity, as defined, to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns.
The Company does not believe the adoption of FIN 46 will have a material impact
on its results of operations or financial position.

                                      F-14
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

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

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which amends SFAS 133 for
certain decisions made by the FASB Derivatives Implementation Group. In
particular, SFAS 149: (1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative, (2) clarifies
when a derivative contains a financing component, (3) amends the definition of
an underlying instrument to conform it to language used in FASB Interpretation
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," and (4) amends certain
other existing pronouncements. This Statement is effective for contracts entered
into or modified after June 30, 2003, and for hedging relationships designated
after June 30, 2003. In addition, most provisions of SFAS 149 are to be applied
prospectively. The Company does not expect the adoption of SFAS 149 will have a
material impact on its financial position, cash flows or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150").
SFAS 150 changes the accounting for certain financial instruments that under
previous guidance issuers could account for as equity. It requires that those
instruments be classified as liabilities in balance sheets. The guidance in SFAS
150 is generally effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective on July 1, 2003. The
Company does not expect the adoption of SFAS 150 will have a material impact on
its financial position, cash flows or results of operations.

2.   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. The agreement expired in third quarter 2003 and
was not renewed by the Company.

                                      F-15
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


3.   Property and Equipment
     ----------------------

Property and equipment at December 31, 2003 and 2002 consist of the following:

                                             2003              2002
                                         -----------       -----------

Office furniture and fixtures            $    10,069       $    57,810
Computer and manufacturing equipment         379,762           119,248
Leasehold improvements                        22,605             3,382
                                         -----------       -----------

Total property and equipment                 412,436           180,440
Less accumulated depreciation                (21,347)          (67,411)
                                         -----------       -----------
Total                                    $   391,089       $   113,029
                                         ===========       ===========

Depreciation expense for the years ended December 31, 2003 and 2002 was $9,113
and $4,015, respectively.

4.   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. In 2002,
property and equipment were reviewed by management 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.

During 2003, management decided to terminate its agreement with Consolidated
Empire Gold, Inc and performed a review of the remaining carrying value of MR3
property and equipment. The review indicated that the MR3 property and equipment
was impaired. As a result, the Company recorded an impairment loss in the amount
of $105,813, which was included in operating expenses during the year ended
December 31, 2003.

                                      F-16
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


5.   Accrued Expenses
     ----------------

Certain officers and key employees of the Company agreed to defer a portion of
their compensation (salaries and bonuses) earned during the years ended December
31, 2003 and 2002.

Accrued interest represents the interest earned on the outstanding notes payable
balances at December 31, 2003 and 2002 due to shareholders and related parties.

Accrued expenses at December 31, 2003 and 2002 consist of the following:

                                            2003            2002
                                          ---------      ---------
            Deferred compensation         $ 181,443      $ 240,459
            Accrued interest                 50,341         11,560
            Accrued vacation                 27,886             --
            Accrued audit fees               34,000         50,000
            State income tax payable            800            800
                                          ---------      ---------
            Total                         $ 294,470      $ 302,819
                                          =========      =========

6.   Notes Payable
     -------------

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

In 2001, the Company had a 10% note payable with an outstanding principal
balance of $119,644, which included accrued interest of $10,877.

In 2002, the Company reached an agreement with this note holder to modify the
terms of the note. The note holder 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
statement of operations for the year ended December 31, 2002 were $33,868.

In 2003, the Company recorded $13,161 of accrued interest and the note amount
was modified to $144,769. The Company is seeking to renegotiate the agreement
with the lender to modify the terms of the note.

                                      F-17
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


6.   Notes Payable (continued)
     -------------

In 2002, the Company issued $50,000 of 12% convertible subordinated notes to one
of its shareholders, 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 for general corporate purposes. In February 2003,
the Company issued another 12% convertible note in the amount of $15,000 to the
same shareholder with a five-year maturity date.

In April 2003, the Company authorized two 12% convertible notes 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
mature in five (5) five years from the date of issuance and bear a 12 percent
interest rate per year. The total amount received from these notes as of
December 31, 2002 amounted to $115,000. The total amount received from these
notes during 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 3,657,752 restricted
shares of the Company's common stock at twelve cents ($0.12) per share and
retained their attached warrants. The converted notes in 2003 amounted to
$412,000. 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 105,000 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. The outstanding balance on these notes at December 31, 2003 amounted
to $52,500.

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 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. The Company received
its first $250,000 of loan proceeds on October 14, 2003 and its second $250,000
of loan proceeds on December 17, 2003. The total outstanding balance on this
note amounted to $500,000 at December 31, 2003.

                                      F-18
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


6.   Notes Payable (continued)
     -------------

In December 2003, the Company entered into a $100,000 promissory note with The
Aberdeen Trust, Grosvenor Trust Company Limited, as Trustee, for the purpose of
a bridge loan to the Company. Mr. Bradley Rotter, Chief Executive Officer, is
the beneficial owner of the Aberdeen Trust. The Company is obligated to pay back
the full amount of the note plus any interest accrued at 12% per annum on or
before April 15, 2004. In consideration for entering into the promissory note,
Aberdeen Trust was granted warrants to purchase 200,000 shares of the Company's
common stock at $0.35 per share for a five-year period. The outstanding balance
on this note amounted to $100,000 at December 31, 2003.

Long-term notes payable at December 31, 2003 consisted of the following:

                                                                     2003
                                                                 ------------

      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% convertible subordinated debenture dated February
      2003, due February 2008 with interest due and payable
      on the maturity date, convertible into 214,286 of
      common stock at $0.07 per share at any time prior to
      maturity.                                                        15,000

      12% convertible subordinated debentures dated April
      2003, due April 2008 with interest due and payable on
      the maturity date, convertible into 300,000 of common
      stock at $0.10 per share at any time prior to maturity.          30,000

      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.             2,500

      14% promissory note to a private financing group in
      the principal amount of $1,250,000 with equity
      conversion features dated October 2003 and due March
      1, 2006.                                                        500,000

      Less: Unamortized discount                                     (145,903)
                                                                 ------------
      Total long-term notes payable                              $    501,597
                                                                 ============

                                      F-19
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


6.   Notes Payable (continued)
     -------------

In conjunction with the issuance of the convertible notes in 2002 and 2003, 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, 2003, the
unamortized discount on the notes amounted to $145,903. All conversion features
on the notes payable were priced at market value or greater at the time of
issuance.

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
                                                                 ============

                                      F-20
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


6.   Notes Payable (continued)
     -------------

Short-term notes payable at December 31, 2003 consisted of the following:

                                                                     2003
                                                                 ------------

      10% convertible note payable due on demand. Note
      holder has the option to convert the note into shares
      of common stock at $0.05 per share if the note becomes
      overdue.                                                   $    144,769

      12% promissory note with an officer and major
      shareholder in the amount of $100,000 dated December
      2003 and due by April 15, 2004.                                 100,000
                                                                 ------------

      Total short-term notes payable                             $    244,769
                                                                 ============

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
                                                                 ============

Accrued interest on all these notes amounted to $50,341 and $11,560 at December
31, 2003 and 2002, respectively.

                                      F-21
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


7.   Capital Lease Obligation
     ------------------------

The Company leases laboratory equipment for its new lab in Massachusetts under a
lease agreement that is classified as a capital lease. The cost of this leased
equipment amounts to $200,425 and is included in property and equipment at
December 31, 2003. Accumulated amortization of the leased equipment at December
31, 2003 amounted to $3,340. Amortization of assets under capital leases is
included in depreciation expense.

The future minimum lease payments required under the capital lease and the
present values of the net minimum lease payments as of December 31, 2003 are as
follows:

           Year ending December 31,                          Amount
           -------------------------------------------     ---------
           2004                                            $  64,046
           2005                                               63,761
           2006                                               58,448
                                                           ---------
           Total minimum lease payments                      186,255

           Less: Amount representing interest                (24,805)
                                                           ---------
           Present value of net minimum lease payments       161,450

           Less: Current maturities of capital lease
           obligation                                        (50,418)
                                                           ---------
           Long-term capital lease obligation              $ 111,032
                                                           =========

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

                                      F-22
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

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

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.

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.

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

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

                                         2003           2002
                                       --------        ------
            Current
               Federal                 $     --        $   --
               State                      2,400           800
                                       --------        ------
                                          2,400           800

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

            Provision for income
              taxes                    $  2,400        $  800
                                       ========        ======

                                      F-23
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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:

                                                      2003              2002
                                                   -----------      -----------
Deferred tax asset
  Net operating loss carryforward                  $ 3,445,338      $ 2,755,891
  Amortization of intangible assets                     23,892           23,892
  Deferred benefits and other accruals                  89,677          241,173
                                                   -----------      -----------
Total deferred tax asset                             3,558,907        3,020,956

Deferred tax liability
  Differences between book and tax
    depreciation                                        38,026           16,307
  State income tax benefit                            (145,271)         125,131
                                                   -----------      -----------
Total deferred tax liability                          (107,245)         141,438
                                                   -----------      -----------

Net deferred tax asset before valuation
  allowance                                          3,451,662        2,879,518
Less valuation allowance                            (3,451,662)      (2,879,518)
                                                   -----------      -----------
Net deferred tax asset                             $        --      $        --
                                                   ===========      ===========

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, 2003 and 2002 is as follows:

                                                             2003          2002
                                                            ------        ------

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

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

Valuation allowance                                        42.65%        42.92%
                                                           -----         -----

Effective income tax rate                                   0.19%         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-24
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

At December 31, 2003 and 2002, the Company has available approximately
$8,969,000 and $7,174,000 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, 2003 and 2002, 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.

The Company is committed under an operating lease agreement for its 3,699 square
feet office and laboratory facility at 100 Cummings Center, Beverly,
Massachusetts. The lease is for a period of three years beginning November 1,
2003 and expiring October 30, 2006. This lease requires monthly rental payments
of approximately $6,432.

Future minimum lease payments required under this non- cancelable operating
lease are as follows:

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

                      2004                       $ 102,161
                      2005                          77,188
                      2006                          64,323
                                                  ---------
                      Total                       $ 243,672
                                                  =========

During 2002 and 2003 the Company rented on a month-to-month basis other
facilities in Salem, Massachusetts and Butte, Montana, which were used as
production and research and development facilities.

Total rent expense under all these operating leases for the years ended December
31, 2003 and 2002 amounted to $52,989 and $72,256, respectively.

                                      F-25
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


10.  Commitments and Contingencies (continued)
     -----------------------------

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

In 2002, the Company recorded additional 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. These accrued costs were estimated at
approximately $38,250 and were recorded in the Company's financial statements at
December 31, 2002. In January 2004, the Company settled the matter with the
Montana Department of Environmental Quality for the sum of $38,502 payable in
six monthly installments commencing on January 30, 2004.

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, 2003 and 2002, 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 and warrants 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, 2003 and 2002 are
summarized as follows:

                                            2003                    2002
                                   ---------------------   ---------------------
                                                Average                  Average
                                                Exercise                Exercise
                                     Shares      Price       Shares      Price
                                   ----------   --------   ----------   --------

Outstanding at beginning of year    22,826,898    $0.11     14,965,657    $0.29
Granted                             31,920,997     0.19      8,740,741     0.05
Exercised                                   --       --        (50,000)   (0.03)
Forfeited/Cancelled                   (655,000)   (0.55)      (829,500)   (2.73)
                                   -----------    -----    -----------    -----
Outstanding at end of year          54,092,895     0.16     22,826,898    $0.11
                                   ===========    =====    ===========    =====
Exercisable at end of year          49,073,309    $0.16     22,826,898    $0.11
                                   ===========    =====    ===========    =====

                                      F-26
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

The following table presents information about stock options and warrants
granted during the years ended December 31, 2003 and 2002 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, 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
                                                           =========     =====

Year ended December 31, 2003:

Exercise price equals market value                         3,849,997     $0.10
Exercise price greater than market value                  28,071,000      0.20
Exercise price less than market value                             --        --
                                                          ----------     -----
Total granted during year                                 31,920,997     $0.19
                                                          ==========     =====

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

Pursuant to FASB Interpretation No. 44, the Company applies provisions of SFAS
No. 123 for options and warrants granted to third parties. Accordingly, in 2003
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, 2003 and 2002, the Company's board of
directors approved the grant of stock options or warrants to various independent
consultants to purchase an aggregate of 1,310,800 and 1,483,280 shares of its
common stock, respectively. These options have an exercise price of $0.10 to
$0.25 in 2003 and $0.02 to $0.07 in 2002. All of these options or warrants
shares were vested immediately. As a result, the Company recorded $25,800 and
$32,613 in compensation expense, which is included in outside services and
professional fees in the statements of operations, at December 31, 2003 and
2002, 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, 2003 AND 2002


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

Independent Consultant Stock Options and Warrants (continued)
-------------------------------------------------

The following table summarizes information about options and warrants
outstanding at December 31, 2003:

<TABLE>
<CAPTION>
                                                                  Warrants and Options
                       Warrants and Options Outstanding                Exercisable
                     --------------------------------------     -------------------------
                       Number        Weighted                     Number
                     Outstanding     Average       Weighted     Exercisable      Weighted
                        as of        Remaining     Average         as of         Average
   Range of          December 31,   Contractual    Exercise     December 31,     Exercise
Exercise Prices         2003            Life        Price          2003           Price
---------------      ------------   -----------    --------     ------------     --------
<S>                     <C>             <C>        <C>             <C>           <C>
$     0.01-0.03         5,065,667       3.55       $  0.02         5,065,667     $  0.02

$     0.05-0.07         5,085,715       3.74       $  0.06         5,085,715     $  0.06

$        0.10          21,088,828       2.93       $  0.10        18,768,825     $  0.10

$     0.12-0.25        14,038,521       3.69       $  0.21        12,038,521     $  0.22

$     0.35-0.41         8,384,999       3.75       $  0.36         7,685,416     $  0.36

$     0.50-0.53           379,165       1.97       $  0.50           379,165     $  0.50

$     1.00-4.00            50,000       0.07       $  1.00            50,000     $  1.00
                       ----------                                 ----------
                       54,092,895                  $  0.16        49,073,309     $  0.16
                       ==========                                 ==========
</TABLE>

                                      F-28
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

Independent Consultant Stock Options and Warrants (continued)
-------------------------------------------------

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

<TABLE>
<CAPTION>
                                                                  Warrants and Options
                       Warrants and Options Outstanding                Exercisable
                     --------------------------------------     -------------------------
                       Number        Weighted                     Number
                     Outstanding     Average       Weighted     Exercisable      Weighted
                        as of        Remaining     Average         as of         Average
   Range of          December 31,   Contractual    Exercise     December 31,     Exercise
Exercise Prices         2003            Life        Price          2003           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>

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 for options and
warrants granted below fair market value.

                                      F-29
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

Independent Consultant Stock Options and Warrants (continued)
-------------------------------------------------

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:

                                              2003             2002
                                         -------------    ------------
      Net Loss:
        As reported                      $ (1,648,721)    $ (1,011,350)
        Pro forma                        $ (1,846,772)    $ (1,121,314)

      Basic and diluted loss per
      common share
        As reported
          Basic                          $      (0.03)    $     (0.02)
          Diluted                        $      (0.03)    $     (0.02)
        Pro forma
          Basic                          $      (0.04)    $     (0.03)
          Diluted                        $      (0.04)    $     (0.03)

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, 2003 and 2002 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: 2003: dividend yield of 0%; expected volatility of 50%; risk-free
interest rate of 4.9%, and expected life of 5 years; 2002: dividend yield of 0%;
expected volatility of 200%; risk-free interest rate of 4.9%, and expected life
of 5 years. The weighted-average fair value of options and warrants granted were
$0.07 and $0.03 for 2003 and 2002, respectively.

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.

                                      F-30
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

Options and warrants repricing
------------------------------

Sharp declines in the market price of the Company's common stock during 2002
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. The Company did not reprice options or
warrants during 2003.

In 2003, the Company recorded $85,475 of compensation expense resulting from the
repricing of options and warrants in prior years. The pro forma disclosures
include compensation cost for the incremental fair value resulting from such
modifications on options and warrants granted to employees.

12.  Related Party Transactions
     --------------------------

In January 2003, the Company granted Mr. Jody Sitkoski, Vice President, one
million (1,000,000) warrants to purchase common shares of the Company's common
stock at a price of five cents ($0.05) per share and two million (2,000,000)
warrants to purchase common shares of the Company's common stock at a price of
fifteen cents ($0.15) per share. One million of the warrants vested immediately
and the balance of two million warrants vest as of December 31, 2005.

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.

                                      F-31
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


12.  Related Party Transactions (continued)
     --------------------------

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. Deferred
compensation for Randall S. Reis, which is included in accrued expenses,
amounted to $18,878 and $6,176 for the years ended December 31, 2003 and 2002,
respectively. Deferred compensation for Bradley N. Rotter, which is included in
accrued expenses, amounted to $57,000, for the year ended December 31, 2003.

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. 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. Deferred compensation for Dr. Irving DeVoe, which is included in
accrued expenses, amounted to $32,500 and $64,000 for the years ended December
31, 2003 and 2002, respectively.

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 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. Mr. Bradley Rotter, the Company's Chief Executive
Officer, participated in the private placement in the amount of $100,000.

                                      F-32
<PAGE>
                                MR3 SYSTEMS, INC
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


12.  Related Party Transactions (continued)
     --------------------------

In November 2003, the Company granted John K. Burns, President and Chief
Operating 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.

In December 2003, the Company entered into an agreement with Toltec Engineering
Services LLC ("Toltec") of Payson, Arizona, for the manufacture and installation
of certain MR3 Technology related equipment. The agreement totaled approximately
$260,000 and obligated Toltec to manufacture and install the equipment to MR3's
specification. The agreement further obligated Toltec to supply supporting
printed documentation to the Company upon delivery of the manufactured
equipment. Mr. David DeVoe, President of Toltec, is a former officer of the
Company and is related to Dr. Irving DeVoe, the Company's Chief Science Officer.

In December 2003, the Company entered into a $100,000 promissory note with The
Aberdeen Trust, Grosvenor Trust Company Limited, as Trustee, for the purpose of
a bridge loan to the Company. Mr. Bradley Rotter, Chief Executive Officer, is
the beneficial owner of the Aberdeen Trust. The Company is obligated to pay back
the full amount of the note plus any interest accrued at 12% per annum on or
before April 15, 2004. In consideration for entering into the promissory note,
Aberdeen Trust was granted warrants to purchase 200,000 shares of the Company's
common stock at $0.35 per share for a five-year period.

13.  Subsequent Events
     -----------------

The Company received its third $250,000 of loan proceeds on February 4, 2004
bringing its total borrowings under the $1,250,000 credit facility to $750,000
(See Note 6).

Effective February 26, 2004 the Company amended its agreement with Linsa
Associates, Ltd. ("Linsa") to reduce the restricted areas under Section 1.3 of
the agreement from thirty-six jurisdictions to two (Taiwan and Egypt) including,
however, any transactions done outside of a restricted area with subsidiaries or
affiliates of companies headquartered within a restricted area, provided that
Linsa is transacting business with such companies within the restricted area at
the time of any such outside transaction.

                                      F-33