UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB

 (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 UNDER SECTION 13 OR 15(d) OF THE SECURITIES
               EXCHANGE ACT OF 1934

               For the transition period from              to
                                              ------------    ------------

                         Commission File Number 000-26463
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                          MILITARY RESALE GROUP, INC.
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                 (Name of small business issuer in its charter)

               New York                                  11-2665282
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(State or other jurisdiction of              I.R.S. Employer Identification No.
incorporation or organization)

2180 Executive Circle, Colorado Springs, Colorado                 80906
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(Address of principal executive offices)                     (Zip Code)

Issuer's telephone number: (719) 391-4564

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

                         Common Stock, $.0001 par value
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                                (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 no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure is contained, to the
best of the 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 registrant's revenues for its most recent fiscal year.  $6,049,445

As of April 30, 2004, the registrant had outstanding 26,298,011 shares of its
common stock.

As of April 30, 2004, the aggregate market value of the registrant's common
stock held by non-affiliates was $3,990,650 (based upon the closing price
($0.165) of the registrant's common stock on The OTC Bulletin Board on such
date).

Transitional Small Business Disclosure Format (check one)    Yes [_]  No [X]

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

      We are a regional distributor of grocery and household items specializing
in distribution to the military market. We distribute a wide variety of items,
including fresh and frozen meat and poultry, seafood, frozen foods, canned and
dry goods, beverages, dairy products, paper goods and cleaning and other
supplies. Our operations are currently directed to servicing the commissary at
each of six military installations located in Colorado, Wyoming and South
Dakota, including the Air Force Academy located in Colorado Springs, Colorado.
We are approved by the Department of Defense to contract with military
commissaries and exchanges.

      Military commissaries are large supermarket-type stores operated by the
United States Defense Commissary Agency ("DeCA") to provide grocery items for
sale to authorized patrons at the lowest practicable prices in facilities
designed and operated under standards similar to those in commercial food
stores. As of April 30, 2004, there were 275 commissaries worldwide, of which
171 were located in the continental United States and 104 were located overseas.
Commissaries are authorized by law to sell goods only to authorized patrons,
which include the approximately 1.4 million active duty U.S. military personnel,
their dependents and certain authorized reservists and retirees. As of April 30,
2004, the number of authorized commissary patrons totaled approximately 12.4
million individuals. Annual worldwide commissary sales totaled more than $5
billion in DeCA's 2003 fiscal year, which ended on September 30, 2003.

      The categories and varieties of merchandise that may be sold in a
commissary are strictly regulated by DeCA, as is the cost at which items may be
purchased for resale. Under DeCA regulations, all items sold through the
commissary system must be sold at cost. The military commissary system is
generally self-funded and receives an annual appropriation from Congress
primarily to pay the salaries of those who work for the commissaries. Store
operations are funded by a 5% surcharge (not a tax) levied on the total amount
of the customers' purchases. The surcharge pays for new commissary construction
and renovation, new equipment and maintenance, paper bags, shopping carts and
other operating costs. In selling products at cost, commissaries are considered
an integral part of the military's pay and compensation package.

      The military exchange system consists of nearly two dozen separate
business enterprises, including main exchange stores, convenience stores,
package stores, food operations, gas stations, movie theaters and others,
operated by the various military services for the benefit of military personnel
and other qualified patrons. As of April 30, 2004, there were 541 "main
exchanges" worldwide, and approximately 20,000 other exchange service-operated
facilities. Annual sales from the exchange systems' worldwide business
operations totaled approximately $10.9 billion in the exchange system's fiscal
year ended September 30, 2003. In October 2003, we began selling a limited
number of products to stores in the military exchange system that are located on
three of the military bases that we currently service.

STRATEGIC PLAN

      Our strategy is to establish our company as a leading provider of goods to
the military market. To accomplish this, our management intends to execute the
following:

      Expand Distribution Capabilities. We currently direct our focus to the
distribution of products to commissaries located in the Midwest Region of the
United States, which represents only one of the four DeCA regions. We do not
currently sell to commissaries located overseas or to military exchanges. An
important part of our strategic plan is to expand our distribution capabilities,
both in the domestic and overseas markets, by acquiring or contracting with
distributors, as opportunities permit.

      Expand Product Offerings. Industry data indicate that the average number
of items stocked by the typical civilian supermarket is approximately 25,000 as
compared to approximately 13,000 for a commissary. We believe the discrepancy

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results primarily from the reluctance of certain large manufacturers and many
medium and small manufacturers to undertake the administrative burden of
obtaining DeCA's approval of products to be sold to commissaries. Under Federal
procurement rules, a manufacturer may represent itself or retain a third-party
representative on an exclusive basis to negotiate, supply, invoice and otherwise
manage its products within the DeCA system. Our management believes there are
many additional manufacturers with products that would meet the DeCA procurement
standards and are desirous of selling to the military but that are unable or
unwilling to commit the personnel and other resources necessary to comply with
the DeCA procurement regulations and procedures required to enable them to sell
their products to military commissaries. We intend to continue marketing to
manufacturers, suppliers and brokers in an effort to establish new relationships
that will allow us to increase the amount and types of products we offer.

      Growth Through Acquisitions. We intend to pursue an acquisition program to
increase the number of our offered products, strengthen our ability to sell to
the military exchange and commissary systems, and broaden our geographic reach
to sell and distribute products in domestic and overseas regions that we do not
currently service. We believe the industry in which we operate is highly
fragmented, consisting primarily of small local brokers and distributors that
limit their operations to a narrow range of offered products or distribute
products only to commissaries or exchanges in selected regions. In view of the
current state of the industry and the trend to centralize the management of the
commissary system and enhance its cost-effectiveness, we believe significant
opportunities are available to a business that can consolidate the capabilities
and resources of a number of existing brokers and distributors in the military
consumer goods market, including the cost savings that are inherent in a
vertically integrated business. We intend to implement our acquisition program
if we are able to increase our working capital through the sale of equity
securities or can otherwise arrange acquisition financing for a specific
acquisition transaction. Once implemented, the rate at which we seek to acquire
additional complementary business and the size of any such acquisitions will
depend, to a significant degree, on our working capital position or the
aggregate amount of acquisition financing available to us.

      Acquiring additional broker or distribution businesses will require
additional capital and may have a significant impact on our financial position.
We currently intend to finance future acquisitions by using our common stock for
all or a portion of the consideration to be paid or through acquisition specific
debt financing. In the event our common stock does not maintain sufficient
value, or potential acquisition candidates are unwilling to accept our common
stock as consideration for the sale of their businesses, we may be required to
utilize more of our cash resources, if available, in order to continue our
acquisition program. If we do not have sufficient cash resources, our growth
could be limited unless we are able to obtain capital through the issuance of
additional debt or the issuance of one or more series or classes of our equity
securities, which could have a dilutive effect on our then-outstanding capital
stock. We do not currently have a line of credit or other lending arrangement
with a lending financial institution, and there can be no assurance that we will
be able to obtain such an arrangement on terms we find acceptable or sufficient
for our needs, if at all, should we determine to do so. Acquisitions could
result in the accumulation of substantial goodwill and intangible assets, which
may result in substantial amortization charges that could reduce our reported
earnings.

      Although we intend to perform a detailed investigation of each business
that we acquire, there may nevertheless be liabilities that we fail or are
unable to discover, including liabilities arising from non-compliance with
environmental laws by prior owners, and for which we, as a successor owner, may
be responsible. We will seek to minimize the impact of these liabilities by
obtaining indemnities and warranties from the seller that may be supported by
deferring payment of a portion of the purchase price. However, these indemnities
and warranties, if obtained, may not fully cover the liabilities due to their
limited scope, amount or duration, the financial limitations of the indemnitor
or warrantor, or other reasons. At this time there are no pending or planned
acquisitions.

      Improve Management Information Systems. We are committed to improving our
management information systems to enable management to more efficiently track
sales and product shipments. To help make such improvements, we intend to
purchase and implement an inventory control system and a web-based sales
program. We believe that, upon completion of these projects, we will have
achieved significant progress in creating an improved infrastructure capable of

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supporting expanded product offerings. We will require additional capital in
order to purchase and implement an inventory control system.

      Our current cash levels, together with the cash flows we generate from
operating activities, are not sufficient to enable us to execute our business
strategy as described above. As a result, we intend to seek up to $5 million of
additional capital through the sale of shares of our common stock. In December
2001, we filed with the Securities and Exchange Commission a registration
statement relating to such shares. Such registration statement has not yet been
declared effective, and there can be no assurance that the Securities and
Exchange Commission will declare such registration statement effective in the
near future, if at all. In the event we receive only a nominal amount of
proceeds for the sale of our common stock in our proposed offering, we intend to
use such proceeds to purchase and implement an inventory control system and to
continue to seek to expand our product offerings to the extent we have
sufficient working capital to finance additional accounts receivable and
purchase inventory. However, with only limited net proceeds from our proposed
offering, it is unlikely that we will be able to expand our distribution
capabilities in any meaningful manner, and we may be unable to implement our
proposed acquisition program.

PURCHASING AND SUPPLY

      At December 31, 2003, we distributed an aggregate of over 4,125 Stock
Keeping Units (SKUs) that we acquired from approximately 100 manufacturers or
suppliers. Products distributed include fresh and frozen meat and poultry,
seafood, frozen foods, canned and dry goods, beverages, dairy products, paper
goods and cleaning and other supplies. In 2003, we distributed an aggregate of
approximately 405 SKUs supplied by Tyson Foods, Inc., S&K Sales, Inc. and Jimmy
Dean Foods, Inc., a division of Sara Lee Foods-USA, our three largest suppliers,
and approximately 60% of our aggregate revenues was derived from the sale of
products manufactured or supplied by such suppliers.

      Our agreements with our principal suppliers generally provide that we will
act as their exclusive agent for the distribution of their products to specific
military commissaries. Pursuant to our agreements with Tyson Foods, Inc. and
Sara Lee Foods-USA, we purchase products for resale to commissaries. Under our
agreement with S&K Sales, Inc., a food broker, we sell and distribute products
on a commission basis to the six commissaries we service. Our agreements with
Tyson Foods, Inc. and Sara Lee Foods-USA have a one-year term and automatically
renew for successive one-year periods. Our agreement with S&K Sales, Inc. has no
defined term and is cancelable by either party upon 30 days' written notice.

      The majority of our revenues are derived from products that we purchase
outright from manufacturers and resell to commissaries. In this arrangement, the
manufacturer maintains an account with DeCA through the Electronic Data
Interchange ("EDI") system. Generally, the manufacturer also selects the broker
or brokers to merchandise the products and is actively involved in the sale of
its products to commissaries/exchanges and the interaction between the
commissaries/exchanges, the brokers and the distributors. Payment for products
are remitted by DeCA to the manufacturer within seven days after the end of each
roll-up period with respect to meats, 10 days with respect to dairy products and
23 days with respect to most other products.

      For the year ended December 31, 2003, approximately 66.3% of our gross
profit was derived from the sale of products acquired on a consignment basis. In
a consignment sale, the manufacturer is involved in all facets of the
transaction. It appoints and monitors brokers, maintains the account with DeCA,
receives payment from DeCA and pays us a fee based on a percentage of the
purchase price paid by DeCA.

      For the year ended December 31, 2003, approximately 33.7% of our gross
profit was derived from the purchase and sale of products in which we acted as
principal and interacted directly with DeCA. In such instances, we purchase the
products from manufacturers and resell such products to commissaries at
negotiated prices. The manufacturer maintains an account with DeCA and receives
payments directly from DeCA. We receive from the manufacturer the purchase price
paid by the commissary plus a negotiated storage and delivery fee.

      We believe all of our suppliers have sufficient resources to continue
supplying the products we distribute and do not foresee any shortage of product
availability from any of our suppliers.

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MARKETING AND CUSTOMER SERVICE

      Our senior management is involved in maintaining relationships with key
customers and securing new accounts. We also maintain good relationships with
brokers, which have been an effective source of new products. We believe that
our ability to consistently provide a high level of service makes us desirable
to brokers who want to ensure on-time delivery of the products they represent.
We rigorously monitor the quality of our service. Our personnel frequently visit
the commissaries that we serve and we are in constant communication with
commissaries in order to ensure on-time order fulfillment.

OPERATIONS AND DISTRIBUTION

      Our operations can generally be categorized into two business processes:
(i) product replenishment and (ii) order fulfillment. Product replenishment
involves the management of logistics from the vendor location through the
delivery of products to our distribution center. Order fulfillment involves all
activities from order placement through delivery to the commissary location. We
determine the quantities in which such products will be ordered from
manufacturers. Order quantities for each product are systematically determined
by us. Given our experience in managing our product flow, losses due to
shrinkage, damage and product obsolescence represented less than 1/3 of 1% of
2003 net sales.

      We work closely with the commissaries in order to optimize transportation
from vendor locations to the distribution center. By utilizing our own trucks
and our expertise in managing transportation, we can ensure on-time delivery of
products on a cost-effective basis. We believe that we realize significant cost
savings by the consolidation of products from more than one vendor or for use by
more than one commissary. We also utilize a number of third party carriers to
provide in-bound transportation services. None of these carriers is material to
our operations.

      We currently warehouse approximately 4,125 SKUs for distribution to
commissaries. Products are inspected at our distribution center upon receipt and
stored in racks. Our distribution center includes approximately 28,746 square
feet of dry storage space, 3,000 square feet of frozen storage space, and 2,000
square feet of refrigerated storage space, as well as offices for operating,
sales and customer service personnel and a management information system.

      We place a significant emphasis on providing a high service level in order
fulfillment. We believe that by providing a high level of service and
reliability, we reduce our costs by reducing the number of reorders and
redeliveries. Each commissary places product orders based on recent usage,
estimated sales and existing inventories. We have developed pre-established
routes and pre-arranged delivery times with each customer. Product orders are
placed with us six times a week either through our customer service
representative or through electronic transmission using the EDI system.
Approximately 90% of our orders are received electronically. Orders are
generally placed on a designated day in order to coordinate with our
pre-established delivery schedules. Processing and dispatch of each order is
generally completed within seven hours of receipt and our standards require each
order to be delivered to the customer within one hour of a pre-arranged delivery
time.

      Products are picked and labeled at each distribution center. The products
are placed on pallets for loading of outbound trailers. Delivery routes are
scheduled to both fully utilize the trailers' load capacity and minimize the
number of miles driven. In 2003, we transported approximately 5,800 tons of
product and our trucks traveled in excess of 145,000 miles.

THE MILITARY MARKET

      General. The United States military market is composed of three main
groups: the active members of the four branches of the United States military --
Army, Navy, Air Force and Marines; military retirees; and members of the
military reserve. Including disabled veterans, overseas civil service personnel
and dependents of all of these groups, and patrons of military commissaries and
exchanges number over 12 million.

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      According to DeCA trade publications, active duty personnel generally are
well-educated, well paid and sophisticated. They enjoy a high standard of living
with excellent benefits, and, therefore, constitute an excellent market for a
variety of goods and services. Military retirees consist of military personnel
who retire after 20 years or more of service with full commissary and exchange
privileges. Military retirees generally are younger than civilian retirees and
tend to engage in second careers after retirement. As a result, they generally
are affluent, and like active duty personnel, provide an excellent market for
goods and services offered by commissaries and exchanges. Within the last
several years, reservists were granted full commissary and exchange benefits
while on active duty. Reservists for the most part mirror a cross-section of the
general United States population. Generally, they do not shop at commissaries
and exchanges as often as members of the other military groups, but tend to buy
larger quantities at each trip.

      The United States has streamlined its Armed Forces in the post-Cold War
era. Despite these reductions, the United States military resale market
continues to remain strong. In the fiscal year ended September 30, 2003, total
annual worldwide commissary and exchange sales were approximately $16 billion,
with more than $11 billion of these sales in the United States. Since 1945,
there has been a major military build-down following each of World War II, the
Korean War and the Vietnam war. The military market for consumer goods continued
to prosper through each one. The post-Cold War reduction in manpower has not
been as severe as previous reductions, and largely has been achieved by early
retirement, and the curtailment of inductees. Retirees have earned and retained
the privilege to shop in commissaries and exchanges, and Congress has elected to
extend the shopping privilege to those forced out prior to retirement.

      The Commissary System. Military commissaries are the supermarkets of the
military. The stated mission of the commissary system is to provide grocery
items for sale to authorized patrons at the lowest possible prices in facilities
designed and operated like private-sector supermarkets. The assortment of brands
of merchandise, however, is limited to those that meet the reasonable demands of
commissary patrons, and commissaries currently are prohibited by law from
carrying certain merchandise, including beer and wine and automotive supplies.
Commissaries primarily stock and generally sell leading name brands and do not
offer private label or unknown brands. In the case of many remote military
bases, the commissary is the only source of groceries for military personnel.

      Commissaries sell their products at prices equal to cost plus a one
percent fee to cover shrinkage plus a five percent surcharge. The only
promotional fee that commissaries can accept is a direct reduction in price.
Commissaries are prohibited from accepting other promotional items offered to
private-sector stores, such as slotting allowances, display allowances or volume
rebates. The commissary system receives an annual appropriation from Congress
that pays for the salaries of commissary personnel and for the purchase of
consumer goods for resale. Store operations otherwise are funded from the five
percent surcharge on purchases. Proceeds from the surcharge also pay for new
commissary construction, renovation, new equipment and maintenance, shopping
bags, shopping carts and various other items. Overseas commissaries also receive
Federal funds for transportation and utility costs. Through payment of the
surcharge, the patrons of the commissaries essentially have created a worldwide
military shoppers' cooperative.

      The benefit provided by commissaries is an integral part of the military's
pay and compensation package. Recent re-enlistment surveys show that
commissaries rank second in importance only to the medical/dental benefit.
Commissaries are among the only benefits aimed exclusively at the military
family. As commissaries are prohibited by law from selling any product below
cost, certain items (those used as loss leaders by private-sector stores) may be
priced lower at private sector stores. Nevertheless, the annual savings amounts
to up to 30%. It has been estimated that the commissary system results in
approximately $2 billion of annual savings for its patrons. As a result, based
upon the annual Congressional appropriation of approximately $1 billion
available to DeCA, the commissary system provides one of the few government
benefits that delivers more than two dollars in direct benefit to the
beneficiary for every dollar spent by the taxpayer.

      As of April 30, 2004, there were a total of 275 commissaries worldwide, of
which 171 were located in the continental United States. At such date, the
average gross square footage of these commissaries was approximately 22,300, and

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the average weekly sales per square foot of selling space, a commonly used
measure of efficiency of retail operations, was approximately thirty percent
more than that of commercial supermarkets. In DeCA's fiscal year ended September
30, 2003, total annual worldwide commissary sales were more than $5 billion,
with more than $4 billion of these sales in the United States.

      The table below shows the dollar volume of DeCA commissary sales over the
three fiscal years ended September 30, 2003, as reported by the American
Logistics Association.

                        FISCAL YEAR      WORLDWIDE STORE SALES ($000S)
                        -----------      -----------------------------
                           2003                $5,039,259
                           2002                $4,963,120
                           2001                $5,038,832


      Total annual worldwide commissary sales through the first five months of
DeCA's 2004 fiscal year were $2.2 billion as compared to $1.7 billion for same
period in DeCA's 2003 fiscal year, reflecting an increase of $0.5 billion, or
approximately 29.4%.

      In recent years, DeCA has implemented a store modernization program. We
believe DeCA's efforts to modernize facilities and merchandising and provide
easy access, shorter lines and more convenient hours at commissaries will all
contribute to increased sales volume in the commissary system.

      The Exchange System. The military exchange system consists of nearly two
dozen separate "businesses," including main exchange stores (department stores),
convenience stores, package stores, food operations, gas stations, movie
theaters, and others. The exchange system is a vast, logistically complex
worldwide operation. Like the commissary system, the stated purpose of the
exchange system is to improve the quality of life of military personnel and
their families.

      The exchange system is a "non-appropriated fund" government activity, and,
therefore, does not receive taxpayer subsidies. It is self-sustaining and
operates at a profit generated by patron purchases. After expenses, all exchange
earnings are returned to patrons in the form of new and improved exchanges and
dividends paid to the sponsoring service's morale, welfare and recreation
("MWR") funds. Appropriations by Congress only fund the cost of transporting
goods from the United States to overseas military exchanges. All other costs and
expenses, including building and operating costs, such as employees' salaries,
are paid from exchange revenues. Unlike the commissary system, which is managed
by one central governmental authority, each military service manages its own
exchange program. These include the Army and Air Force Exchange Service (a joint
military command), the Navy Exchange Service Command, the Marine Corps Exchange,
the Coast Guard Exchange System and the Department of Veterans Affairs.

      Military exchanges consistently are ranked by military personnel among the
top benefits provided to the military community. As is the case with
commissaries, exchanges are prohibited from pricing products below cost;
therefore, certain items offered as "loss leaders" in private-sector stores may
be priced below prices offered by exchanges. Notwithstanding this constraint,
exchanges typically provide their customers with savings ranging from 20% to 25%
compared to civilian mass-merchandisers and department stores.

      At April 2004, there were 541 "main exchanges" worldwide and approximately
20,000 exchange service-operated facilities. In the 12 months ended September
30, 2003, total annual worldwide exchange sales were approximately $10.9
billion, with more than $7 billion of these sales in the United States. In
October 2003, we began selling a limited number of products to stores in the
military exchange system that are located on three of the military bases that we
currently service.

      The Defense Commissary Agency. DeCA, which is headquartered in Fort Lee,
Virginia, was formed in October 1991 in an effort to consolidate the commissary
system of each branch of the military into one efficient unit. Its stated
mission is to ensure the commissary system provides United States military
personnel and their families with needed groceries at the lowest possible price.

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DeCA's mission is recognized by many as essential to the military preparedness
of the United States by assisting to maintain the morale, readiness and
effectiveness of active duty troops, and by encouraging reenlistment of highly
trained quality personnel.

      DeCA is part of the Department of Defense ("DoD") under the Assistant
Secretary of Defense for Personnel and Readiness. It manages the total resources
of all DoD commissaries worldwide, including personnel, facilities, supplies,
equipment and funds. DeCA commands and centrally manages the commissary system
through four commissary regions. Three regions are located in the continental
United States and one in Europe. Daily operational support to the agency's
regions, zone managers, commissaries and associated facilities is provided by an
Operations Support Center located in Fort Lee, Virginia (the "OSC"), which is
responsible for acquisitions, financial management, information
technology/electronic commerce management, inventory management, food safety,
marketing and transportation. All suppliers of goods to the commissary system
are required to interface with the Marketing Business Unit (the "MBU") of the
OSC, which combines several disciplines, such as operations, acquisition
management and information management. The MBU is responsible for DeCA's
electronic data interchange system, the preparation and administration of the
resale ordering agreement used with suppliers, merchandising and marketing, and
maintenance of the catalog master file, the list of products authorized to be
carried by commissaries.

      The great majority of the DeCA buying and merchandising decisions for the
four DeCA regions are handled at DeCA's headquarters in Fort Lee, Virginia. Each
region has its own Region Stock List ("RSL"). Within each RSL is a "Key Item
List," which is a list of items that each store within that region should carry.
Suppliers of brand name products must sell their products to the regional buyers
to have their products included on that region's RSL. Once a product is listed
on an RSL, it is the responsibility of the individual supplier to ensure that
the product gets on the shelf. Many suppliers employ brokers, like us who
function as sales representatives and provide a liaison with DeCA. Brokers also
serve to promote the suppliers' products and ensure that the products are
properly displayed and stocked on the shelf. Suppliers also contract with
distributors who warehouse and ship the suppliers' products to the commissaries.

      Any supplier wishing to sell a product in the commissary system must
complete and submit a product application to DeCA. DeCA analyzes each proposed
product on the basis of price, quality, anticipated demand and other factors. If
the proposed product meets DeCA's requirements, it will be assigned a Local
Stock Number, a product identification number ("LSN"), and included on one or
more RSLs. If the product is unique to the tastes of a particular region or
regions, it will be placed on the RSL for those regions only. Depending on the
type of product, it may also be included on the Key Item List of one or more
regions.

COMPETITION

      The military resale market is a highly competitive market that is served
by several large distributors, most notably SuperValu, Inc. and Nash Finch
Company, but is otherwise highly fragmented with hundreds of small,
privately-held firms operating in the various distribution layers. We face
competition from local, regional and national distributors on the basis of
price, quality and assortment, schedules and reliability of deliveries and the
range and quality of services provided.

Because there are relatively low barriers to entry in the military resale
market, we expect competition from a variety of established and emerging
companies. Many of our competitors have longer operating histories,
substantially greater financial, technical, marketing or other resources, or
greater name recognition than we have. Our competitors may be able to respond
more quickly than we can to new or emerging technologies and changes in customer
requirements. In addition, consolidation in the industry, heightened competition
among our vendors, new entrants and trends toward vertical integration could
create additional competitive pressures that reduce our margins and adversely
affect our business. If we fail to successfully respond to these competitive
pressures or to implement our strategies effectively, it could have a material
adverse effect on our financial condition and prospects.

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EMPLOYEES

      At April 30, 2004, we employed 28 persons on a full-time basis, of which
four were management personnel, four were office staff and 20 were warehouse and
distribution personnel. None of our employees is a member of a trade union. All
of our employees are employed at our corporate offices and distribution center
located in Colorado, Springs, Colorado.

DEVELOPMENT OF BUSINESS

      MRG-Maryland, a Maryland corporation in which we acquired a 98.2% interest
on November 15, 2001 (the "Reverse Acquisition"), was formed in October 1997 by
Richard Tanenbaum, one of our directors. Prior to November 15, 2001, we were
inactive and had nominal assets and liabilities. As MRG-Maryland was considered
the acquirer in such acquisition for financial reporting purposes, our
historical financial statements for any period prior to November 15, 2001, as
well as the description of our business operations for such periods, are those
of MRG-Maryland.


ITEM 2. DESCRIPTION OF PROPERTY.

      Our corporate headquarters is located at our distribution center in
Colorado Springs, Colorado. The lease for our distribution center and corporate
headquarters includes approximately 32,748 square feet, of which approximately
1,000 square feet is used for our corporate headquarters. The lease expires in
the year 2006. The annual rent for our distribution center is approximately
$180,000 per annum, with annual rental increases of approximately $8,000 per
year during the term of the lease.

ITEM 3. LEGAL PROCEEDINGS.

      On October 31, 2001, an action captioned WAREHOUSE, LTD V. MILITARY RESALE
GROUP, INC., Civil Action No. 01CV3230 was commenced against us and Ethan Hokit,
our President and one of our directors, in the District Court, El Paso County,
Colorado. In such action, the plaintiff, our former landlord, sought damages for
an alleged breach of the terms of several lease agreements for office and
warehouse space we occupied in Colorado Springs, Colorado. In its complaint, the
plaintiff sought a judgment in the aggregate amount of $122,632.29 for rent,
restoration of the premises and other charges, plus an undisclosed amount for
late charges, litigation costs, costs of re-leasing the premises, reasonable
attorneys' fees and interest. We filed an answer to the plaintiff's complaint in
which we asserted affirmative defenses and made counterclaims against the
plaintiff. In December 2003, we entered into a settlement agreement with the
plaintiff, pursuant to which we agreed to pay $100,000 under the terms of a
promissory note and to issue 384,000 shares of our common stock.

      In February 2003, an action captioned BAYER CORPORATION V. MILITARY RESALE
GROUP, INC., Civil Action No. 03CV567 was commenced against us in the District
Court, El Paso County, Colorado. In such action, the plaintiff, one of our
vendors, sought a judgment in the amount of $39,500 for the unpaid balance for
goods sold to us plus interest at the rate of 8% per annum. In August 2003, we
entered into a court-approved agreement pursuant to which we agreed to pay the
plaintiff the sum of $39,500, payable in monthly installments of $2,000 which we
commenced making in May 2004.

      In July 2003, an action captioned PFIZER INC. V. MILITARY RESALE GROUP,
INC., Civil Action No. 03CV2607 was commenced against us in the District Court,
El Paso County, Colorado. In such action, the plaintiff, one of our vendors,
sought a judgment in the amount of $69,992.86 for the unpaid balance for goods
sold to us plus interest at the rate of 8% per annum. In September 2003, we
entered into a court-approved agreement pursuant to which we agreed to pay the
plaintiff the sum of $76,675, payable in monthly installments of $2,000,
commencing in May 2004.

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

      None.

9
<PAGE>

                                    PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

Our common stock is traded on the OTC Bulletin Board under the symbol "MYRG."

Our shares began trading on the OTC Bulletin Board on January 10, 2001. Prior to
that date, there was no public market for our shares.

The following table contains information about the range of high and low bid
prices for our common stock for each full quarterly period during the last two
fiscal years, based upon reports of transactions on the OTC Bulletin Board.

                                                       HIGH     LOW
                                                       ----     ---

            2002: First Quarter ..................... $1.54   $0.31
                  Second Quarter ....................  0.51    0.23
                  Third Quarter......................  0.41    0.17
                  Fourth Quarter.....................  0.43    0.13

            2003: First Quarter .....................  0.40    0.11
                  Second Quarter.....................  0.29    0.11
                  Third Quarter .....................  0.41    0.15
                  Fourth Quarter.....................  0.19    0.07

            2004: First Quarter .....................  0.26    0.11
                  Second Quarter (through April 30)..  0.22    0.17

      The source of these high and low prices was the OTC Bulletin Board. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions. The high and low prices
listed have been rounded up to the next highest two decimal places.

      The market price of our common stock is subject to significant
fluctuations in response to variations in our quarterly operating results,
general trends in the market for the products we distribute, and other factors,
over many of which we have little or no control. In addition, board market
fluctuations, as well as general economic, business and political conditions,
may adversely affect the market for our common stock, regardless of our actual
or projected performance. On April 30, 2004, the closing bid price of our common
stock as reported by the OTC Bulletin Board was $0.165 per share.

      As of April 30, 2004, there were approximately 125 shareholders of record
of our common stock.

DIVIDEND POLICY

      We have not paid cash dividends on our common stock and do not intend to
pay any cash dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

      In October 2003, we issued an aggregate of 200,000 shares of our common
stock to two consultants for services rendered. Such shares were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended, on the basis that such issuance did not
involve a public offering, no underwriter fees or commissions were paid in
connection with such issuance and such persons were `accredited investors' as
defined in Regulation D under the Securities Act of 1933, as amended.

10
<PAGE>

      In October 2003, we issued options to purchase an aggregate of 600,000
shares of our common stock to consultants for services to be rendered. Such
options are five year options which have an exercise price of $0.25 per share.
Such options were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, on the basis
that such issuance did not involve a public offering, no underwriter fees or
commissions were paid in connection with such issuance and such persons were
`accredited investors' as defined in Regulation D under the Securities Act of
1933, as amended.

      In November 2003, we issued 650,000 shares of our common stock to two
consultants for services rendered. Such shares were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended, on the basis that such issuance did not involve a public
offering, no underwriter fees or commissions were paid in connection with such
issuance and such persons were `accredited investors' as defined in Regulation D
under the Securities Act of 1933, as amended.

      In December 2003, we issued 384,000 shares of our common stock to our
former landlord in settlement of certain claims. Such shares were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended, on the basis that such issuance did not
involve a public offering, no underwriter fees or commissions were paid in
connection with such issuance and such persons were `accredited investors' as
defined in Regulation D under the Securities Act of 1933, as amended.

      In December 2003, we issued an aggregate of 1,500,000 shares of our common
stock to four consultants for services rendered. Such shares were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended, on the basis that such issuance did not
involve a public offering, no underwriter fees or commissions were paid in
connection with such issuance and such persons were `accredited investors' as
defined in Regulation D under the Securities Act of 1933, as amended.

      In December 2003, we issued 411,585 shares of our common stock to our
Chief Executive Officer for services rendered during the fourth quarter of 2003
pursuant to the terms of his employment arrangement. Such shares were issued in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended, on the basis that such issuance did not
involve a public offering, no underwriter fees or commissions were paid in
connection with such issuance and such person was an `accredited investor' as
defined in Regulation D under the Securities Act of 1933, as amended.

      In December 2003, we issued 200,000 shares of our common stock to
investors in a private placement for aggregate proceeds to us of $20,000. Such
shares were issued in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, on the basis that such
issuance did not involve a public offering, no underwriter fees or commissions
were paid in connection with such issuance and such persons were `accredited
investors' as defined in Regulation D under the Securities Act of 1933, as
amended.

      In December 2003, we issued options to purchase an aggregate of 250,000
shares of our common stock to consultants for services to be rendered. Such
options are five year options which have an exercise price of $0.25 per share.
Such options were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, on the basis
that such issuance did not involve a public offering, no underwriter fees or
commissions were paid in connection with such issuance and such persons were
`accredited investors' as defined in Regulation D under the Securities Act of
1933, as amended.

      In October and December 2003, we issued an aggregate of 1,000,000 shares
of our common stock to a consultant in connection with the exercise of options
which resulted in proceeds to us of $75,000. Such shares were issued in reliance
upon the exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended, on the basis that such issuance did not involve a
public offering, no underwriter fees or commissions were paid in connection with
such issuance and such person was an `accredited investor' as defined in
Regulation D under the Securities Act of 1933, as amended.

11
<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

      The following table provides information as of April 30, 2004 with respect
to shares of our common stock that are issuable under equity compensation plans.

<TABLE>
<CAPTION>
                                                                                                     Number of securities
                                                                                                    remaining available to
                                              Number of securities                                  future issuance under
                                                to be issued upon          Weighted-average          equity compensation
                                                   exercise of             exercise price of           plans (excluding
                                              outstanding options,        outstanding options,      securities reflected in
                                               warrants and rights        warrants and rights              column (a))
              Plan Category                           (a)                         (b)                          (c)
------------------------------------------  --------------------------  ------------------------  ---------------------------
<S>                                                           <C>                         <C>                        <C>
Equity compensation plans
   not approved by security holders

2001 Equity Incentive Plan (1)                                800,000                     $0.50                      700,000

Stern/Farbman (Vintage Filings)                               600,000                     $0.25                            -
Consulting Agreement (2)

Howard Ash Consulting Agreement (3)                           500,000                     $0.50                            -

Louis Weiner Consulting Agreement (4)                         500,000                     $0.50                            -
                                                              -------

Howard Edrich Consulting Agreement (5)                        250,000                     $0.25
                                                        --------------  ------------------------               --------------

Edward Whelan Compensation Plan (6)

                                 Total (7)                  2,650,000                                                700,000
                                                        =============                                          =============
</TABLE>

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

(1)   Our 2001 Equity Incentive Plan allows for the granting of share options to
      directors, officers, non-officer employees and consultants. See the
      disclosure entitled "Equity Incentive Plan" in Item 10 of this report.

(2)   Pursuant to an agreement dated November 4, 2003, Shai Stern and Seth
      Farbman of Vintage Filings, LLC agreed to provide us with consulting
      services to help us manage our filings with the Commission through the
      EDGAR (Electronic Data Gathering and Reporting) filing system. In
      consideration of their services, we issued to each of Messrs. Stern and
      Farbman 50,000 shares of our common stock and warrants to purchase shares
      of our common stock at a price of $0.25 per share.

(3)   Pursuant to a Business Consulting Agreement dated May 15, 2003, Howard Ash
      agreed to provide us marketing consultation services. In consideration for
      his services, we issued to Mr. Ash 500,000 shares of our common stock and
      options to purchase 500,000 shares of our common stock at a price of $0.50
      per share. Mr. Ash's agreement had an original term of six months and was
      renewed for two additional three-month periods.

(4)   Pursuant to a Business Consulting Agreement dated August 1, 2003, Louis
      Weiner agreed to provide us marketing consultation services. In
      consideration for his services, we issued to Mr. Weiner options to
      purchase 500,000 shares of our common stock at a price of $0.50 per share.
      Such agreement has a one-year term.

(5)   Pursuant to a Business Consulting Agreement dated December 15, 2003,
      Howard Edrich agreed to provide us marketing consultation services. In
      consideration for his services, we issued to Mr. Edrich 300,000 shares of
      our common stock and options to purchase 250,000 shares of our common
      stock at a price of $0.25 per share.

12
<PAGE>

(6)   In January 2004, our board of directors approved a one-year executive
      compensation arrangement with Edward T. Whelan, our Chief Executive
      Officer, pursuant to which we will issue Mr. Whelan restricted shares of
      our common stock in consideration for his services as Chief Executive
      Officer. Under the terms of the arrangement, we will issue in respect of
      each month during 2004 a number of shares determined by dividing $12,000
      by the product of 80% and the average low price for our common stock
      during such month. We will also issue to Mr. Whelan five-year options to
      purchase an equivalent number of shares of our common stock at a price of
      0.25 per share. Such amounts cannot be reasonably determined at this time
      and, thus, no such amounts are reflected in the table above.

(7)   The total amount does not include the shares issuable to Mr. Whelan
      described in footnote 5 above.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

OVERVIEW

      Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The words "believe",
"expect", "anticipate", "intend" and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the statement
was made. Because our common stock is considered a "penny stock," as defined by
the regulations of the Securities and Exchange Commission, the safe harbor for
forward-looking statements does not apply to statements by our company.

      Our business and results of operations are affected by a wide variety of
factors that could materially and adversely affect us and our actual results,
including, but not limited to: (1) the availability of additional funds to
enable us to successfully pursue our business plan; (2) the uncertainties
related to the addition of new products and suppliers; (3) our ability to
maintain, attract and integrate management personnel; (4) our ability to
complete the development of our proposed product line in a timely manner; (5)
our ability to effectively market and sell our products and services to current
and new customers; (6) our ability to negotiate and maintain suitable strategic
partnerships and corporate relationships with suppliers and manufacturers; (7)
the intensity of competition; and (8) general economic conditions. As a result
of these and other factors, we may experience material fluctuations in future
operating results on a quarterly or annual basis, which could materially and
adversely affect our business, financial condition, operating results and stock
price.

      Any forward-looking statements herein speak only as of the date hereof. We
undertake no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. The following discussion should be read in conjunction
with the financial statements and related notes appearing elsewhere in this
Report.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED
DECEMBER 31, 2002

      Revenues. Total revenue for the year ended December 31, 2003 of $6,049,445
reflected a decrease of $310,358, or approximately 4.9%, compared to total
revenue of $6,359,803 for the year ended December 31, 2002. Our revenues are
derived in either one of two ways. In the majority of instances, we purchase
products from manufacturers and suppliers for resale to the commissaries we
service. In such cases, we resell the manufacturer's or supplier's products to
the commissaries at generally the same prices we pay for such products, which
prices generally are negotiated between the manufacturer or supplier and the
Defense Commissary Agency ("DeCA"). Revenue is recognized as the gross sales
amount received by us from such sales ("resale revenues"), which includes (i)
the purchase price paid by the commissary plus (ii) a negotiated storage and
delivery fee paid by the manufacturer or supplier. In the remaining instances,
we act as an agent for the manufacturer or supplier of the products we sell, and
earn a commission paid by the manufacturer or supplier, generally in an amount
equal to a percentage of the manufacturer's or supplier's gross sales amount

13
<PAGE>

("commission revenues"). In such cases, revenue is recognized as the commission
we receive on the gross sales amount. The decrease in our total revenues was
primarily due to the following factors: (i) a short-term cash shortage during
the first and second quarters of 2003, which prevented us from adding new
products on a resale basis due the significant cash expenditure required, (ii) a
change in our supplier of fresh chicken products in the third quarter of 2003
from Tyson Foods, Inc., whose products we sold on a resale basis, to ConAgra
Foods, Inc., whose products we sell on a commission basis, and (iii) to a lesser
extent, to lower sales to the commissary located at Ft. Carson, Colorado caused
by the overseas deployment of military personnel stationed at Ft. Carson, which
has historically been our largest customer.

      Resale revenue for the year ended December 31, 2003 of $5,585,340
reflected a decrease of $430,066 , or approximately 7.1%, compared to resale
revenue of $6,015,406 for the year ended December 31, 2002. For the year ended
December 31, 2003, approximately 33.7% of our gross profit was derived from
sales involving resale revenue compared to approximately 61.2% for the year
ended December 31, 2002. These decreases were attributable primarily to the
short-term cash shortage, change in our supplier of fresh chicken products and
the military deployment as discussed above. We cannot be certain as to whether
this trend will continue. However, in the long term, we are seeking to increase
the ratio of our sales of products sold on a resale basis, rather than a
commission basis, because we believe we can increase our profitability on such
sales by taking advantage of payment discounts frequently offered by the
manufacturers and suppliers of such products. Provided we can generate
sufficient cash from operations or financing activities, we intend to do so by
seeking to add new products that we can offer to commissaries on a resale basis
from our existing manufactures and suppliers and from others with whom we do not
currently have a working relationship.

      Commission revenues for the year ended December 31, 2003 of $464,105
reflected an increase of $119,708, or approximately 34.8%, compared to
commission revenues of $344,397 for the year ended December 31, 2002. For the
year ended December 31, 2003, approximately 66.3% of our gross profit was
derived from sales involving commission revenues as compared to approximately
38.8% for the year ended December 31, 2002. These increases were attributable
primarily to the change in our supplier of fresh chicken products discussed
above and the addition of the new products we began supplying to commissaries on
a commission basis due to our short-term cash shortage discussed above.

      Management believes our long-term success will be dependent in large part
on our ability to add additional product offerings to enable us to increase our
sales and revenues. However, we believe our ability to add additional product
offerings is dependent on our ability to obtain additional capital to fund new
business development and increased sales and marketing efforts. We are currently
in discussions with a number of other manufacturers and suppliers in an effort
to reach an agreement under which we can distribute their products to the
military market. While there can be no assurance that we will do so, we believe
we will be successful in negotiating agreements with a number of such suppliers
and manufacturers.

      To date, all of our sales revenue has been generated from customers
located in the United States.

      Cost of Goods Sold. Cost of goods sold consists of our cost to acquire
products from manufacturers and suppliers for resale to commissaries. In
instances when we sell products on a commission basis, there is no cost of goods
sold because we act as an agent for the manufacturer or supplier and earn only a
commission on such sales. During the year ended December 31, 2003, cost of goods
sold decreased by $122,072, or approximately 2.2%, to $5,349,774 from $5,471,846
for the year ended December 31, 2002. This decrease was attributable primarily
to decreased sales of products that we sold on a resale basis as discussed
above. We cannot be certain as to whether or not this trend will continue;
however, in the long term we are seeking to increase the ratio of our sales on a
resale basis, as discussed above.

      Gross Profit. Gross profit for the year ended December 31, 2003 decreased
by $188,286, or approximately 21.2%, compared to the year ended December 31,
2002, from $887,957 for the year ended December 31, 2002 to $699,671 for the
year ended December 31, 2003. This decrease was attributable primarily to a
decrease in sales on a resale basis, which offset the increase in sales on a
commission basis

14
<PAGE>

      Operating Expenses. Total operating expenses aggregated $3,033,154 for the
year ended December 31, 2003 as compared to $2,703,864 for the year ended
December 31, 2002, representing an increase of $329,290, or approximately 12.2%.
The increase in total operating expenses was attributable primarily to increased
stock-based compensation expense of $531,739 resulting primarily from the
issuance of shares of our common stock and options to purchase shares of our
common stock to our consultants and to holders of our convertible notes in
consideration of their willingness to extend the maturity dates of such notes.
In addition, salary and payroll taxes increased by $29,990 resulting primarily
from the addition of new employees.

      Interest Expense. Interest expense of $298,266 for the year ended December
31, 2003 reflected a decrease of $178,793 as compared to interest expense of
$477,059 for the year ended December 31, 2002. The decrease in interest expense
was attributable primarily to decreased interest expense resulting from the
recognition of the beneficial conversion feature (the right to convert debt into
shares of our common stock at a discount to the fair market value of our common
stock) of $110,000 aggregate principal amount of convertible promissory notes
issued in the year ended December 31, 2003, as compared to $370,000 aggregate
principal amount of convertible promissory notes issued in the year ended
December 31, 2002.

      Net Loss. Primarily as a result of decreased revenues and increased
operating expenses discussed above, we incurred a net loss of $2,631,749 for the
year ended December 31, 2003 as compared to a net loss of $2,319,221 for the
year ended December 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

      At December 31, 2003, we had a cash balance of approximately $2,862. Our
principal source of liquidity has been borrowings. Since our Reverse
Acquisition, we have funded our operations primarily from borrowings of
approximately $850,000 through the issuance of demand notes and convertible
notes bearing interest at either 8% ("8% convertible notes") or 9% ("9%
convertible notes") per annum and having original maturity dates of three to
five months following the date of issuance of such convertible notes. At
December 31, 2003, none of such demand notes was outstanding and $80,000
aggregate principal amount of 9% convertible notes and $267,500 aggregate
principal amount of 8% convertible notes were outstanding.

      In April 2002, $150,000 aggregate principal amount of 9% convertible notes
(and $2,380 accrued interest thereon) was converted by the holders into an
aggregate of 1,793,573 shares of our common stock. The remaining $80,000
aggregate principal amount of 9% convertible notes are convertible at any time
and from time to time by the noteholders into a maximum of 1,200,000 shares of
our common stock (subject to certain anti-dilution adjustments) if the 9%
convertible notes are not in default, or a maximum of 2,400,000 shares of our
common stock (subject to certain anti-dilution adjustments) if an event of
default has occurred in respect of such notes. In nearly all instances, the
terms of the 8% and 9% convertible notes require us to register under the
Securities Act of 1933 the shares our common stock issuable upon conversion of
such convertible notes not later than June 3, 2006. In July 2002, the holders of
$20,000 aggregate principal amount of 8% convertible notes maturing on June 30,
2002 denied our request to extend the maturity of their notes. In June 2003, the
holders of $35,000 aggregate principal amount of 9% convertible notes maturing
on June 30, 2003 and $10,000 aggregate principal amount of 8% convertible notes
maturing on September 30, 2003 denied our request to extend the maturity of
their notes until June 3, 2006. The outstanding principal and interest on such
convertible notes maturing on June 30, 2002 and June 30, 2003 have not yet been
paid and, thus, such convertible notes are currently in default.

      In June 2003, $240,000 aggregate principal amount of our demand notes with
various maturity dates and $265,000 aggregate principal amount of our 8%
convertible notes due June 30, 2003 or September 30, 2003, were extended to June
3, 2006. As a result of the extension, at December 31, 2003 our remaining
short-term liabilities were approximately $175,000, of which $85,000 was
convertible to equity. In consideration of their willingness to extend the
maturity dates of such notes, we issued to the holders of such notes five-year
options to purchase 1,305,000 shares of our common stock at an exercise price of
$0.25 per share. As additional consideration, we granted the holders of our
demand notes who agreed to extend the maturity dates, the right to convert, at
any time and from time to time, all or a portion of the outstanding balance
under such notes (including accrued interest thereon) into shares of our common
stock at a conversion price of $0.25. Such notes do not have a beneficial
conversion feature.

15
<PAGE>
      The terms of $35,000 aggregate principal amount of our 9% convertible
notes and $10,000 aggregate principal amount of our 8% convertible notes provide
generally that, if the convertible notes are not in default, the holders may
convert, at any time and from time to time, all or a portion of the outstanding
balance under each convertible note into a number of shares (subject to certain
anti-dilution adjustments) of our common stock that will allow the noteholder to
receive common stock having a market value equal to 150% of the converted
balance of the note. To achieve this result, the conversion price of such notes
has been initially set at $0.50; provided, that the closing price per share of
our common stock as reported on the OTC Bulletin Board on the date of conversion
is at least $0.75 per share. If such closing price is less than $0.75 per share,
the conversion price shall be proportionately reduced, but in no event to a
conversion price that is less than $0.10 per share in the case of 9% convertible
notes or $0.25 per share in the case of 8% convertible notes, to permit the
noteholder to receive the number of shares discussed above. If an event of
default has occurred in respect of a 9% convertible note, the holder may convert
the outstanding balance into a number of shares (subject to certain
anti-dilution adjustments) of our common stock equal to twice the number of
shares the holder would have otherwise received if such 9% convertible note was
not in default.

      The terms of our remaining 8% convertible notes are convertible into
shares of our common stock at a price of $0.25 per share (subject to certain
anti-dilution adjustments). The terms of our remaining 9% convertible notes
provide generally that, if the convertible notes are not in default, the holders
may convert, at any time and from time to time, all or a portion of the
outstanding balance under each convertible note into a number of shares (subject
to certain anti-dilution adjustments) of our common stock that will allow the
noteholder to receive common stock having a market value equal to 150% of the
converted balance of the note. To achieve this result, the conversion price of
such notes has been initially set at $0.25; provided, that the closing price per
share of our common stock as reported on the OTC Bulletin Board on the date of
conversion is at least $0.375 per share. If such closing price is less than
$0.375 per share, the conversion price shall be proportionately reduced, but in
no event to a conversion price that is less than $0.10 per share. If an event of
default has occurred in respect of a 9% convertible note, the holder may convert
the outstanding balance into a number of shares (subject to certain
anti-dilution adjustments) of our common stock equal to twice the number of
shares the holder would have otherwise received if such 9% convertible note was
not in default.

      In February 2003, we received notice from one of our equipment lessors of
the acceleration of our capital lease obligation to such lessor in the
approximate amount of $35,000, which is secured by equipment with an approximate
net book value of $25,000. In October 2003, as a result of negotiations between
the lessor and our management, the monthly lease payment was reduced by
approximately $400 and the lease term was extended for an additional one year
until October 2005.

      Our current cash levels, together with the cash flows we generate from
operating activities, are not sufficient to enable us to execute our business
strategy. As a result, we intend to seek additional capital through the sale of
shares of our common stock. In December 2001, we filed with the Securities and
Exchange Commission a registration statement relating to such shares. Such
registration statement has not yet been declared effective, and there can be no
assurance that the Securities and Exchange Commission will declare such
registration statement effective in the near future, if at all. In the interim,
we intend to fund our operations based on our cash position and the near term
cash flow generated from operations, as well as additional borrowings and the
sale of unregistered shares of our common stock in private placements to
accredited investors. In the event we are able to generate sales proceeds of at
least $750,000 in our proposed offering, we believe that the net proceeds of
such sale, together with anticipated revenues from sales of our products, will
satisfy our capital requirements for at least the next 12 months. However, we
would require additional capital to realize our strategic plan to expand
distribution capabilities and product offerings. These conditions raise
substantial doubt about our ability to continue as a going concern. Our actual
financial results may differ materially from the stated plan of operations. Our
independent auditors have indicated in its report on our 2003 financial
statements that our recurring losses from operations and our difficulties in
generating sufficient cash flow to meet our obligations and sustain our
operations raise substantial doubt about our ability to continue as a going
concern. Such qualification may hinder our ability to raise or obtain the
capital we require or have an adverse impact on the terms upon which we are able
to attract or obtain such capital. In addition, such qualification may adversely
impact our ability to attract and maintain new customer accounts.

16
<PAGE>

      Assuming that we receive net proceeds of at least $750,000 from our
proposed offering, we expect capital expenditures to be approximately $100,000
during the next 12 months, primarily for the acquisition of an inventory control
system and a web-based marketing software program. It is expected that our
principal uses of cash during that period will be to provide working capital, to
finance capital expenditures, to repay indebtedness and for other general
corporate purposes, including sales and marketing and new business development.
The amount of spending for any particular purpose is dependent upon the total
cash available to us and the success of our offering of common stock.

      At December 31, 2003, we had liquid assets of $768,713, consisting of cash
and accounts receivable derived from operations, and other current assets of
$945,355, consisting primarily of inventory of products for sale and/or
distribution and prepaid expenses. Long term assets of $216,750 consisted
primarily of warehouse equipment used in operations and the long-term portion of
prepaid interest.

      Current liabilities of $2,909,682 at December 31, 2003 consisted primarily
of $2,507,544 of accounts payable and accrued expenses.

      Our working capital deficit was $1,195,614 as of December 31, 2003 for the
reasons described above.

      During the year ended December 31, 2003, we used cash of $348,306 in
operating activities primarily as a result of the net loss we incurred during
this period.

      During the year ended December 31, 2003, we used net cash of $4,440 in
investing activities, all of which was used for capital expenditures.

      Financing activities, consisting primarily of proceeds from the issuance
of notes payable and shares of our common stock, provided net cash of $353,536
during the year ended December 31, 2003.

ITEM 7. FINANCIAL STATEMENTS

      The following financial statements, notes thereto and the related
independent auditors' reports on pages F-1 and F-2 to our financial statements
are incorporated herein:

      Balance Sheet as of December 31, 2003;

      Statements of Operations for the years ended December 31, 2003 and 2002;

      Statements of Cash Flows for the years ended December 2003 and 2002; and

      Statements of Stockholders' Equity (Impairment) for the years ended
      December 31, 2003 and 2002.

17
<PAGE>


                           MILITARY RESALE GROUP, INC.

                                DECEMBER 31, 2003

                              FINANCIAL STATEMENTS

<PAGE>

                          INDEX TO FINANCIAL STATEMENTS


                                                                   PAGE

Independent Auditors' Report                                       F-2

Independent Auditors' Report                                       F-3

Financial Statements:

      Balance Sheet                                                F-4

      Statements of Operations                                     F-5

      Statements of Changes in Stockholders' Equity (Deficit)      F-6

      Statements of Cash Flows                                     F-7

Notes to Financial Statements                                      F-9

                                      F-1
<PAGE>

                               AJ. ROBBINS, P.C.
                          CERTIFIED PUBLIC ACCOUNTANTS
                              216 SIXTEENTH STREET
                                   SUITE 600
                             DENVER, COLORADO 80202

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Military Resale Group, Inc.
Colorado Springs, Colorado


We have audited the accompanying balance sheet of Military Resale Group, Inc. as
of December 31, 2003, and the related statements of operations, changes in
stockholders' equity (deficit), and cash flows for the year 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 audit.

We conducted our audit in accordance with generally accepted auditing standards
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 audit provides 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 Military Resale Group, Inc. as
of December 31, 2003, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles
in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations and its
working capital deficit raise substantial doubt about its ability to continue as
a going concern. Management's plans concerning these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

                                    /s/ AJ. ROBBINS, P.C.
                                    CERTIFIED PUBLIC ACCOUNTANTS

DENVER, COLORADO
APRIL 7, 2004

                                      F-2
<PAGE>

To the Board of Directors
Military Resale Group, Inc.
Colorado Springs, Colorado


We have audited the accompanying balance sheet of Military Resale Group, Inc. as
of December 31, 2002, and the related statements of operations, changes in
stockholders' equity (impairment), and cash flows for the year 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 audit.

We conducted our audit in accordance with generally accepted auditing standards
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 audit provides 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 Military Resale Group, Inc. as
of December 31, 2002, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles
in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations and its
working capital deficit raise substantial doubt about its ability to continue as
a going concern. Management's plans concerning these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

                                    /s/ ROSENBERG RICH BAKER BERMAN & CO.

BRIDGEWATER, NEW JERSEY
APRIL 21, 2003

                                      F-3
<PAGE>

                          MILITARY RESALE GROUP, INC.
                                 BALANCE SHEET
                               DECEMBER 31, 2003

                                     ASSETS

CURRENT ASSETS:
  Cash                                                              $     2,862
  Accounts receivable - trade                                           765,851
  Inventory                                                             334,950
  Prepaid consulting                                                    484,506
  Deposits                                                               33,218
  Prepaid interest                                                       92,681
                                                                    -----------
      Total Current Assets                                            1,714,068
                                                                    -----------

PREPAID INTEREST, NET OF CURRENT PORTION                                132,038

EQUIPMENT
  Office equipment                                                       15,047
  Warehouse equipment                                                   159,444
  Software                                                               16,324
                                                                    -----------
                                                                        190,815
  Less accumulated depreciation                                        (106,103)
                                                                    -----------
     Net equipment                                                       84,712
                                                                    -----------

        Total Assets                                                $ 1,930,818
                                                                    ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Accounts payable and accrued expenses                             $ 2,507,544
  Accounts payable, related party                                        72,632
  Current maturities of capital lease obligations                        51,981
  Deferred rent                                                           2,729
  Current portion of accrued interest payable                            99,561
  Notes payable                                                          90,235
  Current portion of convertible notes payable                           85,000
                                                                    -----------
        Total Current Liabilities                                     2,909,682

OBLIGATIONS UNDER CAPITAL LEASES, NET OF CURRENT MATURITIES              36,351

DEFERRED RENT, NET OF CURRENT PORTION                                    21,832

RELATED PARTIES CONVERTIBLE NOTES PAYABLE                               370,000

NOTES PAYABLE, NET OF CURRENT PORTION                                    98,975

CONVERTIBLE NOTES PAYABLE, NET OF CURRENT PORTION                       150,000
                                                                    -----------
        Total Liabilities                                             3,586,840

STOCKHOLDERS' EQUITY (DEFICIT):
  Preferred stock, par value $.0001, 10,000,000 shares
   authorized, -0- issued and outstanding                                    --
  Common stock, par value $.0001, 50,000,000 shares authorized,
   21,448,011 issued and outstanding                                      2,144
  Additional paid-in capital                                          4,248,547
  Accumulated (deficit)                                              (5,906,713)
                                                                    -----------
        Total Stockholders' Equity (Deficit)                         (1,656,022)
                                                                    -----------

        Total Liabilities and Stockholders' Equity (Deficit)        $ 1,930,818
                                                                    ===========

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      F-4
<PAGE>

                          MILITARY RESALE GROUP, INC.
                            STATEMENTS OF OPERATIONS


                                                FOR THE YEARS ENDED DECEMBER 31,
                                                     2003             2002
                                                 ------------    ------------

REVENUES:
  Resale revenue                                 $  5,585,340    $  6,015,406
  Commission revenue                                  464,105         344,397
                                                 ------------    ------------

        Total Revenues                              6,049,445       6,359,803

COST OF GOODS SOLD                                  5,349,774       5,471,846
                                                 ------------    ------------

GROSS PROFIT                                          699,671         887,957

OPERATING EXPENSES:
  Stock based compensation                          1,304,250         772,511
  Salary and payroll taxes                            532,262         502,272
  Professional fees                                   348,843         502,077
  Occupancy                                           248,373         302,237
  General and administrative                          569,552         583,978
  Depreciation and amortization                        29,874          40,789
                                                 ------------    ------------

        Total Expenses                              3,033,154       2,703,864
                                                 ------------    ------------

        Net (Loss) From Operations                 (2,333,483)     (1,815,907)

OTHER (EXPENSES):
  Interest expense                                   (298,266)       (477,059)
  Loss on disposal of fixed assets                         --         (26,255)
                                                 ------------    ------------

        Total Other (Expense)                        (298,266)       (503,314)
                                                 ------------    ------------


NET (LOSS)                                       $ (2,631,749)   $ (2,319,221)
                                                 ============    ============

NET (LOSS) PER COMMON SHARE BASIC AND DILUTED    $      (0.18)   $      (0.25)
                                                 ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 OUTSTANDING, BASIC AND  DILUTED                   14,619,599       9,156,648
                                                 ============    ============


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      F-5
<PAGE>

<TABLE>
                                        MILITARY RESALE GROUP, INC.
                          STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(DEFICIT)

<CAPTION>
                                                                                                  TOTAL
                                                                 ADDITIONAL                    STOCKHOLDERS'
                                           COMMON STOCK           PAID-IN       ACCUMULATED      EQUITY
                                       SHARES        AMOUNT       CAPITAL        (DEFICIT)      (DEFICIT)
                                    -----------   -----------   -----------    -----------    -----------
<S>                                   <C>         <C>           <C>            <C>            <C>
BALANCES, DECEMBER 31, 2001
  (RESTATED)                          7,505,004   $       750   $   442,150    $  (955,743)   $  (512,843)
Issuance of common stock for debt       896,787            90       149,910             --        150,000
Issuance of common stock for
  beneficial conversion feature         896,787            90           (90)            --             --
Beneficial conversion feature                --            --       370,000             --        370,000
Stock options granted for
  services                                   --            --       214,000             --        214,000
Issuance of common stock for
  services                            2,084,812           208       674,720             --        674,928
Stock options granted for debt
  extension                                  --            --       200,000             --        200,000
Net (loss) for the year                      --            --            --     (2,319,221)    (2,319,221)
                                    -----------   -----------   -----------    -----------    -----------

BALANCES, DECEMBER 31, 2002          11,383,390         1,138     2,050,690     (3,274,964)    (1,223,136)
Issuance of common stock for
  litigation settlement                 384,000            38        49,962             --         50,000
Issuance of common stock for
  exercise of options                 1,000,000           100        74,900             --         75,000
Beneficial conversion feature                --            --        27,173             --         27,173
Stock options granted for
  services                                   --            --       406,400             --        406,400
Issuance of common stock for
  services                            8,230,621           823     1,298,027             --      1,298,850
Stock options granted for debt
  extension                                  --            --       271,440             --        271,440
Sale of common stock                    450,000            45        69,955             --         70,000
Net (loss) for the year                      --            --            --     (2,631,749)    (2,631,749)
                                    -----------   -----------   -----------    -----------    -----------

BALANCES, DECEMBER 31, 2003          21,448,011   $     2,144   $ 4,248,547    $(5,906,713)   $(1,656,022)
                                    ===========   ===========   ===========    ===========    ===========
</TABLE>


                SEE ACCOMPANYING NOTES TO FINANCIALS STATEMENTS

                                      F-6
<PAGE>

<TABLE>
                          MILITARY RESALE GROUP, INC.
                            STATEMENTS OF CASH FLOWS
<CAPTION>

                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                            2003           2002
                                                        -----------   ---------
<S>                                                    <C>            <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
   Net (loss)                                          $(2,631,749)   $(2,319,221)
   Adjustments to reconcile net (loss) to net cash
     used in operating activities:
     Depreciation and amortization                          29,874         40,789
     Amortization of option based interest expense         180,054         66,667
     Stock issued for services                           1,074,926        772,511
     Options issued for services                           229,324             --
     Beneficial conversion feature                          27,173        370,000
     Loss on disposal of assets                                 --         26,255
     Stock issued for settlement                            50,000             --
     Issuance of note for settlement                       100,000             --
   Changes in assets and liabilities:
     (Increase) decrease in accounts receivable           (337,814)        13,021
     (Increase) decrease in inventory                     (107,534)        25,014
     (Increase) decrease in other assets                       618          6,090
     (Increase) in deposits                                 (9,860)        (2,952)
     Increase in accounts payable and accrued
       expenses                                          1,014,317        455,447
     Increase in related party accounts payable             72,632             --
     Increase (decrease) in deferred rent
       obligation                                          (54,580)        79,141
     Increase (decrease) in other liabilities               14,313         81,726
                                                       -----------    -----------

      Net Cash (Used In) Operating Activities             (348,306)      (385,512)
                                                       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of fixed assets                                 (4,440)        (2,580)
                                                       -----------    -----------

      Net Cash (Used in) Investing Activities               (4,440)        (2,580)

CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
   Proceeds from stock options exercised                    75,000             --
   Payments on capital lease obligations                      (674)       (14,836)
   Proceeds from issuance of notes                         190,000        270,000
   Proceeds from issuance of related party notes            30,000        135,000
   Payments on notes payable                               (10,790)            --
   Sale of common stock                                     70,000             --
                                                       -----------    -----------

      Cash Flows Provided by Financing Activities          353,536        390,164
                                                       -----------    -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                      790          2,072

CASH AND CASH EQUIVALENTS, beginning of period               2,072             --
                                                       -----------    -----------

CASH AND CASH EQUIVALENTS, end of period               $     2,862    $     2,072
                                                       ===========    ===========

Supplementary information:
     Cash paid for:
   Interest                                            $    15,833    $    20,327
                                                       ===========    ===========

   Income taxes                                        $        --    $        --
                                                       ===========    ===========
</TABLE>


                SEE ACCOMPANYING NOTES TO FINANCIALS STATEMENTS

                                      F-7
<PAGE>

<TABLE>
                          MILITARY RESALE GROUP, INC.
                            STATEMENTS OF CASH FLOWS

<CAPTION>
                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                           2003            2002
                                                       ------------   ------------

<S>                                                    <C>            <C>
Non-cash investing and financing activities:

Issuance of stock in exchange for cancellation of
  indebtedness                                         $         --   $    150,000
                                                       ============   ============


Issuance of stock and common stock options in
  exchange for services to be rendered over six
  months to one year                                   $  1,705,250   $    181,000
                                                       ============   ============

Issuance of common stock options for loan extensions   $    271,440   $    200,000
                                                       ============   ============

Issuance of common stock in litigation settlement      $     50,000   $         --
                                                       ============   ============
</TABLE>


                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      F-8
<PAGE>

                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Military Resale Group, Inc. (the Company) was organized under the laws of the
State of New York and is a regional distributor of grocery and household items
specializing in distribution to commissaries of the U. S. Military. Currently,
the Company services six military installations located in Colorado, Wyoming and
South Dakota.

On October 15, 2001, the Company, formerly Bactrol Technologies, Inc. entered
into a stock purchase agreement with Military Resale Group, Inc., a Maryland
corporation that was formed on October 6, 1997 ("MRG"), pursuant to which 98.2%
of MRG's stock was effectively exchanged for a controlling interest in our
publicly held "shell" corporation. Concurrently with the closing of that
transaction, the Company changed its name from Bactrol Technologies, Inc. to
Military Resale Group, Inc. This transaction is commonly referred to as a
"reverse acquisition". For financial accounting purposes, this transaction has
been treated as the issuance of stock for the net monetary assets of the
Company, accompanied by a recapitalization of MRG with no goodwill or other
intangible assets recorded.

For financial reporting purposes, MRG was considered the acquirer, and
therefore, the historical operating results of Bactrol Technologies, Inc. are
not presented.

GOING CONCERN

The financial statements have been prepared on a going concern basis, which
contemplates continuity of operations, realization of assets and liquidation of
liabilities in the normal course of business.

The Company has suffered recurring losses from operations, and its working
capital deficit raises substantial doubt about its ability to continue as a
going concern.

The Company's management is currently pursuing equity and/or debt financing in
an effort to continue operations. The future success of the Company is likely
dependent on their ability to attain additional capital to develop business, and
ultimately upon their ability to attain future profitable operations. There can
be no assurance that the Company will be successful in obtaining such financing,
or that the Company will attain positive cash flow from operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

CASH AND CASH EQUIVALENTS

The Company considers all cash and highly liquid investments with initial
maturities of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE

The Company's trade accounts primarily represent unsecured receivables.
Historically, its doubtful accounts related to these trade accounts have been
insignificant. Therefore, no allowance for doubtful accounts has been provided
for.

                                      F-9
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

INVENTORY

Inventory consists primarily of grocery items, and is stated at the lower of
cost or market. Cost is determined under the first-in, first-out method (FIFO)
valuation method. All items of inventory are finished goods resold to military
commissaries and wholesale food chains.

ADVERTISING COSTS

Advertising costs are charged to operations when incurred. For the years ended
December 31, 2003 and 2002, the Company incurred $-0- and $949 of advertising
costs, respectively.

EQUIPMENT

The Company follows the practice of capitalizing equipment costing in excess of
$250. The cost of ordinary maintenance and repairs is charged to operations
while renewals and replacements are capitalized. Depreciation expense was
$29,874 and $40,789 for the years ended December 31, 2003 and 2002,
respectively. Depreciation is computed on the straight-line method over the
following estimated useful lives:

Office equipment and software       3 to 5 years
Warehouse equipment                 5 to 7 years

INCOME TAXES

The Company accounts for income taxes under the asset and liability method.
Under this method, deferred income taxes are recorded to reflect the tax
consequences in future years of temporary differences between the tax basis of
assets and liabilities and their financial statement amounts at the end of each
reporting period. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
represents the tax payable for the current period and the change during the
period in deferred tax assets and liabilities. Deferred tax assets and
liabilities have been netted to reflect the tax impact of temporary differences.

Deferred tax assets arise primarily from the net operating loss carryforward and
expenses accrued for book basis but not for tax basis. The Company is on the
accrual basis for tax purposes, which has resulted in a net operating loss
carryforward at December 31, 2003 and 2002. A full valuation allowance has been
recorded at December 31, 2003 and 2002 since management of the Company can not
determine that it is more likely than not that the tax asset will be realized.
(See Note 10)

                                      F-10
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

NET (LOSS) PER COMMON SHARE

The Company computes earnings (loss) per common share in accordance with
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
No. 128). This statement simplifies the standards for computing earnings per
share (EPS) previously found in Accounting Principles Board Opinion No. 15,
Earnings Per Share, and makes them more comparable to international EPS
standards. SFAS No. 128 replaces the presentation of primary EPS with a
presentation of basic EPS. In addition, the Statement requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. (See Note 12).

REVENUE RECOGNITION

The Company's revenues are derived from either resale revenue or commission
revenue.

Resale Revenue: The Company purchases products from manufacturers and suppliers
for resale to the commissaries it services. Revenue from these customers is
recognized when title to products passes to the customer for the amount of the
sales less an appropriate provision for returns and allowances. The revenue
amount recorded includes: (i) the purchase price paid by the commissary plus
(ii) a negotiated storage and delivery fee paid by the manufacturer or supplier.
The Company records revenue on a gross sales basis because the Company (a) is
the primary obligor in the transaction as the Company is responsible for
fulfillment of the order and for the customer's acceptance of the goods or
services sold, (b) bears inventory risk (taking title to the goods before the
customer's order is placed or upon the customer's return), and (c) bears
physical loss of inventory risk.

Commission Revenue: The Company records commission revenue in cases where it
acts as an agent for the manufacturer or supplier of the products it sells, and
earns a commission based upon a percentage of the suppliers' sales amount. This
revenue is recognized at the time goods are shipped by the Company to the
ultimate customer, which is when title passes.

STOCK BASED COMPENSATION

The Company accounts for stock based compensation in accordance with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This standard requires the Company to adopt the
"fair value" method with respect to stock-based compensation of consultants and
other non-employees. The Company did not change its method of accounting with
respect to employee stock options; the Company continues to account for these
under the "intrinsic value" method, and to furnish the proforma disclosures
required by SFAS 123.

VALUATION OF THE COMPANY'S COMMON STOCK

Unless otherwise disclosed, all stock based transactions entered into by the
Company have been valued at the market value of the Company's common stock on
the date the transaction was entered into or have been valued using the Modified
Black-Scholes European Model to estimate the fair market value.

                                      F-11
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of financial instruments approximates their fair value,
because of the short-term nature of these financial instruments.

The fair value of the Company's capital lease obligations approximate their
carrying value and are based on the current rates offered for debt of the same
remaining maturities with similar collateral requirements, or that the
difference is represented by the additional costs to convert the debt to market
rates making the two presently equivalent.

CONCENTRATIONS OF RISK

The Company maintains all cash and cash equivalents in financial institutions,
which at times may exceed federally insured limits. The Company has not
experienced a loss in such accounts.

The Company's revenues from military commissary sales provide approximately
ninety five percent of their total revenues. Management believes that
concentration of customers with respect to risk is minimal due to the sales
being primary through government contracts.

RECLASSIFICATION

Certain amounts in the prior year financial statements have been reclassified
for comparative purposes to conform to the presentation in the current year
financial statements.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In April 2002 the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of SFAS Statement No. 13, and Technical Corrections ("SFAS
145"). This statement rescinds the requirement in SFAS No. 4, Reporting Gains
and Losses from Extinguishment of Debt, that material gains and losses on the
extinguishment of debt be treated as extraordinary items. The statement also
amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between
the accounting for sale-leaseback transactions and the accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. Finally the standard makes a number of
inconsequential and other technical corrections to other standards. The
provisions of the statement relating to the rescission of SFAS 4 are effective
for fiscal years beginning after May 15, 2002. Provisions of the statement
relating to the amendment of SFAS 13 are effective for transactions occurring
after May 15, 2002 and the other provisions of the statement are effective for
financial statements issued on or after May 15, 2002. The Company has reviewed
SFAS 145 and its adoption did not have a material effect on its financial
statements.

                                      F-12
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In July 2002 the FASB issued SFAS No. 146, Accounting for Exit or Disposal
Activities ("SFAS 146"). SFAS 146 applies to costs associated with an exit
activity (including restructuring) or with a disposal of long-lived assets.
Those activities can include eliminating or reducing product lines, terminating
employees and contracts, and relocating plant facilities or personnel. SFAS 146
will require a Company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 supersedes Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring), and
requires liabilities associated with exit and disposal activities to be expensed
as incurred and can be measured at fair value. SFAS 146 is effective
prospectively for exit or disposal activities initiated after December 31, 2002,
with earlier adoption encouraged. The Company has reviewed SFAS 146 and its
adoption did not have a material effect on its financial statements.

In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure ("SFAS No. 148). 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 from the intrinsic value based
method of accounting prescribed by APB No. 25. It also amends the disclosure
requirements to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. Under the
provisions of SFAS No. 148, companies that choose to adopt the accounting
provisions of SFAS No. 123 will be permitted to select from three transition
methods: Prospective method, Modified Prospective method and Retroactive
Restatement method. The transition and annual disclosure provisions of SFAS No.
148 are effective for the fiscal years ending after December 15, 2002. The
adoption of SFAS No. 148 did have a material effect on the financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB 51 ("FIN 46"). The primary
objectives of FIN 46 are to provide guidance on the identification of entities
for which control is achieved through means other than through voting rights
(Variable Interest Entities or "VIEs") and to determine when and which business
enterprise should consolidate the VIE. This new model for consolidation applies
to an entity which either (1) the equity investors (if any) do not have a
controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. The disclosure requirements
of FIN 46 became effective for financial statements issued after January 31,
2003. The adoption of this interpretation did not have an impact on the
Company's financial statements.

                                      F-13
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         (CONTINUED)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In April 2003, FASB issued SFAS No. 149, Accounting for Derivative Instruments
and Hedging Activities, ("SFAS 149") which is effective for contracts entered
into or modified after June 30, 2003 and for hedging relationships designated
after June 30, 2003. This statement amends and clarifies financial accounting
and reporting for derivative instruments including certain instruments embedded
in other contracts and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The Company has adopted SFAS
149 and its adoption did not have a material effect on its financial statements.

In May 2003, FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, ("SFAS 150")
which is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The Company has adopted SFAS 150
and its adoption did not have a material effect on its financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimated
amounts.

NOTE 2 - PREPAID CONSULTING

Prepaid consulting expenses are recorded in connection with common stock and
options issued to purchase common stock granted to consultants for future
services and are amortized over the agreement term. During the year ended
December 31, 2003, the Company incurred prepayments of $484,506 and stock based
compensation expense of $1,304,250.

NOTE 3 - PREPAID INTEREST

Prepaid interest is recorded in connection with the issuances of options for the
extension of various notes payable. The prepaid interest is being amortized over
the extension period, with $180,054 charged to interest expense in the current
period.

                                      F-14
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 4 - RELATED PARTY TRANSACTIONS

In January 2003, the Company entered into a one-year business consulting
agreement with Edward Meyer, Jr. for marketing and managerial consulting
services, and an executive compensation agreement with Edward Whelan, Chief
Executive Officer. In consideration of the services to be rendered by Mr. Whelan
and Mr. Meyer, the Company will issue each month the number of shares determined
by dividing $12,000 by the product of 80% and the average closing low price for
the Company's common stock during each quarter.

During the year ended December 31, 2003, the Company issued 1,305,622 shares of
common stock as consideration under a January 2002 and 2003 consulting and
compensation agreements for the fourth quarter of 2002 and the four quarters of
2003 (370,831 shares to Mr. Meyer and 934,791 shares to Mr. Whelan, or their
respective designees). The transactions were valued between $0.10 and $0.27 per
share, the fair market value of our common stock on the dates of issuance.

On July 11, 2003, the Company issued 100,000 shares of our common stock to an
employee, Robert Hefner, for compensation for past employment services. These
shares were valued at $0.26 per share or $26,000, the fair value at date of
issuance.

On November 1, 2003 the Company issued 300,000 shares of common stock to Mr.
Meyer in connection with the signing of a consulting agreement. The term of the
agreement is for one year. These shares were valued at $30,000, the fair value
at date of issuance. This amount will be amortized over the term of the
agreement.

During the year ended December 31, 2003, the Company received advances from
related parties; $11,500 from individuals related to shareholders/management.
These advances are non-interest bearing and are due on demand. These amounts are
recorded as due to related parties along with $61,132 of amounts due to a
related party for expenses paid by related party on behalf of the Company.

On March 11, 2003, Edward Whelan loaned the Company $10,000. The corresponding
note bears interest at a rate of 8% per annum and is due on June 3, 2006.

                                      F-15
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED)

On June 30, 2003, in connection with the conversion of $190,000 of demand notes
to convertible notes from Edward Whelan, Chief Executive Officer, and companies
which he controls and/or is shareholder, 1,130,000 stock options were issued.
The options expire in five years. The fair value of the options are estimated at
$235,040 based on the Modified Black-Scholes European Pricing Model. The average
risk free interest rate used was 2.9%, volatility was estimated at 94.06%, and
the expected life was five years. The demand notes have been modified to allow
the holder to convert their notes into shares of common stock at $0.25 per
share. These convertible notes do not have a beneficial conversion feature.

On June 30, 2003, in connection with the conversion of $25,000 of demand notes
to convertible notes from each of Ethan Hokit, President and Atlantic Investment
Trust, of which Richard Tanenbaum, one of the Company's directors, is the
trustee, 25,000 stock options were issued to each of such noteholders. The
options expire in five years. The fair value of the options are estimated at
$10,400 based on the Modified Black-Scholes European Pricing Model. The average
risk free interest rate used was 2.9%, volatility was estimated at 94.06%, and
the expected life was five years. The demand notes have been modified to allow
the holder to convert their notes into shares of common stock at $0.25 per
share. Such notes do not have a beneficial conversion feature.

On August 7, 2002, the Company borrowed $50,000 from Atlantic Investment Trust
and $50,000 from Eastern Investment Trust. Richard Tanenbaum, one of the
Company's Directors, is a trustee of these entities. The notes are convertible
and bear interest at 8% per annum and were due on July 30, 2003.

During 2002, Edward Whelan advanced the Company $20,000. The advances bear
interest at a rate of 10% per annum and are due on demand.

NOTE 5 - CONVERTIBLE NOTES

During the year ended December 31, 2002, notes payable of $150,000, which
included a beneficial conversion feature, were converted into 1,793,574 shares
of the Company's common stock pursuant to the notes.

At December 31, 2003, the Company had an aggregate of $605,000 payable in
convertible notes of which $370,000 are with related parties (see Note 4). On
June 30, 2003, notes in the amount of $215,000 that were originally due on or
before June 30, 2003 and $50,000 of notes that were originally due September 30,
2003 were extended until June 3, 2006 and bear interest at 8%. An additional
$240,000 of demand notes were converted to convertible notes on June 30, 2003
and are due June 3, 2006. Of these notes, $100,000 are non-interest bearing,
$60,000 bear interest at 10% and $80,000 bear interest at 8%.

                                      F-16
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 5 - CONVERTIBLE NOTES (CONTINUED)

In connection with the extension of the due dates and conversion of the demand
notes to convertible notes, stock options of 1,305,000 were issued. The options
expire in five years. The fair value of the options were estimated at $271,440
based on the Modified Black-Scholes European Pricing Model. The average risk
free interest rate used was 2.9%, volatility was estimated at 94.06% and the
expected life was five years. The Company recorded prepaid interest of $271,440
and are amortizing it over the extension period. Interest expense of $46,721 was
recorded during the year ended December 31, 2003 for amortization of the prepaid
interest.

During the year ended December 31, 2003, the Company issued $20,000 in
convertible notes bearing interest at 8% per annum due January 30, 2004 and
$15,000 in convertible notes bearing interest at 8% per annum due June 3, 2006.

The Company's convertible notes provide generally that, if the convertible notes
are not in default, the holders may convert, at any time all or a portion of the
outstanding balance under each convertible note into a number of shares (subject
to certain anti-dilution adjustments) of common stock that will allow the note
holder to receive common stock having a market value equal to 150% of the
converted balance of the note. For notes issued prior to May 30, 2003, if an
event of default has occurred in respect of such convertible notes, the holder
may convert the outstanding balance into a number of shares (subject to certain
anti-dilution adjustments) of common stock equal to twice the number of shares
the holder would have otherwise received if the convertible notes were not in
default. Among other events of default, the terms of the convertible notes
require the Company to register under the Securities Act of 1933 the shares of
common stock issuable upon conversion of the convertible notes. On June 30, 2003
the demand notes were modified to allow the holder to convert their notes into
common stock at $0.25 per share. These convertible notes do not have a
beneficial conversion feature.

The Company follows EITF 98-5 in accounting for convertible notes with
"beneficial conversion features" (i.e., the notes may be converted into common
stock at the lower of a fixed rate at the commitment date or a fixed discount to
the market price of the underlying common stock at the conversion date). Because
the Company's convertible notes contained a beneficial conversion feature on the
date of issuance, the Company measured and recognized the intrinsic value of the
beneficial conversion feature of the convertible notes when the convertible
notes were issued. During the year ended December 31, 2003 and 2002 interest
expense of $27,173 and $370,000, respectively, was recognized as the intrinsic
value of the beneficial conversion feature of the convertible notes that were
issued during such periods.

                                      F-17
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 6 - NOTES PAYABLE

On March 27, 2003, the Company issued a promissory note for $100,000 to Romano,
Ltd. As of December 31, 2003, the remaining balance on this note was $89,210.
The note bears interest at 15% per annum and is due on March 26, 2004, subject
to the following contingent payment terms upon the Company raising or securing
additional funding from any third-party source:

<TABLE>
<CAPTION>
Additional Funding                      Terms Modification

<S>                  <C>
$          250,000   Payment of 10% of outstanding principal and accrued interest
$          500,000   Payment of 15% of outstanding principal and accrued interest
$1,000,000 or more   Payment of 100% of outstanding principal and accrued interest
</TABLE>

If the Company fails to secure any of the above-referenced additional funding,
or another significant event such as a merger or acquisition of another company,
the Company was required to pay $8,000 per month commencing on July 1, 2003
until the full obligation was paid or by March 26, 2004. The Company is
currently in default of the terms of the note and is negotiating with the holder
to avoid remedies upon default, including acceleration of the principal amount
and interest at 30% on the unpaid balance.

Subsequent to December 31, 2003 the Company reached an agreement with Romano,
Ltd. As of the date of the new agreement, $50,000 cash had been paid of the
original $100,000 note. The Company signed a new $30,000 note with Romano, Ltd.,
with interest at 15% per annum, payable beginning on April 1, 2004 with equal
consecutive installments payable on the fifteenth of every month in the amount
of $5,000 until paid in full or March 26, 2005. The note covers accrued interest
owed Romano, Ltd. on the $100,000 loan. In addition, the Company issued 400,000
shares of common stock to satisfy the remaining $50,000 balance of the loan.

Maturities on long term debt, including related parties, are as follows for the
years ending December 31:

2004                                                              $    175,235
2005                                                                    14,767
2006                                                                   536,313
2007                                                                    18,022
2008                                                                    19,909
Thereafter                                                              29,964
                                                                  ------------

                                                                  $    794,210
                                                                  ============

NOTE 7 - CAPITAL LEASES

The Company leases certain equipment under capital leases expiring in various
years through 2006. The assets and liabilities under capital leases are recorded
at the lower of the present value of the minimum lease payments or the fair
value of the asset at the inception of the lease. The assets are amortized over
the lower of their related lease terms or their estimated productive lives.

                                      F-18
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 7 - CAPITAL LEASES (CONTINUED)

Amortization of assets under capital leases is included in depreciation expense.

Properties under capital leases at December 31, 2003 are as follows:

      Equipment                             $     103,403
      Less: accumulated amortization               43,513
                                            -------------

      Net                                   $      59,890
                                            =============

The following is a schedule of minimum lease payments under capital leases as of
December 31, 2003.

  Year Ending December 31,
  2004                                                     $      61,839
  2005                                                            22,818
  2006                                                            20,916
                                                           -------------
  Total net minimum capital lease payments                       105,573
  Less: amounts representing interest                             17,241
                                                           -------------
  Present value of net minimum capital lease payments             88,332
  Less: current maturities of capital lease obligations           51,981
                                                           -------------

  Obligations  under  capital  leases,  net  of  current
    maturities                                             $      36,351
                                                           -------------


NOTE 8 - OPERATING LEASE COMMITMENTS

In August 2001, the Company entered into a lease agreement that expires in
August 2006 for office and warehouse space in Colorado Springs, Colorado.

Minimum future lease payments under current lease agreements at December 31,
2003 are as follows:

           2004                                $    193,759
           2005                                     201,946
           2006                                     210,133
                                               ------------

           Total minimum payments required     $    605,838
                                               ============

The lease has an annual escalation factor. The above rental commitments reflect
the periods during which the actual obligations arise (per the lease agreement).
Rental expense has been charged to operations on a straight-line basis. The
associated liability is presented in the balance sheet as a deferred rental
obligation.

The Company was a defendant in litigation regarding several lease agreements for
former premises (see Note 13).

                                      F-19
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 8 - OPERATING LEASE COMMITMENTS (CONTINUED)

Rent expense for the years ended December 31, 2003 and 2002 was $248,373 and
$302,237, respectively.

NOTE 9 - INCOME TAXES

The provision (benefit) for income taxes consists of the following:

Total deferred tax assets                          $  1,951,395
Less valuation allowance                             (1,951,395)
                                                   -------------

Net deferred tax asset                             $        ---
                                                   =============

The components of deferred tax assets and (liabilities) and the related tax
affects of temporary differences that give rise to deferred tax assets and
(liabilities) are as follows:

                                                           DECEMBER 31,
                                                     2003               2002
                                                 -----------        ------------

Stock based compensation                         $   123,889                 --
Net operating loss carryforward                    1,827,506          1,264,000
Increase in valuation allowance                   (1,951,395)        (1,264,000)
                                                 -----------        -----------

                                                 $        --        $        --
                                                 ===========        ===========

The components of deferred income tax expense (benefit) are as follows:

                                                           DECEMBER 31,
                                                     2003               2002
                                                 -----------        ------------

Stock based compensation                         $   123,889        $        --
Net operating loss carryforward                      563,506            880,000
Less valuation allowance                            (687,395)          (880,000)
                                                 -----------        -----------

                                                 $        --        $        --
                                                 ===========        ===========

Following is a reconciliation of the amount of income tax expense (benefit) that
would result from applying the statutory federal income tax rates to pre-tax
income and the reported amount of income tax expense (benefit):

                                      F-20
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 9 - INCOME TAXES (CONTINUED)

                                                              DECEMBER 31,
                                                          2003           2002
                                                       ---------      ---------

Tax expense at federal statutory rates                 $(894,795)      (788,535)
Increase in inventory valuation allowance                  6,077             --
Other                                                     11,723             --
Stock based compensation                                 123,889             --
Net operating loss carryforward                          753,106        788,535
                                                       ---------      ---------

                                                       $      --      $      --
                                                       =========      =========

As of December 31, 2003, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $5,375,000, which will be available
to reduce future taxable income. The full realization of the tax benefit
associated with the carryforward depends predominantly upon the Company's
ability to generate taxable income during the carryforward period. Because of
the current uncertainty of realizing such tax assets in the future, a valuation
allowance has been recorded equal to the amount of the net deferred tax assets,
which caused our effective tax rate to differ from the statutory income tax
rate. The net operating loss carryforward, if not utilized, will expire between
2017 and 2023. At December 31, 2003, the valuation allowance increased by
$687,395.

NOTE 10 - EQUITY INCENTIVE PLAN

In December 2001, the Company adopted the Military Resale Group, Inc. 2001
Equity Incentive Plan (the "Incentive Plan") for the purpose of attracting,
retaining and maximizing the performance of executive officers and key employees
and consultants. The Company has reserved 1,500,000 shares of common stock for
issuance under the Incentive Plan. The Incentive Plan has a term of ten years
and provides for the grant of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, non-statutory
stock options, stock appreciation rights, restricted stock awards, performance
share awards and compensatory share awards. The exercise price for non-statutory
stock options may be equal to or more or less than 100 percent of the fair
market value of shares of common stock on the date of grant. The exercise price
for incentive stock options may not be less than 100 percent of the fair market
value of shares of our common stock on the date of grant (110 percent of fair
market value in the case of incentive stock options granted to employees who
hold more than ten percent of the voting power of issued and outstanding shares
of common stock).

Options granted under the Incentive Plan may not have a term of more than
ten-years (five years in the case of incentive stock options granted to
employees who hold more than ten percent of the voting power of common stock)
and generally vest over a three-year period.

                                      F-21
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 10 - EQUITY INCENTIVE PLAN (CONTINUED)

The fair value of each option granted is estimated on the grant date using the
Black-Scholes Option-Pricing Model. The following assumptions were made in
estimating fair value:

        Dividend yield                                  0%
        Risk-free interest rate                      2.5%-3.6%
        Expected life                                1-5 years
        Expected Volatility                          233%-253%

Common stock options granted under the plan during the year ended December 31,
2003 and 2002 were 0 and 800,000, respectively.

                                        OPTION          OUTSTANDING OPTIONS
                                        SHARES                       PRICE PER
                                       AVAILABLE       SHARES          SHARE

BALANCE, DECEMBER 31, 2001             1,500,000            ---   $        ---

Granted                                 (800,000)       800,000           0.50
Expired                                      ---            ---            ---
                                    ------------   ------------   ------------

BALANCE, DECEMBER 31, 2002               700,000        800,000   $       0.50
                                    ------------   ------------   ------------

Granted                                      ---            ---            ---
Exercised                                    ---            ---            ---
Expired                                      ---            ---            ---
                                    ------------   ------------   ------------

BALANCE, DECEMBER 31, 2003               700,000        800,000   $       0.50
                                    ============   ============   ============

NOTE 11 - COMMON STOCK

During the year ended December 31, 2002 the Company issued 2,084,812 shares of
common stock to various consultants for services performed and to be performed.
The shares were valued at $674,298 based on the closing market price on the date
of signing the agreements. This amount was recorded as prepaid consulting and
was amortized over the term of the agreements.

During December 2003 the Company issued 384,000 shares of common stock for
settlement of litigation in the amount of $50,000. (See Note 13).

During the year ended December 31, 2003, the Company issued aggregate shares of
common stock of 8,230,621 to various consultants for services provided or to be
provided. Stock based compensation expense of $1,127,174 was recognized in 2003
and a prepaid consulting expense of $ 307,430 was recorded in 2003 for stock
issued for services. These amounts were based on the fair market value of the
shares on the date of issuance.

                                      F-22
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 11 - COMMON STOCK (CONTINUED)

5,505,000 and 500,000 stock options were granted to various parties during the
years ended December 31, 2003 and 2002, respectively, for services rendered and
to be rendered. (See Notes 4 and 5). The options expire in five years. The
options issued during year ended December 31, 2003 and 2002 were valued at
$677,840, and $200,000, respectively, the fair value using the Black-Scholes
European Pricing Model. The average risk free interest rate used was 2.9%,
volatility was estimated at 94.06% and 253%, respectively, and the expected life
was five years.

Compensation cost charged to operations for options issued was $ 276,045 and
$220,000 during the years ended December 31, 2003 and 2002, respectively.
Prepaid consulting costs and prepaid interest expense for options issued are
$177,076 and $224,719, respectively at December 31, 2003.

NOTE 12 - EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                For the Year Ended December 31, 2003
                                                                                                   Per
                                                         Income/(Loss)          Shares            Share
                                                          (Numerator)         (Denominator)       Amount
                                                       ----------------    ----------------   ------------
<S>                                                    <C>                       <C>          <C>
Basic EPS
   Income (loss) available to common stockholders      $     (2,631,749)         14,619,599   $      (0.18)

Effect of Dilutive Securities                                        --                  --             --
                                                       ----------------    ----------------   ------------

Diluted EPS
   Income (loss) available to common stockholders      $     (2,631,749)         14,619,599   $      (0.18)
                                                       ================    ================   ============


                                                                For the Year Ended December 31, 2002
                                                                                                   Per
                                                         Income/(Loss)          Shares            Share
                                                          (Numerator)         (Denominator)       Amount
Basic EPS
   Income (loss) available to common stockholders      $     (2,319,221)          9,156,648   $       (.25)

Effect of Dilutive Securities                                        --                  --             --
                                                       ----------------    ----------------   ------------

Diluted EPS
   Income (loss) available to common stockholders      $     (2,319,221)          9,156,648   $       (.25)
                                                       ================    ================   ============
</TABLE>

                                      F-23
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 13 - CONTINGENCIES

The Company was the defendant in a litigation regarding their former premises.
The plaintiff was the former landlord, who was seeking damages for an alleged
breach of the terms of several operating lease agreements for office and
warehouse space located in Colorado Springs, Colorado. On November 25, 2003 a
settlement was reached and issued with the district court of El Paso County,
Colorado. Under the terms of the settlement, the Company delivered 384,000
shares of common stock to the plaintiff for settlement of $50,000 owed and
agreed to issue a note payable to the plaintiff in the amount of $100,000
bearing interest at 10% per annum beginning November 6, 2003. Under the terms of
the note, the Company is required to begin payments of $2,000 per month on July
1, 2004 and on the first day of each and every month thereafter until all
principal and accrued interest are paid in full. If on the date of full payment
of the note or the date of maturity of the note, whichever occurs first, the
market price of the stock as of close of the market on that day is $50,000 or
greater the plaintiff must accept the stock as full satisfaction of the $50,000
liability. If the market price of the stock is less than $50,000, the plaintiff
may either retain the stock as full satisfaction of the $50,000 or surrender the
stock to the Company in exchange for simultaneous payment to the plaintiff in
cash of $50,000.

The Company was the defendant in two other litigations with two different
vendors. In accordance with the judgments issued on September 10, 2003 and
October 31, 2003, the Company is required to pay a total of $76,675
(non-interest bearing) and $39,901 to each vendor respectively. The balance of
$39,901 accrues interest of 8% per annum.

In February 2003, a capital lease obligation, secured by equipment with a net
book value of $25,363, was accelerated due to non-payment. This obligation is
reflected in the current portion of obligations under capital leases in the
accompanying financial statements. The Company defaulted under the accelerated
terms of this agreement and the debt has been sent to a collections agency. The
Company is paying $1,000 per month on this lease until a new settlement can be
reached.

In February 2003, the Company entered into a Lease Modification Agreement for a
capital lease for equipment with a net book value of $57,183. The term of the
lease was extended through April 2007, with no required payment for the months
between November 2002 and February 2003. Minimum lease payments have increased
to $2,100 through October 2003 and $1,980 for the remaining 40 months.

                                      F-24
<PAGE>

                          MILITARY RESALE GROUP, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 14 - SUBSEQUENT EVENTS

Subsequent to December 31, 2003 the Company sold 4,300,000 shares of common
stock at prices ranging from $.10 to $.125 for total consideration of $532,500.

In January 2004 the Company signed a consulting agreement with a shareholder to
perform management functions. The term of the agreement is for one year,
expiring on January 29, 2005. In consideration of his work to be performed, the
Company issued 50,000 shares of common stock to the shareholder valued at $0.11
per share, the closing market price on the effective date of the agreement.

In April 2004 the Company signed a consulting agreement with an unrelated party
to perform management and consulting services. The term of the agreement is for
one year, expiring on March 31, 2005. In exchange for the services to be
provided by the consultant, the Company issued 250,000 shares of common stock to
the consultant and agreed to pay an additional $5,000 per month for services.
The shares were valued at $0.19 per share, the closing market price on the
effective date of the agreement.

                                      F-25
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES.

      Disclosure Controls and Procedures. Our management, with the participation
of our chief executive officer and chief financial officer, has evaluated the
effectiveness of our company's disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of the end of the period covered by
this report. Based on such evaluation, our chief executive officer and chief
financial officer have concluded that, as of the end of such period, our
company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act.

      Internal Control Over Financial Reporting. There have not been any changes
in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter
of 2003 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

18
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTIONS 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

      The following table sets forth certain information with respect to each of
our officers or directors as of April 30, 2004

        NAME                     AGE   POSITION

        Edward T. Whelan         53    Chairman of the Board and Chief
                                       Executive Officer

        Ethan D. Hokit           65    President, Chief Operating Officer,
                                       Treasurer and Director

        Richard H. Tanenbaum     56    Director and Secretary

      EDWARD T. WHELAN was a co-founder of MRG-Maryland in October 1997 and
served as its Chairman and Chief Executive Officer until the consummation of the
Reverse Acquisition in November 2001, at which time he became our Chairman of
the Board and Chief Executive Officer. From April 1998 until October 2003, Mr.
Whelan also served as the President and a principal stockholder of Xcel
Associates, Inc., a company engaged in providing financial consulting to small
and medium-sized companies and to high net worth individuals. From 1989 to
December 2001, Mr. Whelan also served as President and a principal shareholder
of Shannon Investments, Inc., a consulting firm to small and medium-sized
companies. From 1968 to 1971, Mr. Whelan attended St. Peters College in Jersey
City, New Jersey, where he majored in Economics.

      ETHAN D. HOKIT was a co-founder of MRG-Maryland in October 1997 and served
as its President and Chief Operating Officer, and was a director, until the
consummation of the Reverse Acquisition in November 2001, at which time he
became our President, Chief Operating Officer and Treasurer and one of our
directors. From 1983 until February 1998, Mr. Hokit was the President of Front
Range Distributors, Inc., a regional distributor of groceries and household
goods to the military market serving the five military bases in and around
Colorado Springs, Colorado. Mr. Hokit graduated from the University of Oklahoma
with a Bachelor of Science degree in Chemistry in 1960 and a Master's Degree in
Clinical Chemistry in 1962.

      RICHARD H. TANENBAUM was the general counsel and a director of
MRG-Maryland since its inception in October 1997 until the consummation of the
Reverse Acquisition in November 2001, at which time he became our general
counsel and one of our directors. Since 1984, Mr. Tanenbaum has practiced law in
Bethesda, Maryland, with an emphasis on contract negotiations, the purchase and
sale of businesses, loan and real estate acquisitions, and related tax matters.
Mr. Tanenbaum received his Juris Doctorate degree at Columbia Law School of the
Catholic University of America in 1974. He received a Bachelor of Science degree
from Bradley University in 1967.


TERMS OF OFFICERS AND DIRECTORS

      Our Board of Directors currently consists of three directors. Pursuant to
our By-laws, each of our directors serves until the next annual meeting of
stockholders or until his or her successor is duly elected or appointed.

      Our executive officers are appointed by the Board of Directors and serve
at the pleasure of the Board. There are no family relationships among any of our
executive officers or directors.

19
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors and persons who beneficially own more than 10 percent of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than 10 percent shareholders are required by the
Securities and Exchange Commission to furnish us with copies of all Section
16(a) forms they file.

      Based solely upon our review of the copies of such forms furnished to us
during the year ended December 31, 2003 and representations made by certain
persons subject to this obligation that such filings were not required to be
made, we believe that all reports required to be filed by these individuals and
persons under Section 16(a) were filed in a timely manner, other than reports by
the following persons:

      o     Edward T. Whelan, one of our directors, our Chief Executive Officer
            and a beneficial owner of more than 10% of our outstanding shares of
            common stock, failed to timely file a Statement of Changes in
            Beneficial Ownership on Form 4 (a "Form 4") upon (i) his acquisition
            of compensatory shares in July and December 2003 pursuant to his
            executive compensation arrangement with our company and (ii) the
            acquisition of options to purchase shares of our common stock in
            July 2003 by Mr. Whelan and by Oncor Partners Inc. and Grace
            Holdings Inc., both of which are controlled by Mr. Whelan.

      o     Richard Tanenbaum, one of our directors, failed to timely file a
            Form 4 upon (i) the acquisition of options to purchase shares of our
            common stock by several trusts of which Mr. Tanenbaum serves as
            trustee and (ii) the receipt by such trusts of promissory notes that
            we issued in May 2003 that are convertible into shares of our common
            stock.

      Except as disclosed, we are not aware of any transactions in our
outstanding securities by or on behalf of any director, executive officer or 10
percent holder, which would require the filing of any report pursuant to Section
16(a) during the year ended December 31, 2003 that has not been filed with the
Securities and Exchange Commission.

CODE OF ETHICS

      We have not yet adopted a code of ethics. Management expects to adopt a
formal code of ethics and related controls during 2004.

AUDIT COMMITTEE

      We do not have a standing Audit Committee of our Board of Directors.
However, our Board of Directors has reviewed the audited financial statements of
our company for the year ended December 31, 2003 and has taken such steps as was
deemed necessary to insure that the members of our Board of Directors discussed
with our independent auditors the matters required by SAS 61.

20
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

      The table below sets forth the compensation earned for services rendered
in all capacities for the fiscal years ended December 31, 2001, 2002 and 2003 by
our executive officers in their capacities as officers and directors of
MRG-Maryland.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                 Annual Compensation               Long-Term Compensation
--------------------------------------------------------------------------------------------------------------------
                                                                          Awards                  Payouts
                                                                  --------------------------------------------------
                                                                              Securities
                                                                  Restricted  Under-lying            All
Name and Principal                                 Other Annual   Stock       Options/     LTIP      Other
Position                  Year   Salary    Bonus   Compen-sation  Award(s)    SARs         Payouts   Compen-sation
                                 ($)       ($)     ($)            ($)         (#)          ($)       ($)
(a)                       (b)    (c)       (d)     (e)            (f)         (g)          (h)       (i)
--------------------------------------------------------------------------------------------------------------------
<S>                      <C>     <C>       <C>     <C>            <C>         <C>          <C>       <C>
Edward T. Whelan,        2001    -         -       $63,800(1)     -           -            -         -
Chairman and Chief       2002    -         -       $109,857 (2)   -           -            -         -
Executive Officer        2003    -         -       $222,829(3)    -           -            -         -
--------------------------------------------------------------------------------------------------------------------
Ethan D. Hokit,          2001    $60,000   -       -              -           -            -         -
President and Chief      2002    $60,000   -       $9,000(4)      -           -            -         -
Operating Officer        2003    $60,000   -       -              -           -            -         -
--------------------------------------------------------------------------------------------------------------------
</TABLE>

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

(1)  Represents the value of 220,000 shares of common stock valued at $63,800
     ($0.29 per share) issued to Mr. Whelan in December 2001 as additional
     compensation for services rendered in 2001.

(2)  Represents the value of 145,000 shares of common stock valued at $29,000
     ($0.20 per share) issued to Mr. Whelan in February 2002 for consulting
     services performed for us during 2001 and the value of an aggregate of
     301,113 shares of common stock valued at $80,857 (an average of $0.27 per
     share) issued to Mr. Whelan in 2002 for consulting services performed for
     us from January 2002 through June 2002 and as compensation for services
     rendered as Chief Executive Officer from July 2002 through October 2002.

(3)  Represents the value of 1,113,208 shares of our common stock valued at
     $222,829 issued to Mr. Whelan as compensation for services rendered as
     Chief Executive Officer during the fourth quarter of 2002 and during 2003.
     Shares were issued at the end of each quarterly period and were valued at
     fair market value as follows: 192,414 shares ($0.16 per share), 218,519
     shares ($0.24 per share), 254,545 shares ($0.27), 228,559 shares ($0.13 per
     share) and 411,585 ($0.10 per share).

(4)  Represents the value of 90,000 shares of common stock issued to Mr. Hokit
     as additional compensation for services rendered in 2001.

      In January 2002, we entered into a one-year business consulting agreement
with Edward Whelan and Edward Meyer, Jr. for the provision of marketing and
managerial consulting services. Effective July 1, 2002, the consulting agreement
of Mr. Whelan was terminated and Mr. Whelan became one of our employees, for
which he was compensated on the same basis as he was to be paid under his
consulting agreement. In consideration of the services to be rendered by Messrs.
Whelan and Meyer, we issued in respect of each month a number of shares
determined by dividing $12,000 by the product of 80% and the average low price
for our common stock during such month. We issued to each of Messrs. Whelan and
Meyer (or their respective designees) an aggregate of 301,113 shares of our
common stock during the term of the agreement. In January 2003, our board of
directors approved a one year executive compensation agreement with Mr. Whelan,
pursuant to which we issued to Mr. Whelan (or his designee) an aggregate of
970,794 shares of our common stock in consideration for his services as our
Chief Executive Officer. Such amount was determined using the same formula
described above.

21
<PAGE>

      In January 2004, our board of directors approved a one year executive
compensation arrangement with Edward T. Whelan, pursuant to which we will issue
Mr. Whelan shares of our common stock in consideration for his services as Chief
Executive Officer. Under the terms of the arrangement, we will issue in respect
of each month during 2004 a number of shares determined by dividing $12,000 by
the product of 80% and the average low price for our common stock during such
month and options to purchase an equivalent number of shares of our common stock
at an exercise price of $0.25 per share.

DIRECTORS' COMPENSATION

      Our directors are reimbursed for expenses incurred in attending meetings
of the Board of Directors. Directors generally are not paid any separate fees
for serving as directors. However, in December 2001, we issued 200,000 shares of
common stock to Richard H. Tanenbaum for services rendered as one of our
directors.

EXECUTIVE EMPLOYMENT AGREEMENTS

      We do not have an employment agreement with any of our executive officers.

EQUITY INCENTIVE PLAN

      In December 2001, we adopted the Military Resale Group, Inc. 2001 Equity
Incentive Plan (the "Incentive Plan") for the purpose of attracting, retaining
and maximizing the performance of executive officers and key employees and
consultants. We have reserved 1,500,000 shares of our common stock for issuance
under the Incentive Plan. The Incentive Plan has a term of ten years and
provides for the grant of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, non-statutory
stock options, stock appreciation rights, restricted stock awards, performance
share awards and compensatory share awards. The exercise price for non-statutory
stock options may be equal to or more or less than 100 percent of the fair
market value of shares of common stock on the date of grant. The exercise price
for incentive stock options may not be less than 100 percent of the fair market
value of shares of our common stock on the date of grant (110 percent of fair
market value in the case of incentive stock options granted to employees who
hold more than ten percent of the voting power of our issued and outstanding
shares of common stock).

      Options granted under the Incentive Plan may not have a term of more than
a ten-year period (five years in the case of incentive stock options granted to
employees who hold more than ten percent of the voting power of our common
stock) and generally vest over a three-year period. Options generally terminate
three months after the optionee's termination of employment by us for any reason
other than death, disability or retirement, and are not transferable by the
optionee other than by will or the laws of descent and distribution.

      The Incentive Plan also provides for grants of stock appreciation rights
("SARs"), which entitle a participant to receive a cash payment, equal to the
difference between the fair market value of a share of our common stock on the
exercise date and the exercise price of SAR. The exercise price of any SAR
granted under the Incentive Plan will be determined by our board of directors in
its discretion at the time of the grant. SARs granted under the Incentive Plan
may not be exercisable for more than a ten year period. SARs generally terminate
one month after the grantee's termination of employment by us for any reason
other than death, disability or retirement. Although our board of directors has
the authority to grant SARs, it does not have any present plans to do so.

      Restricted stock awards, which are grants of shares of our common stock
that are subject to a restricted period during which such shares may not be
sold, assigned, transferred, made subject to a gift, or otherwise disposed of,
or mortgaged, pledged or otherwise encumbered, may also be made under the
Incentive Plan.

      Performance share awards, which are grants of shares of our common stock
upon the achievement of specific performance objectives, may also be made under
the Incentive Plan. At this time, our board of directors has not granted, and
does not have any plans to grant, performance shares of common stock.

22
<PAGE>

      Compensatory share awards, which are grants of shares of our common stock
as consideration for services rendered by our employees or consultants, may also
be made under the Incentive Plan.

      As of December 31, 2003, there were outstanding under the Incentive Plan
options to purchase an aggregate of 800,000 shares of our common stock, which
options are three-year options having an exercise price of $0.50 per share.
Exclusive of the Incentive Plan, as of December 31, 2003, there were outstanding
options and warrants to purchase approximately 5,005,000 shares of our common
stock, which options include five-year options to purchase 1,305,000 shares of
our common stock at an exercise price of $0.25 per share issued in June 2003 to
holders of our convertible bridge notes and demand notes in consideration of
their willingness to extend the term of their loans to us until June 3, 2006,
five-year options to purchase 1,350,000 shares of our common stock at an
exercise price of $0.50 per share issued to three consultants in the first half
of 2003, five-year warrants to purchase an aggregate of 1,000,000 shares of our
common stock, consisting of warrants to purchase 250,000 shares at each of
$0.25, $0.50, $0.75 and $1.00 per share, issued in June 2003 to a holder of one
of our demand notes, three-year warrants to purchase an aggregate of 1,000,000
shares of our common stock, consisting of warrants to purchase 250,000 shares at
each of $0.25, $0.50, $0.75 and $1.00 per share, issued to one of our
consultants in May 2003, five-year options to purchase 600,000 shares of our
common stock at an exercise price of $0.25 per share issued to one of our
consultants in October 2003 for services, and five-year options to purchase
250,000 shares of our common stock at an exercise price of $0.25 per share
issued to one of our consultants in December 2003. During 2003, options to
purchase 1,000,000 shares of our common stock were exercised resulting for an
aggregate proceeds to us of $75,000.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The following table sets forth as of April 30, 2004 certain information
regarding the beneficial ownership of our common stock by (a) each person who is
known to us to be the beneficial owner of more than five percent (5%) of our
common stock, (b) each director and executive officer and (c) all directors and
executive officers as a group. Except as otherwise indicated, the persons or
entities listed below have sole voting and investment power with respect to all
shares of common stock beneficially owned by them, except to the extent such
power may be shared with a spouse.

                                                      SHARES OF COMMON
                                                      STOCK OWNED (1)
                  NAME AND ADDRESS                AMOUNT            %
      -------------------------------------   --------------     --------
      Edward T. Whelan
      135 First Street
      Keyport, NJ 07735                        4,324,911(2)        15.7%

      Grace Holdings, Inc.
      7315 Wisconsin Avenue
      Suite 775N
      Bethesda, MD 20814                       2,247,658(3)         8.2%

      Richard H. Tanenbaum
      7315 Wisconsin Avenue
      Suite 775N
      Bethesda, MD 20814                       1,798,763(4)         6.7%

      Ethan D. Hokit
      3305 Blodgett Drive
      Colorado Springs, CO  80919                555,000(5)         2.1%

      Directors and executive officers as
      a group (three persons)                  6,673,674           22.7%

22
<PAGE>

(1)   For purposes of this table, information as to the beneficial ownership of
      shares of our common stock is determined in accordance with the rules of
      the Securities and Exchange Commission and includes general voting power
      and/or investment power with respect to securities. Except as otherwise
      indicated, all shares of our common stock are beneficially owned, and sole
      investment and voting power is held, by the person named. For purposes of
      this table, a person or group of persons is deemed to have "beneficial
      ownership" of any shares of our common stock which such person has the
      right to acquire within 60 days after the date of this Report. For
      purposes of computing the percentage of outstanding shares of our common
      stock held by each person or group of persons named above, any shares
      which such person or persons has the right to acquire within 60 days after
      the date of this Report is deemed to be outstanding but is not deemed to
      be outstanding for the purpose of computing the percentage ownership of
      any other person. The inclusion herein of such shares listed beneficially
      owned does not constitute an admission of beneficial ownership.

(2)   Includes 907,253 shares owned directly by Mr. Whelan, 270,000 shares
      issuable upon the exercise of options held by Mr. Whelan, 2,247,658 shares
      beneficially owned by Grace Holdings, Inc., of which Mr. Whelan is
      President, and 900,000 shares beneficially owned by Oncor Partners Inc.,
      of which Mr. Whelan is a principal shareholder.

(3)   Includes 1,007,658 shares owned of record, 1,000,000 shares issuable upon
      the exercise of options and 240,000 shares issuable upon the conversion of
      convertible bridge note indebtedness.

(4)   Includes 685,000 shares owned directly by Mr. Tanenbaum, 863,763 shares
      beneficially owned by Atlantic Investment Trust, of which Mr. Tanenbaum
      serves as trustee, and 250,000 shares beneficially owned by Eastern
      Investment Trust, of which Mr. Tanenbaum serves as trustee.

(5)   Includes 130,000 shares owned directly by Mr. Hokit, 25,000 shares
      issuable upon the exercise of options held by Mr. Hokit, and 400,000
      shares of our common stock owned of record by Mr. Hokit's spouse.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      In October 1997, we borrowed $60,000 from Shannon Investments, Inc., one
of our principal shareholders that is controlled by Edward Whelan, our Chairman
of the Board and Chief Executive Officer. In connection with such loan, we
executed a promissory note in favor of Shannon Investments, Inc. that bears
interest at the rate of 10% per annum and was originally payable on demand. In
June 2003, Shannon Investments agreed to extend the term of the loan until June
3, 2006 and, in consideration thereof, we issued to Shannon Investments options
to purchase 1,000,000 shares of our common stock. Such options are five-year
options to purchase 250,000 shares at each of $0.25, $0.50, $0.75 and $1.00 per
share. As of December 31, 2003, the full principal amount of the note was still
outstanding.

      From October 1997 through June 30, 2002, Xcel Associates, Inc., a company
of which Mr. Whelan previously served as the President and a principal
shareholder, maintained office space in our corporate offices without charge.

      On August 14, 2001, we borrowed $100,000 from Oncor Partners, Inc., a
company of which Edward Whelan, our Chairman of the Board and Chief Executive
Officer, is President and a shareholder. The loan bears no interest and had an
original term of one year, which, in August 2002, was extended for an additional
six months to February 14, 2003. In consideration of Oncor's willingness to
extend the term of the loan, in November 2002, we granted Oncor a five-year
option to purchase 500,000 shares of our common stock at an exercise price of
$0.50. In June 2003, Oncor agreed to further extend the term of the loan until

23
<PAGE>

June 3, 2006 and, in consideration thereof, we issued to Oncor a five-year
option to purchase 100,000 shares of our common stock at an exercise price of
$0.25 per share. We also amended such note to allow such lender to convert the
outstanding principal amount into shares of our common stock at a conversion
price of $0.25.

      In December 2001, we borrowed $25,000 from each of Ethan D. Hokit, our
President and one of our directors, and Atlantic Investment Trust ("Atlantic"),
a trust of which Richard Tanenbaum, one of our directors, is the trustee. In
connection with each such loan, we executed a demand promissory note that bears
interest at the rate of 8% per annum. In June 2003, such lenders agreed to
extend the terms of their loans until June 2006 and, in consideration thereof,
we issued to such lenders an option to purchase 25,000 shares of our common
stock at an exercise price of $0.25 per share. We also amended such notes to
allow the lender to convert the principal amount into shares of our common stock
at a conversion price of $0.25.

      In January 2002, we entered into a one-year business consulting agreement
with Edward Whelan and Edward Meyer, Jr. for the provision of marketing and
managerial consulting services. Effective July 1, 2002, the consulting agreement
of Mr. Whelan was terminated and Mr. Whelan became one of our employees, for
which he was compensated on the same basis as he was to be paid under his
consulting agreement. In consideration of the services to be rendered by Messrs.
Whelan and Meyer, we issued in respect of each month the number of shares
determined by dividing $12,000 by the product of 80% and the average closing bid
price for our common stock during such month. An aggregate of 301,113 shares of
our common stock was issued to each of Messrs. Whelan or Meyer (or their
respective designees) for services rendered during the term of the agreement.

      In August 2002, we issued to Atlantic Investment Trust and to Eastern
Investment Trust, both trusts of which Richard Tanenbaum, one of our directors,
is the trustee, $100,000 aggregate principal amount of convertible promissory
notes that originally matured on June 30, 2003 and bear interest at the rate of
8% per annum. In June 2003, such lenders agreed to extend the term of their
loans until June 3, 2006 and, in consideration thereof, we issued such lenders
an option to purchase 25,000 shares of our common stock at an exercise price of
$0.25 per share. Such notes are convertible at any time and from time to time by
the noteholders into a maximum of 400,000 shares of our common stock (subject to
certain anti-dilution adjustments). The terms of such notes require us to
register under the Securities Act of 1933 the shares of our common stock
issuable upon conversion of the notes not later than June 3, 2006.

      In the fourth quarter of 2002 and the first quarter of 2003, we borrowed
an aggregate of $30,000 from Edward T. Whelan, our Chief Executive Officer and
the Chairman of our Board of Directors. In connection with such borrowings, we
executed demand promissory notes that bear interest at the rate of 10% per annum
with respect to $20,000 aggregate principal amount and 8% per annum with respect
to $10,000 aggregate principal amount. In June 2003, such lender agreed to
extend the terms of his loans until June 2006 and, in consideration thereof, we
issued to such lender an option to purchase 25,000 shares of our common stock at
an exercise of $0.25 per share.

      In January 2003, our board of directors approved a one year executive
compensation agreement with Edward T. Whelan, pursuant to which we will issue
Mr. Whelan shares of our common stock in consideration for his services as Chief
Executive Officer. Under the terms of the agreement, we will issue in respect of
each month during 2003 a number of shares determined by dividing $12,000 by the
product of 80% and the average low price for our common stock during such month.
As of December 31, 2003, an aggregate of 920,794 shares of our common stock was
issued to Mr. Whelan (or his designee) pursuant to the executive compensation
agreement.

      In May 2003, we issued to Atlantic Investment Trust and to Eastern
Investment Trust, the trustee of each of which is Richard Tanenbaum, one of our
directors, $20,000 aggregate principal amount of convertible promissory notes
that originally matured on September 30, 2003 and bear interest at the rate of
8% per annum. In June 2003, such lenders agreed to extend the terms of their
loans until June 2006 and, in consideration thereof, we issued to such lenders
an option to purchase an aggregate of 7,500 shares of our common stock at an
exercise price of $0.25 per share. Such notes are convertible at any time and
from time to time by the noteholders into a maximum of 120,000 shares of our
common stock (subject to certain anti-dilution adjustments). The terms of such
notes require us to register under the Securities Act of 1933 the shares of our
common stock issuable upon conversion of the notes not later than June 3, 2006.

24
<PAGE>

      In January 2004, our board of directors approved a one year executive
compensation arrangement with Edward T. Whelan, pursuant to which we will issue
Mr. Whelan shares of our common stock in consideration for his services as Chief
Executive Officer. Under the terms of the arrangement, we will issue in respect
of each month during 2004 a number of shares determined by dividing $12,000 by
the product of 80% and the average low price for our common stock during such
month and options to purchase an equivalent number of shares of our common stock
at an exercise price of $0.25 per share.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)   EXHIBITS.

      None.

EXHIBIT
NUMBER                              DESCRIPTION

3.1   Restated Certificate of Incorporation of our company (incorporated herein
      by reference to Exhibit 3.1 to our Registration Statement on Form SB-2
      (Registration No. 333-75630)).

3.2   Amended and Restated By-laws of our company (incorporated herein by
      reference to Exhibit 3.2 to our Registration Statement on Form SB-2
      (Registration No. 333-75630)).

10.1  Amended and Restated Promissory Note dated as of June 30, 2002 from the
      Company to Atlantic Investment Trust in the principal amount of $25,000
      (incorporated by herein by reference to Exhibit 10.2 to the Company's
      Annual Report on Form 10-KSB for the year ended December 31, 2002 (file
      no. 000-26463)).

10.2  Amended and Restated Promissory Note dated as of June 30, 2002 from the
      Company to Ethan Hokit, our president and one of our directors, in the
      principal amount of $25,000 (incorporated by herein by reference to
      Exhibit 10.2 to the Company's Annual Report on Form 10-KSB for the year
      ended December 31, 2002 (file no. 000-26463)).

10.3  Amended and Restated Promissory Note dated as of May 5, 2003 from the
      Company to Oncor Partners, Inc. in the principal amount of $100,000.


10.4  2001 Equity Incentive Plan of our company adopted in December 2001
      (incorporated herein by reference to Exhibit 10.1 to our Registration
      Statement on Form S-8 (Registration No. 333-81258)).

10.5  Lease Agreement, dated as of August 2001, between MRS Connection and our
      company related to 2180 Executive Circle, Colorado Springs, Colorado 80906
      (incorporated herein by reference to Exhibit 10.5 to our Registration
      Statement on Form SB-2 (Registration No. 333-75630)).

10.6  Promissory Note dated as of October 30, 1997 from our company to Shannon
      Investments, Inc (incorporated herein by reference to Exhibit 10.6 to our
      Registration Statement on Form SB-2 (Registration No. 333-75630)).

10.7  Domestic Service Agreement dated May 1, 2002 between our company and Tyson
      Foods, Inc. (incorporated herein by reference to Exhibit 10.10 to our
      Registration Statement on Form SB-2 (Registration No. 333-75630)).

25
<PAGE>

10.8  Letter of Agreement effective November 1, 2001 between our company and S&K
      Sales, Inc. (incorporated herein by reference to Exhibit 10.11 to our
      Registration Statement on Form SB-2 (Registration No. 333-75630)).

10.9  Form of 9% Convertible Note (incorporated herein by reference to Exhibit
      10.11 to our Annual Report on Form 10-KSB for the year ended December 31,
      2002 (File No. 000-264463).

10.10 Description of Edward Whelan Executive Compensation Arrangement.

10.11 $10,000 Demand Note dated November 17, 2002 from our company to Edward T.
      Whelan.

10.12 $5,000 Demand Note dated December 11, 2002 from our company to Edward T.
      Whelan.

10.13 $5,000 Demand Note dated December 4, 2002 from our company to Edward T.
      Whelan.

10.14 $10,000 Demand Note dated March 11, 2003 from our company to Edward T.
      Whelan.

23.1  Consent of Rosenberg Rich Baker Berman & Company.

23.2  Consent of AJ. Robbins, P.C.

31.1  Certification of Principal Executive Officer, Edward T. Whelan, pursuant
      to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2  Certification of Principal Financial Officer, Ethan D. Hokit, pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.

32.1  Certification of Principal Executive Officer, Edward T. Whelan, pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2  Certification of Principal Financial Officer, Ethan D. Hokit, pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.

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


(b) Reports on Form 8-K.

      None.


ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

      The firm of Rosenberg Rich Baker Berman & Company served as our
independent public accountants for the year ended December 31, 2002 and through
the completion of our quarterly report on Form 10-QSB for our third fiscal
quarter of 2003. In March 2004, we retained the firm of A.J. Robbins, P.C. as
our independent public accountants (as reported in our Current Report on Form
8-K as filed with the Commission on March 30, 2004). A.J. Robbins, P.C. provided
audit services to us for our annual report for the year ended December 31, 2003.
The aggregate fees billed by Rosenberg Rich Baker Berman & Company, for the
audit of our financial statements included in our annual report on Form 10-KSB
for the year ended December 31, 2002 were $56,048. The aggregate fees billed by
Rosenberg Rich Baker Berman & Company for the review of financial statements
included in our quarterly reports on Form 10-QSB for the year ended December 31,
2003 were $19,618.

26
<PAGE>

      A.J.Robbins, P.C. has billed us $12,500 for audit services provided to us
in connection with our annual report for the year ended December 31, 2003.
However, A.J.Robbins, P.C. has advised us that it will bill us an additional
amount of approximately $12,500 for its services.

AUDIT-RELATED FEES

      No fees were billed to us in 2002 for assurance and related services that
are reasonably related to the audit or review of our financial statements and
that were not covered in the Audit Fees disclosure above.

      No fees were billed to us in 2003 for assurance and related services that
are reasonably related to the audit or review of our financial statements and
that were not covered in the Audit Fees disclosure above.
However, in the year ended December 31, 2003, Rosenberg, Rich Baker Berman &
Company billed us $16,028 for services regarding our proposed offering of shares
of our common stock pursuant to a registration statement on Form SB-2 filed with
the Securities and Exchange Commission.

TAX FEES

      There were no fees billed to us in either of the years ended December 31,
2003 or 2002 for any professional tax advice or tax planning services rendered
by our principal accountants.

ALL OTHER FEES

      There were no fees billed in to us in either of the years ended December
31, 2003 or 2002 for professional services rendered by our principal
accountants, except as disclosed above.

BOARD OF DIRECTORS PRE-APPROVAL

      As disclosed in Item 9 herein, our Board of Directors performs the
functions an audit committee. Our Board of Directors pre-approved our engagement
of Rosenberg, Rich Baker Berman & Company to act as our independent auditor for
the year ended December 31, 2002 and through the completion of our quarterly
report on Form 10-QSB for our third fiscal quarter of 2002. Our Board of
Directors also pre-approved our engagement of Rosenberg, Rich Baker Berman &
Company to provide the audit and audit-related services described above.

      Our Board of Directors pre-approved the engagement of A.J. Robbins, P.C.
to act as our independent auditor for the year ended December 31, 2003.

      Our independent auditors performed all work described above with their
respective full-time, permanent employees.

27
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                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in Colorado Springs,
Colorado, on May 13, 2004.

                                MILITARY RESALE GROUP, INC.



                                By: /s/ Ethan D. Hokit
                                    -------------------------------------------
                                        Ethan D. Hokit
                                        President and Chief Operating Officer


      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates stated:



 Signature                      Title                             Date

 /s/ Edward T. Whelan           Chairman of the Board, Chief      May 13, 2004
 -----------------------------  Executive Officer  (Principal
 Edward T. Whelan               Executive Officer)



 /s/ Ethan D. Hokit             President, Chief Operating        May 13, 2004
 -----------------------------  Officer, Director (Principal
 Ethan D. Hokit                 Accounting Officer and
                                Principal Financial Officer)



 /s/ Richard H. Tanenbaum       Director                          May 13, 2004
 -----------------------------
 Richard H. Tanenbaum