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                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, 2002
     [ ]  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 incorporation or    I.R.S. Employer
                      organization)                    Identification No.

        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. [X]

State registrant's revenues for its most recent fiscal year.  $6,359,803
                                                              ----------

As of March 31, 2003, the registrant had outstanding 12,175,803 shares of its
common stock.

As of March 31, 2003, the aggregate market value of the registrant's common
stock held by non-affiliates was $2,922,192.72 (based upon the closing price
($0.24) 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 February 2003, there were 276 commissaries worldwide, of which 173
were located in the continental United States and 103 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 June
2002, these authorized patrons totaled approximately 12.4 million individuals.
Annual worldwide commissary sales totaled approximately $5 billion in the year
ended December 31, 2002.

         The categories and varieties of merchandise that may be sold in a
commissary is 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 February 2003, 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 year ended December 31,
2002. We do not currently sell products to any stores in the military exchange
system; however, we plan to begin marketing to various businesses in the
exchange system during the third quarter of 2003.

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


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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 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 either 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.

         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. 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 our reduce 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. We believe that, upon completion of this
project, we will have achieved significant progress in creating an improved
infrastructure capable of supporting expanded product offerings.


PURCHASING AND SUPPLY

         At December 31, 2002, we distributed an aggregate of over 3,446 Stock
Keeping Units (SKUs) that we acquired from approximately 92 manufacturers or
suppliers. Products distributed include fresh and frozen meat and poultry,


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seafood, frozen foods, canned and dry goods, beverages, dairy products, paper
goods and cleaning and other supplies. In 2002, we distributed an aggregate of
approximately 361 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., Chattem, Inc., Playtex Products, Inc. and Sara Lee Foods-USA, we purchase
products for resale to commissaries. Under our agreement with S&K Sales, Inc.,
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. However,
such agreements are cancelable by the suppliers upon 30 days' written notice.
Our agreements with Chattem, Inc. and Playtex Products, Inc. have no defined
term and are cancelable by the suppliers upon 30 days' written notice.
Our agreement with S&K Sales, Inc. has no defined term and is cancelable by
either party upon 60 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 years ended December 31, 2001 and 2002, approximately 50.9% and
38.8%, respectively, 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 years ended December 31, 2001 and 2002 approximately 49.1% and
61.2%, respectively, of our gross profit was derived from the purchase and sale
of products in which we acted as principal and dealt directly with DeCA. In such
instances, we purchase the products from manufacturers and resell such products
to commissaries at negotiated prices. We, rather than the manufacturer, maintain
an account with DeCA through the EDI system and receive payments directly from
DeCA as if we were the manufacturer of the products.

         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.

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


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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
2002 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 3,446 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, 2,000 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 60% 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 2002, we transported approximately 2,000 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.

         Accordingly 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 year ended December 2002, total annual


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worldwide commissary and exchange sales was 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 February 2003, there were a total of 276 commissaries worldwide,
of which 173 were located in the continental United States. At such date, the
average gross square footage of these commissaries was approximately 22,300, and
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 the year ended December 31, 2002,
total annual worldwide commissary sales were approximately $5 billion, with
more than $4 billion of these sales in the United States.

         The table below shows the dollar volume of commissary sales over the
three fiscal years of DeCA ended September 30, 2001, as reported by the American
Logistics Association. Official commissaries sales figures for the fiscal year
ended September 30, 2002 have not yet been released by DeCA.

                 Fiscal Year            Worldwide Store Sales ($000s)
                -------------          -------------------------------
                     2001                         $5,038,832
                     2000                         $5,038,880
                     1999                         $4,945,204

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         DeCA recently completed the implementation of a store modernization
program that has resulted in the opening or reopening of five to ten new stores
a year, each generating between 25% to 30% more business from the same trading
area. 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 February 2003, there were 541 "main exchanges" worldwide and
approximately 20,000 exchange service-operated facilities. In the year ended
December 31, 2002, total annual worldwide exchange sales was approximately $10.9
billion, with more than $7 billion of these sales in the United States. We
do not currently sell products to any stores in the military exchange system;
however, we plan to begin marketing to various businesses in the exchange system
during the third quarter of 2003.

         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. 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. In October 1996, DeCA became a Performance Based Operation
("PBO"). This resulted in DeCA's obtaining special waivers from Federal
procurement regulations, thereby allowing it to operate more efficiently and to
adopt some characteristics of private-sector companies. As a PBO, DeCA will be
striving for progressive market excellence through its "SAVER 2000" initiative
-- providing Service, Access, Value, Efficiency and Response to customers and
taxpayers.

         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


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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., Nash Finch
Company and Fleming Companies, Inc., 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.

EMPLOYEES

         At March 31, 2003, we employed 16 persons on a full-time basis, of
which three were management personnel, three were office staff and ten were
warehouse and distribution personnel. In addition, Edward T. Whelan, our
Chairman of the Board and Chief Executive Officer, was employed on a part-time
basis. 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%


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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.

         In connection with the acquisition, we issued an aggregate of 5,410,000
shares of our common stock to purchase approximately 98.2% of the outstanding
capital stock of MRG-Maryland, including 2,210,050 shares to Xcel Associates,
Inc., a corporation controlled by Edward Whelan, our Chairman of the Board and
Chief Executive Officer, an aggregate of 400,000 shares to Shannon Investments,
Inc., a corporation controlled by Mr. Whelan, an additional 1,039,950 shares
directly to Mr. Whelan, an aggregate of 440,000 shares to Ethan D. Hokit, our
President and one of our directors, and his wife, and 450,000 shares to Richard
H. Tanenbaum, one of our directors.

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, is seeking
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 seeks 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. A trial judge has ordered the parties to non-binding
mediation, which is scheduled for June 10, 2003. A pre-trial conference is
scheduled for October 7, 2003 and a trial, if necessary, is scheduled to
commence on November 4, 2003. Although this lawsuit is in its preliminary stages
and the full amount of the plaintiff's claim has not been asserted, we believe
the potential dollar amount of such claims will not have a material adverse
effect on our overall operations. We intend to defend such lawsuit and pursue
our counterclaims vigorously.

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

         NONE.

                                     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 since our
shares began publicly trading, based upon reports of transactions on the OTC
Bulletin Board.



                                       10
<PAGE>

                                                              High         Low
                                                           ---------      ------
           2001
               First Quarter (commencing January 10).....     $1.88        $0.03
               Second Quarter............................      0.75         0.20
               Third Quarter.............................      2.27         0.45
               Fourth Quarter............................      1.32         0.32

           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 (through April 30) ........      0.29         0.10

          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, our
public announcements regarding our then-pending acquisition of Military Resale
Group, 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, 2003, the closing bid price of
our common stock as reported by the OTC Bulletin Board was $0.15 per share.

         As of March 31, 2003, there were approximately 104 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 July 2002, we issued 75,000 shares of our common stock to a
consultant 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 person was an `accredited investor' as defined in Regulation D
under the Securities Act of 1933, as amended.

         In September 2002, we issued 95,861 shares of our common stock to each
of Edward Meyer and Edward Whelan, our Chairman of the Board and Chief Executive
Officer (or their designees), pursuant to the terms of a consulting agreement.
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.

                                       11
<PAGE>

         In October 2002, we issued an aggregate of 250,000 shares of our common
stock to a consultant for services rendered. In connection with such issuance,
we granted "piggy-back" registration rights to the consultant. 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. The
consulting agreement provides that we will issue additional shares of our common
stock upon the consultant's achievement of certain performance goals.

         In November 2002, we issued an aggregate of 300,000 shares of our
common stock to a consultant for services rendered. In connection with such
issuance, we granted "piggy-back" registration rights to the consultant. 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 November 2002, we granted one of our lenders a five-year option to
purchase 500,000 shares of our common stock at an exercise price of $0.50 per
share in consideration of the lender's willingness to extend the term of its
loan to the Company for an additional six months. 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 person was an `accredited investor' as
defined in Regulation D under the Securities Act of 1933, as amended.

         In January 2003, we issued 96,207 shares of our common stock to each of
Edward Meyer and Edward Whelan, our Chairman of the Board and Chief Executive
Officer (or their designees), pursuant to the terms of a consulting agreement.
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 February 2003, we issued an aggregate of 200,000 shares of our
common stock to a consultant for services rendered. In connection with such
issuance, we granted "piggy-back" registration rights to the consultant. 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.

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.

                                       12
<PAGE>


         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.

         Prior to November 15, 2001, we did not generate any signification
revenue, and accumulated no significant assets, as we explored various business
opportunities. On November 15, 2001, we acquired 98.2% of the issued and
outstanding capital stock of Military Resale Group, Inc., a Maryland corporation
("MRG-Maryland"), in exchange for a controlling interest in our publicly-held
"shell" corporation. For financial reporting purposes, MRG-Maryland was
considered the acquirer in such transaction. As a result, our historical
financial statements for any period prior to November 15, 2001 are those of
MRG-Maryland.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED
                              DECEMBER 31, 2001

         Revenues. Total revenue for the year ended December 31, 2002 of
$6,359,803 reflected an increase of $1,508,370, or approximately 31.1%, compared
to total revenue of $4,851,433 for the year ended December 31, 2001. 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 ("commission revenues"). In such cases, revenue is recognized as
the commission we receive on the gross sales amount.

         Resale revenue for the year ended December 31, 2002 of $6,015,406
reflected an increase of $1,455,059, or approximately 32.0%, compared to resale
revenue of $4,560,347 for the year ended December 31, 2001. For the year ended
December 31, 2002, approximately 61.2% of our gross profit was derived from
sales involving resale revenue compared to approximately 49.1% for the year
ended December 31, 2001. These increases were attributable primarily to
the addition of the new products we began supplying to commissaries during the
fourth quarter of fiscal 2001, including Slimfast, L'eggs, Bush Beans and
Rayovac Batteries, and during fiscal 2002, including a line of feminine hygiene
products and a line of infant feeding products supplied by Playtex Products,
Inc. that we sell on a resale basis. In addition, during the year ended December
31, 2002, we implemented our long-term strategy to increase the ratio of our
sales of products we sell on a resale basis, rather than a commission basis, due
to the payment discounts we often receive from the manufacturers and suppliers
of the goods we purchase for resale.

         Commission revenues for the year ended December 31, 2002 of $344,397
reflected an increase of $53,311, or approximately 18.3%, compared to commission
revenues of $291,086 for the year ended December 31, 2001. For the year ended


                                       13
<PAGE>

December 31, 2002, approximately 38.8% of our gross profit was derived from
sales involving commission revenues as compared to approximately 50.9% for the
year ended December 31, 2001. These decreases were attributable primarily to the
implementation of our long-term strategy to increase the ratio of our sales of
products sold on a resale basis, rather than a commission basis. We cannot be
certain as to whether or not these trends 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. To do
so, we intend to continue to seek 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.

         In March 2002, we entered into an agreement with Playtex Products, Inc.
to distribute, on a resale basis, approximately 70 Stock Keeping Units (SKUs)
manufactured or supplied by Playtex, including a line of feminine hygiene
products and a line of infant feeding products. We have been advised by Playtex,
and verified with DeCA, that sales by Playtex in 2001 to the commissaries we
currently service amounted to approximately $350,000. However, there can be no
assurance that our annual sales of Playtex products will reach such amount, and
the amount of our actual sales of Playtex products may differ materially from
the amounts sold by Playtex in 2001 as a result of one or more of the factors
described above, among others. In the first quarter of 2003, Playtex Products,
Inc. suspended the sale of its products to us pending our payment of an
outstanding invoice in the approximate amount of $12,000 for products previously
shipped to us. To date, we have not made such payment and all sales by Playtex
remain suspended. We intend to make the outstanding payment in the second
quarter of 2003, upon which our management believes Playtex will resume the sale
of its products to us pursuant to the terms of our agreement.

         In April 2002, we began distributing products for Pfizer, Inc. under an
agreement that provided for the distribution of approximately 114 SKUs of Pfizer
products. In June 2002, the agreement was terminated by Pfizer because we were
unable to consistently meet our delivery obligations due to our insufficient
working capital. During the term of our agreement with Pfizer, we received
revenue from the sale of Pfizer products of approximately $168,000. Management
believes the termination of the Pfizer agreement did not have a material adverse
impact on our results of operations for fiscal 2002.

         In October 2002, we added to our supplier network the Hillshire Farm
and Kahn's product groups of Sara Lee Foods-USA and certain consumer products
distributed by Chattem, Inc. Hillshire Farms and Kahn's are product lines of
packaged meats and hams. Chattem is a manufacturer of branded consumer products,
principally over-the-counter healthcare products, including Aspercreme, Gold
Bond, Sportscreme, Pamprin, Dexatrim, Rejuvex and Flexall. We have been advised
by Sara Lee Foods-USA, and verified with DeCA, that sales of Hillshire Farm and
Kahn's products in 2001 to the commissaries we currently service amounted to
approximately $950,000. We have been advised by Chattem, and verified with DeCA,
that sales of Chattem's line of products in 2001 to the commissaries we
currently service amounted to approximately $200,000. However, there can be no
assurance that our annual sales of these products will reach such amounts, and
the amount of our actual sales of Hillshire Farm and Kahn's Products and Chattem
products may differ materially from the amounts sold by Sara Lee Foods-USA and
Chattem, respectively, in 2001.

         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, 2002, cost of goods
sold increased by approximately $1,192,397, or approximately 27.9%, to


                                       14
<PAGE>

$5,471,846 from $4,279,449 for the year ended December 31, 2001. This increase
was attributable primarily to the addition of new products that we sold on a
resale basis. 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, 2002
increased by approximately $315,973, or approximately 55.2%, compared to the
year ended December 31, 2001, from $571,984 for the year ended December 31, 2001
to $887,957 for the year ended December 31, 2002. This increase was attributable
primarily to addition of new products that we purchased for resale to the
commissaries we service.

         Operating Expenses. Total operating expenses aggregated $2,703,864 for
the year ended December 31, 2002 as compared to $1,271,223 for the year ended
December 31, 2001, representing an increase of $1,432,641, or approximately
113%. The increase in total operating expenses was attributable primarily to
increased professional fees of approximately $348,221 resulting primarily from
the costs of the preparation of a registration statement under the Securities
Act of 1933 relating to a proposed offering of equity securities; increased
stock-based compensation expense of $460,761 resulting primarily from the
issuance of shares of our common stock and options to purchase shares of our
common stock to our consultants; increased occupancy expense of $146,734
resulting from our move to larger office and warehouse facilities in September
2001; and increased general and administrative expenses of $386,263 resulting
primarily from increased truck rental expense and increased premiums on health
workers' compensation insurance.

         Interest Expense. Interest expense of $477,059 for the year ended
December 31, 2002 reflected an increase of $430,304 as compared to interest
expense of $46,755 for the year ended December 31, 2001. The increase in
interest expense was attributable primarily to 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 $370,000 aggregate principal amount of convertible promissory
notes issued in the year ended December 31, 2002.

         Net Loss. Primarily as a result of the increased operating and interest
expenses discussed above, we incurred a net loss of $2,319,221 for the year
ended December 31, 2002 as compared to a net loss of $745,994 for the year ended
December 31, 2001.

Liquidity and Capital Resources

         At December 31, 2002, we had a cash balance of approximately $2,100.
Our principal source of liquidity has been borrowings. Since November 2001, we
have funded our operations primarily from borrowings of approximately $475,000.
In the fourth quarter of 2001 and the first half of 2002, we issued $240,000
aggregate principal amount of convertible promissory notes (the "9% convertible
notes") that mature, in nearly all instances, on June 30, 2003 and bear interest
at the rate of 8% per annum prior to June 30, 2002 and 9% per annum thereafter.
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 9% convertible notes are
convertible at any time and from time to time by the noteholders into a maximum
of 1,350,000 shares of our common stock (subject to certain anti-dilution
adjustments) if the 9% convertible notes are not in default, or a maximum of
2,700,000 shares of our common stock (subject to certain anti-dilution
adjustments) if an event of default has occurred in respect of such notes. The
terms of the 9% convertible notes require us to register under the Securities
Act of 1933 the shares our common stock issuable upon conversion of the 9%
convertible notes not later than June 30, 2003. In July 2002, the holders of
$20,000 aggregate principal amount of convertible notes maturing on June 30,
2002 denied our request to extend the maturity until July 30, 2003. The
outstanding principal and interest on such convertible notes have not yet been
paid and, thus, such convertible notes are currently in default.

         The terms of our 9% convertible notes and 8% convertible notes
(discussed below) 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


                                       15
<PAGE>

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, to permit the noteholder to receive the number of shares
discussed above. 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 our common stock
equal to twice the number of shares the holder would have otherwise received if
the convertible notes were not in default.

         In the second half of 2002, we issued $145,000 aggregate principal
amount of convertible promissory notes (the "8% convertible notes") that mature
on either June 30, 2003 or July 30, 2003 and bear interest at the rate of 8% per
annum. The 8% convertible notes are convertible at any time and from time to
time by the noteholders into a maximum of 2,175,000 shares of our common stock
(subject to certain antidilution adjustments) if the 8% convertible notes are
not in default, or a maximum of 4,350,000 shares of our common stock (subject to
certain anti-dilution adjustments) if an event of default has occurred in
respect of such notes. The terms of the 8% convertible notes require us to
register under the Securities Act of 1933 the shares of our common stock
issuable upon conversion of the 8% convertible notes not later than June 30,
2003.

         In the fourth quarter of 2002, we borrowed an aggregate of $20,000 from
Edward T. Whelan, our Chief Executive Officer and Chairman of our Board of
Directors. The loans are payable on demand and bear interest at the rate of 10%
per annum.

         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
up to 5,000,000 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.
In the event we are able to generate sales proceeds of at least $500,000 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.

         Assuming that we receive net proceeds of at least $500,000 from our
proposed offering, we expect capital expenditures to be approximately $200,000
during the next 12 months, primarily for the acquisition of an inventory control
system. 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, 2002, we had liquid assets of $430,109, consisting of
cash and accounts receivable derived from operations, and other current assets
of $501,142, consisting primarily of inventory of products for sale and/or
distribution and prepaid expenses. Long term assets of $110,146 consisted
primarily of warehouse equipment used in operations.

         Current liabilities of $2,155,241 at December 31, 2002 consisted
primarily of $1,470,776 of accounts payable and accrued expenses and $485,000
for notes payable, of which $230,000 was payable to our officers or our other
affiliates.

         Our working capital deficit was $1,223,990 as of December 31, 2002 for
the reasons described above.

         During the year ended December 31, 2002, we used cash of $395,231 in
operating activities primarily as a result of the net loss we incurred during
this period.

                                       16
<PAGE>

         During the year ended December 31, 2002, we used net cash of $2,580 in
investing activities, all of which was used for capital expenditures.

         Financing activities, consisting primarily of proceeds from the
issuance of notes payable, provided net cash of $399,883 during the year ended
December 31, 2002.

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, 2002;

       Statements of Operations for the years ended December 31, 2002 and 2001;

       Statements of Cash Flows for the years ended December 2002 and 2001; and

       Statements of Stockholders' Equity (Impairment) for the years ended
       December 31, 2002 and 2001.



                                       17
<PAGE>


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

         None.


                                    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 March 31, 2002:


               NAME                   AGE                 POSITION
               ----                   ---                 --------
Edward T. Whelan..................     52    Chairman of the Board and Chief
                                             Executive Officer
Ethan D. Hokit....................     64    President, Chief Operating Officer,
                                             Treasurer and Director
Richard H. Tanenbaum .............     55    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. Since April 1998, Mr. Whelan has 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. Mr. Whelan spends approximately 40% of his
professional time performing services on our behalf.

         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.

                                       18
<PAGE>


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.


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, 2000, 2001 and 2002 by our
executive officers in their capacities as officers and directors of
MRG-Maryland.
<TABLE>
<CAPTION>

------------------------- -------- ---------------------------------- ------------------------------------------------
                                          Annual Compensation                     Long-Term Compensation

                                                                            Awards                  Payouts

                                                         Other                     Securities
                                                        Annual         Restricted  Underlying                    All
Name and Principal                                       Comp-           Stock      Options/       LTIP        Other
Position                   Year     Salary    Bonus      sation         Award(s)      SARs        Payouts   Compensation
                                     ($)        ($)       ($)             ($)         (#)           ($)          ($)
      (a)                   (b)      (c)        (d)       (e)             (f)         (g)           (h)          (i)
------------------------- -------- ---------- -------- -------------- ------------ ------------- ---------- ----------
<S>                          <C>       <C>       <C>       <C>              <C>         <C>          <C>       <C>

Edward T. Whelan,         2000         -         -           -             -            -            -          -
Chairman and Chief        2001         -         -      $63,800(1)         -            -            -          -
Executive Officer         2002         -         -     $109,857 (2)        -            -            -          -

------------------------- -------- ---------- -------- -------------- ------------ ------------- ---------- ----------
Ethan D. Hokit,           2000     $60,000       -           -             -            -            -          -
President and Chief       2001     $60,000       -       $9,000(3)         -            -            -          -
Operating Officer         2002     $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 December 2002.

(3)  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. As of December 31, 2002, an aggregate of
204,906 shares of our common stock was issued to each of Messrs. Whelan and


                                       19
<PAGE>

Meyer (or their respective designees) for services rendered during the term of
the agreement. Subsequent to year end, we issued 96,207 shares of our common
stock to each of Messrs. Whelan and Meyer for services rendered in the fourth
quarter of 2002 under the agreement.

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.

         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. In 2002, our board of directors
authorized the issuance of an aggregate of 600,000 compensatory shares of common
stock to our consultants.


                                       20
<PAGE>

         As of March 31, 2003, there were outstanding under the Incentive Plan
options to purchase an aggregate of 800,000 shares of our common stock, which
options include three-year options to purchase an aggregate of 100,000 shares of
our common stock at an exercise price of $0.50 per share that expire on January
3, 2005; one-year options to purchase an aggregate of 300,000 shares of our
common stock at an exercise price of $0.50 per share that expire on July 1,
2003; and six-month options to purchase an aggregate of 400,000 shares of our
common stock at an exercise price of $0.50 per share that expire on June 16,
2003. Exclusive of the Incentive Plan, in consideration of extending the term of
a loan to us for an additional six months, we granted to one of our lenders a
five-year option to purchase 500,000 shares of our common stock at an exercise
price of $0.50 per share.

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

         The following table sets forth as of March 31, 2003 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...........................2,731,138(2)         22.1%
 135 First Street
 Keyport, NJ 07735

 Richard H. Tanenbaum.......................2,496,139(3)         19.8%
 7315 Wisconsin Avenue
 Suite 775N
 Bethesda, MD 20814

 Edward Meyer, Jr............................2,115,319(4)        17.1%
 25 Sheffield Drive
 Freehold, NJ  07728

 Atlantic Investment Trust..................1,611,139(5)         13.0%
 7315 Wisconsin Avenue
 Suite 775N
 Bethesda, MD 20814

 The Calvo Family Spendthrift
    Trust.............................
 1941 SE 51st Street Terrace                  863,453            7.2%
 Ocala, FL 34471

 The Tucker Family Spendthrift
   Trust..............................
 2500 N. Military Trail                       863,454            7.2%
 Suite 225
 Ocala, FL 34471


                                       21
<PAGE>

 Grace Holdings, Inc..........................856,126            7.1%
 7315 Wisconsin Avenue
 Suite 775N
 Bethesda, MD  20814

 Ethan D. Hokit...............................530,000(6)         4.4%
 3305 Blodgett Drive
 Colorado Springs, CO  80919

 Directors and executive officers as
   a group (three persons)..................4,146,138           33.0%

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

(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 220,000 shares owned directly by Mr. Whelan, 856,126 shares owned
     of record by Grace Holdings, Inc., of which Mr. Whelan is President,
     755,013 shares beneficially owned by Atlantic Investment Trust, the
     beneficiaries of which are members of Mr. Whelan's family, 400,000 shares
     of record by Shannon Investments, Inc., which is controlled by Mr. Whelan
     for the benefit of his family, and 499,999 shares of record by Xcel
     Associates, Inc., of which Mr. Whelan is a principal shareholder.

(3)  Includes 685,000 shares owned directly by Mr. Tanenbaum, 1,611,139 shares
     beneficially owned by Atlantic Investment Trust, of which Mr. Tanenbaum
     serves as trustee, and 200,000 shares beneficially owned by Eastern
     Investment Trust, of which Mr. Tanenbaum serves as trustee.

(4)  Includes 1,165,320 shares owned directly by Mr. Meyer, 499,999 shares owned
     of record by Xcel Associates, of which Mr. Meyer is a principal
     shareholder, 200,000 shares beneficially owned by Eastern Investment Trust,
     the beneficiary of which is a member of Mr. Meyer's family and 200,000
     shares owned of record by Mr. Meyer's spouse.

(5)  Includes 555,013 shares owned of record, 200,000 shares issuable upon the
     conversion of $50,000 principal amount of convertible bridge note
     indebtedness and 856,126 shares owned by Grace Holdings, Inc., a
     wholly-owned subsidiary of Atlantic Investment Trust.

(6)  Includes 400,000 shares of our common stock owned of record by Mr. Hokit's
     spouse.


                                       22
<PAGE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         In February 2001, we entered into an 11-month  consulting  agreement
with  each  of  Mr.  Whelan  and  Edward  Meyer,   Jr.,  one  of  our  principal
shareholders.  In  consideration  of  consulting  services  rendered  under such
agreement,  in February 2001 we issued 145,000 shares of common stock to each of
Messrs. Whelan and Meyer.

         In February 2001, we issued 50,000 shares of our common stock to Jerry
Gruenbaum, Esq., our corporate counsel at the time of issuance, for legal
services performed for the company. On March 23, 2001, we placed a stop transfer
order on these 50,000 shares due to Mr. Gruenbaum's failure to perform the legal
services for which he was retained.

         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 was extended until May 5, 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 per share.

         In August 2001, we issued 20,000 shares of our common stock to Alan
Finfer, a director and our Secretary and Treasurer at the time of issuance, for
consulting services performed on our behalf.

         In December 2001, we borrowed $25,000 from each of Ethan D. Hokit, our
President and one of our directors, and Atlantic Investment Trust, a trust of
which Richard Tanenbaum, one of our directors, is the trustee. In connection
with each such loan, we executed a promissory note that bears interest at the
rate of 8% per annum that is payable on the earlier of on demand or June 30,
2003.

         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 low price for our common stock during such month. As of December 31,
2002, an aggregate of 204,906 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. Subsequent to year end, in January 2003, we
issued 96,207 shares of our common stock to each of Messrs. Whelan or Meyer (or
their respective designees) for services rendered during the fourth quarter of
2002 under the agreement.

         In August 2002, we issued to Atlantic Investment Trust and to Eastern
Investment Trust, trusts of which Richard Tanenbaum, one of our directors, is
the trustee, $100,000 aggregate principal amount of convertible promissory notes
that mature on July 30, 2003 and bear interest at the rate of 8% per annum. Such
notes are convertible at any time and from time to time by the noteholders into
a maximum of 436,000 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 July 30, 2003.

         In November and December of 2002, we borrowed an aggregate of $20,000
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.


                                       23
<PAGE>

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

(a) Exhibits.

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   Promissory  Note dated  December 12, 2001 from our company to Atlantic
          Investment Trust in the principal amount of $25,000.

   10.2   Promissory  Note dated  December  12,  2001 from our  company to Ethan
          Hokit, our president and one of our directors, in the principal amount
          of $25,000.

   10.3   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)).

   10.4   Promissory  Note  dated  August  14,  2001 from our  company  to Oncor
          Partners, Inc. in the principal amount of $100,000.

   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   Consulting  Agreement  dated  January 3, 2002  between our company and
          Edward  T.  Whelan  and  Edward  Meyer,  Jr.,  individually,  of  Xcel
          Associates,  Inc. (incorporated by herein by reference to Exhibit 10.7
          to our Annual  Report on Form 10-KSB for the year ended  December  31,
          2001 (file no. 000-26463)).

   10.8   Military Distributor Agreement dated April 2, 2002 between our company
          and  Playtex  Products,  Inc.  (incorporated  herein by  reference  to
          Exhibit 10.9 to our Registration  Statement on Form SB-2 (Registration
          No. 333-75630)).

   10.9   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)).

   10.10  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)).

   10.11  Form of 9%  Convertible  Note  (incorporated  herein by  reference  to
          Exhibit 10.12 to our Registration Statement on Form SB-2 (Registration
          No. 333-75630)).

   10.12  8% Convertible  Promissory  Note dated August 7, 2002 from our company
          to  Atlantic  Investment  Trust in the  principal  amount  of  $50,000
          (incorporated herein by reference to Exhibit 10.13 to our Registration
          Statement on Form SB-2 (Registration No. 333-75630)).

   10.13  8% Convertible  Promissory  Note dated August 7, 2002 from our company
          to  Eastern  Investment  Trust  in the  principal  amount  of  $50,000
          (incorporated herein by reference to Exhibit 10.14 to our Registration
          Statement on Form SB-2 (Registration No. 333-75630)).



                                       24
<PAGE>

10.14    Warehousing and Distribution Agreement dated as of May 2, 2002 between
         our company and Chattem Consumer Products. (Certain portions of this
         Exhibit have been omitted pursuant to our request for confidential
         treatment).

10.15    Military Distribution Agreement dated as of May 30, 2002 between our
         company and Sara Lee Foods-US. (Certain portions of this Exhibit have
         been omitted pursuant to our request for confidential treatment).

10.16    Business Consulting Agreement dated as of March 10, 2003 between our
         company and Martin Nielson (incorporated herein by reference to Exhibit
         4.1 to our Registration Statement on Form S-8 (Registration No.
         333-81258)).

23.1     Consent of Rosenberg Rich Baker Berman & Company.

23.2     Consent of Michael Johnson & Company, LLC.



         (b) Reports on Form 8-K.

(i)      On November 15, 2002, we filed a Current Report on Form 8-K providing
         certifications of our Chief Executive Officer and Chief Financial
         Officer with respect to our Quarterly Report on Form 10-QSB for the
         period ended September 30, 2002 as required by 18 U.S.C. 1350 (Section
         906 of the Sarbanes-Oxley Act of 2002).

(ii)     On November 18, 2002, we filed a Current Report on Form 8-K providing
         certifications of our Chief Executive Officer and Chief Financial
         Officer with respect to (i) our Quarterly Reports on Form 10-QSB/A for
         the periods ended March 31, 2002 and June 30, 2002 and (ii) our Annual
         Report on Form 10-KSB/A for the year ended December 31, 2002 as
         required by 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
         2002).

(iii)    On December 12, 2002, we filed a Current Report on Form 8-K providing
         Regulation FD disclosure of our issuance of a press release announcing
         that, to our knowledge, Richard Spradling, an individual proposing to
         sell 100,000 shares of our common stock pursuant to two Notices of
         Proposed Sale of Securities on Form 144 filed with the Securities and
         Exchange Commission, is not a registered holder of shares of our common
         stock.

ITEM 14. CONTROLS AND PROCEDURES.

         (a) Based upon an evaluation performed within 90 days of this Report,
  our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have
  each concluded that our disclosure controls and procedures are effective to
  ensure that material information relating to our Company is made known to
  management, including the CEO and CFO, particularly during the period when our
  periodic reports are being prepared, and that our internal controls are
  effective to provide reasonable assurances that our financial condition,
  results of operations and cash flows are fairly presented in all material
  respects.

         (b) The CEO and CFO each note that, since the date of his evaluation
  until the date of this Report, there have been no significant changes in
  internal controls or in other factors that could significantly affect internal
  controls, including any corrective actions with regard to significant
  deficiencies and material weaknesses.


                                       25
<PAGE>

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

         The firm of Michael Johnson & Co., LLC served as our independent public
accountants for the year ended December 31, 2001 and through the completion of
our quarterly report on Form 10-QSB for our third fiscal quarter of 2002. The
firm of Rosenberg Rich Baker Berman & Company provided audit services to us for
our annual report for the year ended December 31, 2002. The aggregate fees
billed by Michael Johnson & Co., LLC for the audit of our financial statements
included in our annual report on Form 10-KSB for the year ended December 31,
2001 and the review of financial statements included in our quarterly reports on
Form 10-QSB for the year ended December 31, 2001 was $4,500. The aggregate fees
billed by Michael Johnson & Co., LLC for the review of financial statements
included in our quarterly reports on Form 10-QSB for the year ended December 31,
2002 was $2,000.

         Rosenberg Rich Baker Berman & Company has billed us $25,711 for audit
services provided to us in connection with our annual report for the year ended
December 31, 2002. However, Rosenberg Rich Baker Berman & Company has advised us
that it will bill us an additional amount of approximately $25,000 for its
services.

Audit-Related Fees

         No fees were billed to us by Michael Johnson & Co., LLC in 2002 or 2001
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.

         In the year ended December 31, 2002, Rosenberg, Rich Baker Berman &
Company did not perform assurance and related services that are reasonably
related to the audit or review of our financial statements. However, in January
2003, Rosenberg, Rich Baker Berman & Company began providing advice to us
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. Rosenberg Rich Baker Berman & Company has billed us $6,846 for such
services.

Tax Fees

         There were no fees billed to us in either of the years ended December
31, 2002 or 2001 for any professional tax advice or tax planning services
rendered by Michael Johnson & Co., LLC.

         There were no fees billed for the year ended December 31, 2002 for any
professional services rendered by Rosenberg, Rich Baker Berman & Company for tax
advice and planning.

All Other Fees

         There were no fees billed in each of 2002 and 2001 for professional
services rendered by Michael Johnson & Co., LLC or Rosenberg, Rich Baker Berman
& Company, except as disclosed above.

Board Of Directors Pre-Approval

         Our Board of Directors pre-approved our engagement of Michael Johnson &
Co., LLC to act as our independent auditor for the year ended December 31, 2001
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 Michael Johnson & Co., LLC to provide the audit and audit related services
described above, which represented 100% of the total fees we paid to Michael
Johnson & Co., LLC in 2001 and 2002.

         Our Board of Directors pre-approved the dismissal of Michael Johnson &
Co., LLC and our engagement of Rosenberg Rich Baker Berman & Company to act as
our independent auditor for the year ended December 31, 2002. Our Board of
Directors also pre-approved Rosenberg, Rich Baker Berman & Company to provide
the audit and audit-related services described above.

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


                                       26
<PAGE>

                           MILITARY RESALE GROUP, INC.
                          INDEX TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2002 AND 2001



                                                                     Page


Report of Independent Auditors                                         F-1 - F-2


Balance Sheet as of December 31, 2002                                  F-3


Statements of Operations for the years ended December 31,
2002 and 2001                                                          F-4


Statements of Cash Flows for the years ended December 2002 and 2001    F-5 - F-6

Statements of Stockholders' Equity (Impairment) for the years
ended December 31, 2002 and 2001                                       F-7

Notes to the Financial Statements                                      F-8 - 19



<PAGE>

                          Independent Auditors' Report

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, cash flows and
changes  in  stockholders'  equity  (impairment) 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 auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation,.  We  believe  that  our  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 their operations and their cash flows
for  the  year  then  ended,  in conformity with accounting principles generally
accepted  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 RICK BAKER BERMAN & CO.



Bridgewater,  New  Jersey
April 21, 2003


                                      F-1

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



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


We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Military Resale Group, Inc. for the year ended December 31,
2001. 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 auditing standards generally accepted
in the United States of America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Military
Resale Group, Inc for the year ended December 31, 2001, and, in conformity with
accounting principles generally accepted in the United States.

As discussed in Note 19 to the financial statements, certain errors were
discovered by the Company, which resulted in an understatement of expenses
totaling $280,000 as of December 31, 2001.  Accordingly, the 2001 financial
statements have been restated to correct the error.


                              /s/ MICHAEL JOHNSON & CO., LLC




Denver, Colorado
February 18, 2002 (except for Note 5 and 19 as to which the date is May 1, 2003)

                                      F-2

<PAGE>
<TABLE>
<CAPTION>

                                              MILITARY RESALE GROUP, INC.
                                                    BALANCE SHEET
                                                  DECEMBER 31, 2002

        Assets
<S>     <C>                                                                                           <C>

Current Assets
         Cash (Note 2)                                                                         $           2,072
         Accounts receivable - trade (Note 2)                                                            428,037
         Inventory (Note 2)                                                                              227,416
         Prepaid consulting (Note 3)                                                                     116,417
         Deposits                                                                                         23,358
         Prepaid interest (Note 4)                                                                       133,333
         Other current assets                                                                                618
                                                                                                 ----------------
                 Total Current Assets                                                                   931,251

Fixed Assets (Note 2)
         Office equipment                                                                                 10,607
         Warehouse equipment                                                                             159,444
         Software                                                                                         16,324
                                                                                                 ----------------
                                                                                                         186,375
         Less accumulated depreciation                                                                  (76,229)
                                                                                                 ----------------
                 Net Fixed Assets                                                                       110,146
                                                                                                 ----------------
         Total Assets                                                                                  1,041,397
                                                                                                 ================

                Liabilities and Stockholders' Equity (Impairment)

Current Liabilities
         Accounts payable and accrued expenses                                                         1,470,776
         Bank overdraft                                                                                   11,068
         Other current liabilities                                                                        81,726
         Current maturities of capital lease obligations (Note 9)                                         37,271
         Current portion of deferred rental obligation                                                    21,584
         Accrued interest payable                                                                         47,816
         Related party notes payable (Note 5)                                                            230,000
         Convertible notes payable (Note 6)                                                              255,000
                                                                                                 ----------------
                  Total Current Liabilities                                                            2,155,241
         Deferred rental obligation                                                                       57,557
         Obligations under capital leases, excluding current maturities (Note 9)                          51,735
                                                                                                 ----------------
                  Total Liabilities                                                                    2,264,533

Commitment and Contingencies                                                                                   -

Stockholders' Equity (Impairment)
         Common stock, par value $.0001, 60,000,000 shares authorized, 11,383,390 issued                   1,138
            and outstanding
         Additional paid-in capital                                                                    2,050,690
         Accumulated deficit                                                                         (3,274,964)
                                                                                                 ----------------
                 Total Stockholders' Equity (Impairment)                                             (1,223,136)
                                                                                                 ----------------
         Total Liabilities and Stockholders' Equity (Impairment)                               $       1,041,397
                                                                                                 ================

</TABLE>
See notes to the financial statements.

                                                                             F-3
<PAGE>
<TABLE>
<CAPTION>

                           MILITARY RESALE GROUP, INC.
                            STATEMENTS OF OPERATIONS

                                                                          Year Ended December 31,
                                                                    -------------------------------------
                                                                         2002                 2001
                                                                    ----------------     ----------------
                                                                                           (Restated)
                                                                                         ----------------
<S>     <C>                                                                 <C>                   <C>

Revenues (Note 2)
         Resale revenue                                           $       6,015,406    $       4,560,347
         Commission revenue                                                 344,397              291,086
                                                                    ----------------     ----------------
         Total Revenues                                                   6,359,803            4,851,433
                                                                    ----------------     ----------------
Cost of goods sold                                                        5,471,846            4,279,449
                                                                    ----------------     ----------------
         Gross Profit                                                       887,957              571,984
                                                                    ----------------     ----------------

Operating Expenses
         Stock based compensation (Note 5, 14, 15  and 19)                  772,511              311,750
         Salary and payroll taxes                                           502,272              415,525
         Professional fees                                                  502,077              153,856
         Occupancy                                                          302,237              155,503
         General and administrative                                         583,978              197,715
         Amortization/depreciation                                           40,789               36,874
                                                                    ----------------     ----------------

                  Total Expenses                                          2,703,864            1,271,223
                                                                    ----------------     ----------------
                           Net Loss From Operations                     (1,815,907)            (699,239)
                                                                    ----------------     ----------------

Other (Expenses)
         Interest expense                                                 (477,059)             (46,755)
         Loss on disposal of fixed assets                                  (26,255)                    -
                                                                    ----------------     ----------------
                  Total Other (Expense)                                   (503,314)             (46,755)
                                                                    ----------------     ----------------
                           Net Loss                               $     (2,319,221)    $       (745,994)
                                                                    ================     ================

Loss Per Share (Note 2)
         Net Loss Per Common Share                                $          (0.25)    $          (0.13)
                                                                    ================     ================

         Weighted average number of common shares outstanding             9,156,648            5,644,584
                                                                    ================     ================

</TABLE>

See notes to the financial statements.

                                                                             F-4
<PAGE>
<TABLE>
<CAPTION>

                                               MILITARY RESALE GROUP, INC.
                                                STATEMENTS OF CASH FLOWS
                                                                                            2002                 2001
                                                                                       ----------------     ----------------
                                                                                                              (Restated)
                                                                                                            ----------------
<S>     <C>                                                                                  <C>                <C>

Cash Flows From Operating Activities
         Net Loss                                                                    $      (2,319,221)    $       (745,994)
         Adjustments to reconcile net loss to net cash
          used in operating activities
          Depreciation and amortization                                                         40,789               36,874
          Amortization of option based interest expense                                         66,667                    -
          Stock based compensation                                                             772,511              311,750
          Beneficial conversion feature                                                        370,000               35,000
          Loss on disposal of assets                                                            26,255                    -
Changes in Assets and Liabilities
          Decrease in accounts receivable                                                       13,021               16,516
          Decrease (increase) in inventory                                                      25,014            (161,494)
          Decrease (increase) in other assets                                                    6,090              (6,708)
          (Increase) in deposits                                                               (2,952)             (20,406)
          Increase in accounts payable and accrued expenses                                    445,728              446,626
          Increase in deferred rent obligation                                                  79,141                    -
          Increase in other liabilities                                                         81,726                    -
                                                                                       ----------------     ----------------

                   Net Cash Used In Operating Activities                                      (395,231)             (87,836)
                                                                                       ----------------     ----------------

Cash Flows From Investing Activities
                  Acquisition of business                                                            -                3,950
                  Purchase of fixed assets                                                     (2,580)             (22,074)
                                                                                       ----------------     ----------------

Cash Flows Used In Investing Activities                                                        (2,580)             (18,124)
                                                                                       ----------------     ----------------

Cash Flows From Financing Activities
                  Bank overdraft                                                                 9,719             (36,874)
                  Short-term borrowings                                                              -              118,978
                  Payments on capital lease obligations                                       (14,836)             (11,144)
                  Proceeds from issuance of notes                                              405,000               35,000
                                                                                       ----------------     ----------------

Cash Flows Provided By Financing Activities                                                    399,883              105,960
                                                                                       ----------------     ----------------

Net Increase in Cash and Cash Equivalents                                                        2,072                    -
Cash and Cash Equivalents at Beginning of Period                                                     -                    -
                                                                                       ----------------     ----------------

Cash and Cash Equivalents at End of Period                                           $           2,072    $               -
                                                                                       ================     ================

SUPPLEMENTAL INFORMATION
         Interest Paid                                                               $          20,327    $           9,263
                                                                                       ================     ================
         Income Taxes Paid                                                           $               -    $               -
                                                                                       ================     ================
</TABLE>

See notes to the financial statements.
                                                                             F-5

<PAGE>
<TABLE>
<CAPTION>

                                              MILITARY RESALE GROUP, INC.
                                               STATEMENTS OF CASH FLOWS


                                                                                            2002                 2001
                                                                                       ----------------     ----------------
                                                                                                              (Restated)
                                                                                                            ----------------
<S>     <C>                                                                                  <C>               <C>
Non-cash investing and financing activities:

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

         Capital lease obligation incurred in the purchase of equipment              $               -    $         105,378
                                                                                       ================     ================

         Issuance of stock in exchange for services to be
                  rendered over six months                                           $         181,000    $               -
                                                                                       ================     ================

         Issuance of common stock options for loan
                  extension of six months                                            $         200,000    $               -
                                                                                       ================     ================


</TABLE>


See notes to the financial statements.

                                                                             F-6
<PAGE>

<TABLE>
<CAPTION>
                                              MILITARY RESALE GROUP, INC.
                                 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IMPAIRMENT)

                                                                                                                 Total
                                                                 Common Stock      Additional                 Stockholders'
                                                          -----------------------    Paid-In    Accumulated     Equity
                                                            Shares        Amount    Capital      Deficit      (Impairment)
                                                          -------------  --------  ---------- ------------   ------------
<S>                                                             <C>          <C>        <C>        <C>            <C>

Balance, December 31, 2000                                   5,360,000 $     536 $   149,664 $  (209,749)  $    (59,549)

Issuance of common stock for services                          875,000        87     253,663            -        253,750
Acquisition of Bactrol Technologies, Inc.                    1,270,004       127       3,823            -          3,950
Beneficial Conversion Feature                                        -         -      35,000            -         35,000
Net loss for year ended                                              -         -           -    (745,994)      (745,994)
                                                          -------------  --------  ---------- ------------   ------------
Balance, 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
Issuance of stock options for services                               -         -     214,000            -        214,000
Issuance of common stock for services                        2,084,812       208     674,720            -        674,928
Issuance of stock options for debt extension                         -         -     200,000            -        200,000
Net loss for the year                                                -         -           -  (2,319,221)    (2,319,221)
                                                          -------------  --------  ---------- ------------   ------------
Balance, December 31, 2002                                  11,383,390 $   1,138 $ 2,050,690 $(3,274,964)  $ (1,223,136)
                                                          =============  ========  ========== ============   ============


</TABLE>

See notes to the financial statements.

                                                                             F-7
<PAGE>


                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - NATURE OF ORGANIZATION

       Military Resale Group, Inc. (the Company), organized under the laws of
       the  State of New York,  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. and
       Military Resale Group, Inc. ("MRG"),  which was formed on October 6, 1997
       executed a Stock  Purchase  Agreement  pursuant  to which  98.2% of MGR's
       stock was effectively  exchanged for a controlling interest in a publicly
       held "shell"  corporation that concurrently  changed its name 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 is considered the acquirer,  and
       therefore, the historical operating results of Bactrol Technologies, Inc.
       are not presented.

       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 is in a
       working capital deficit position that 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 its ability to attain  additional  capital
       to develop its  proposed  products  and  ultimately,  upon its ability to
       attain future profitable  operations.  There can be no assurance that the
       Company will be successful in obtaining such  financing,  or that it will
       attain positive cash flow from  operations.  The financial  statements do
       not include any  adjustments  that might  result from the outcome of this
       uncertainty.

NOTE  2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Cash and Cash Equivalents
       For purposes of the  statement of cash flows,  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,  the Company's bad debt write-offs related to these trade
         accounts have been insignificant.  Therefore, no allowance for doubtful
         accounts has been set up.

     Inventory
       Inventory,  consists  primarily  of grocery  items,  and is stated at the
         lower  of costs 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.

                                      F-8
<PAGE>

                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

     Securities Issued for Services
         The Company  accounts for common stock issued for services by reference
         to the  fair  market  value of the  Company's  stock on the date of the
         stock issuance.

     Property and Equipment
       The Company follows the practice of  capitalizing  property and equipment
         costing  over $250.  The cost of  ordinary  maintenance  and repairs is
         charged to operations  while renewals and replacements are capitalized.
         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


     Federal Income Taxes
       The Company  accounts for income taxes under SFAS No. 109, which requires
         the asset and liability  approach to accounting for income taxes. Under
         this  approach,   deferred  income  taxes  are  determined  based  upon
         differences  between  the  financial  statement  and tax  bases  of the
         Company's assets and liabilities and operating loss carryforwards using
         enacted tax rates in effect for the years in which the  differences are
         expected to reverse.  Deferred tax assets are  recognized if it is more
         likely than not that the future tax benefit will be realized.

     Net Loss Per Share
       Loss per share, in accordance with the provisions of Financial Accounting
         Standards Board No. 128.  "Earnings Per Share," is computed by dividing
         the  net  loss  by  the  weighted   average  number  of  common  shares
         outstanding  during the period.  The effect of assuming the exchange of
         outstanding  stock  options,  warrants and  convertible  notes would be
         anti-dilutive at December 31, 2002 and 2001.

     Revenue Recognition

          The Company's  revenues are derived in either one of two ways:  resale
          revenue or commission revenue.

          Resale Revenue.  In the majority of instances,  the Company  purchases
          products   from   manufacturers   and  suppliers  for  resale  to  the
          commissaries  it services.  Revenue is recognized in the amount of the
          gross sales amount received by the Company  (subject to an appropriate
          provision for returns and allowances from such sales),  which 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 it is  responsible  for
          fulfillment  of the order  and for the  customer's  acceptance  of the
          goods or services  sold,  (b) bears  inventory risk (it takes 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. In the remaining instances, the Company acts as an
          agent for the  manufacturer or supplier of the products it sells,  and
          earns 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.  In such cases,  revenue is recognized on the date
          goods are shipped by the manufacturer or supplier in the amount of the
          commission earned by the Company on the gross sales amount.

          The Company  recognizes both resale revenue and commission  revenue on
          the date goods are shipped because title to the goods passes,  and the
          payment  obligation of the customer or supplier to the Company arises,
          upon shipment of the goods to the commissaries.


                                      F-9
<PAGE>


                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Compensatory Equity Issuances
          The Company  applies the  disclosure-only  provisions  of Statement of
          Financial  Accounting  Standards No. 123,  "Accounting  for Stock-Base
          Compensation"  (SFAS No. 123) for  options  granted to  employees  and
          directors.  As  allowed  under the  provisions  of SFAS No.  123,  the
          Company applies Accounting  Principal Board Opinion No. 25 and related
          interpretations,  in accounting for its stock plans.  No stock options
          were issued to employees under the plan.

     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 revenue and expenses during the
          reporting period. Actual results could differ from those estimates.

NOTE 3 - PREPAID CONSULTING

       Prepaid consulting  expenses are recorded in connection with common stock
       issued to consultants  for future services and are amortized over the six
       month agreement term.

NOTE 4 - PREPAID INTEREST

       Prepaid  interest expense is recorded in connection with the issuances of
       options for the extension of one of the  company's  note's  payable.  The
       interest  expense is being  amortized  over the  extension  period of six
       months.

NOTE 5 - RELATED PARTY TRANSACTIONS

       In January 2002, the Company entered into a one-year business  consulting
       agreement  with Edward  Whelan and Edward  Meyer,  Jr. for  marketing and
       managerial  consulting  services.  Effective July 1, 2002, the consulting
       agreement of Mr. Whelan was  terminated and Mr. Whelan became an employee
       of the Company,  for which he will be compensated on the same basis as he
       was to be paid under his consulting  agreement.  In  consideration of the
       services to be rendered by Mr.  Whelan and Mr.  Meyer,  the Company  will
       issue 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 the Company's common stock during such month. As of December 31, 2002
       204,906  shares of the  Company's  common  stock had been  issued to each
       individual,  or their  designees,  for a total  of  409,812  shares,  for
       services  rendered  during the term of the  Agreement.  The common shares
       were valued at their fair  market  value on the date if  issuance,  which
       ranged from $0.18 per share to $0.30 per share. The aggregate cost of the
       shares issued totaled $130,928.

       Subsequent  to the year end,  the Company  issued  96,207  shares of the
       Company's  common  stock to both Mr.  Whelan  and Mr.  Meyer  for the 4th
       quarter  of 2002.  The  aggregate  cost of the shares  issued  which were
       expensed in 2002 totaled $30,786.

       In February 2001, the Company entered into a (11) eleven-month consulting
       agreement   with  Edward   Whelan,   Chairman  of  Board  and   principal
       shareholder,  and Edward Meyer, Jr., one of the principals  shareholders.
       In consideration  for consulting  services  rendered,  the Company issued
       290,000  (145,000 to each  individual)  shares of common  stock valued at
       $0.20 per  share,  the fair  market  value on the date of  issuance.  The
       aggregate cost of the shares issued totaled $58,000.

                                      F-10

<PAGE>


                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 5  - RELATED PARTY TRANSACTIONS, Continued

       Loans Payable

          In  October   1997,   the  Company   borrowed   $60,000  from  Shannon
          Investments, which is controlled by Edward Whelan. The note is payable
          on demand and bears interest at the rate of 10% per annum.

          On August 14, 2001, the Company borrowed $100,000 from Oncor Partners,
          Inc., a company of which Edward Whelan,  is President and shareholder.
          The note bears  interest at 18% per annum and was due August 14, 2002.
          On November 5, 2002, the Company  granted 500,000 common stock options
          to Oncor Partners, Inc. in consideration of extending the note through
          May 5, 2003.

          At December 12, 2001, the Company  borrowed  $25,000 from Ethan Hokit,
          one of the Company's Directors.  The note is payable on the earlier of
          on demand or June 30,  2003 and bears  interest  at the rate of 8% per
          annum.

          On December  12,  2001 the  Company  borrowed  $25,000  from  Atlantic
          Investment  Trust,  of which Richard  Tanenbaum,  one of the Company's
          Directors, is a trustee. The note bears interest at the rate of 8% per
          annum  through  the due date of the  earlier  of on demand or June 30,
          2003.

          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 are 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 6 - CONVERTIBLE NOTES

          At December 31, 2002, the Company had an aggregate of $255,000 payable
          in convertible  notes.  $20,000 of the convertible notes bear interest
          at 8% per  annum  and  were  due on  June  30,  2002.  $70,000  of the
          convertible  notes bear  interest  at 8% prior to June 30, 2002 and 9%
          thereafter and are due on June 30, 2003.  $165,000 of the  convertible
          notes bear  interest at 8% including  $60,000 due on June 30, 2003 and
          $105,000 due on July 30, 2003. The terms of the Company's  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 the  Company's  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. 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 the  Company's  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 its common stock
          issuable upon conversion of the convertible  notes not later than June
          30, 2003.

          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 years  ended  December  31,  2002 and 2001,
          interest expense of $370,000 and

                                      F-11
<PAGE>


                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 6 - CONVERTIBLE NOTES, continued

       $35,000, respectively (representing the aggregate proceeds to the Company
       from convertible notes issued during such periods), was recognized as the
       intrinsic value of the beneficial  conversion  feature of the convertible
       notes that were issued during such periods.

NOTE 7- CONVERSION OF LOANS PAYABLE

       During the year ended  December 31, 2002,  notes payable in the amount 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
       agreement.

NOTE 8 - CONCENTRATION OF RISK

       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.

NOTE 9 - 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.  Amortization of assets under
       capital leases is included in depreciation expense.

       Properties under capital leases at December 31, 2002 are as follows:

Equipment                                               $          103,403
Less accumulated amortization                                     (22,832)
                                                          -----------------
         Total                                          $           80,571
                                                          =================

The following is a schedule of minimum lease payments under capital leases as of
December 31, 2002.
<TABLE>
<CAPTION>

YEAR ENDING DECEMBER 31,
<S>     <C>                                                                                        <C>

         2003                                                                $           45,273
         2004                                                                            35,664
         2005                                                                            22,818
         2006                                                                            20,916
                                                                               -----------------
         Total net minimum capital lease payments                                       124,671
         Less amounts representing interest                                              35,665
                                                                               -----------------
         Present value of net minimum capital lease payments                             89,006
         Less current maturities of capital lease obligations                          (37,271)
                                                                               -----------------
         Obligations under capital leases, excluding current maturities      $           51,735
                                                                               =================
</TABLE>

                                      F-12
<PAGE>


                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 9 - CAPITAL LEASES, continued

       Interest rates on  capitalized  leases vary from 19.19% to 24.84% and are
       imputed based on the lessor's  implicit rate of return.  In 2003,  one of
       the lease  obligations was accelerated due to non-payment and another was
       modified (see Note 18).

NOTE 10 - 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:

              2003                                         $         182,843
              2004                                                   193,759
              2005                                                   201,946
              2006                                                   210,133
                                                             ----------------
              Total minimum payments required              $         788,681
                                                             ================

       The lease also contains  provisions for contingent  rental payments based
       upon   increases  in  real  estate  taxes,   insurance  and  common  area
       maintenance expense.

       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 is a defendant in pending litigation  regarding several lease
       agreements for a former premises (see Note 17).

       Rent expense for the years ended  December 31, 2002 and 2001 was $302,237
and $80,805, respectively.

NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS

       The carrying amount of cash,  accounts  receivable,  accounts payable and
       accrued expenses and notes payable are considered to be representative of
       their  respective  fair values because of the short-term  nature of these
       financial instruments.

       The fair value of the Company's  capital lease  obligations  approximates
       its  carrying  value and is based on the  current  rates  offered  to the
       Company 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.

     Limitations
       The fair value  estimates are made at a specific point in time,  based
       on relevant market information about the financial  instrument.  These
       estimates  are  subjective  in nature and  involve  uncertainties  and
       matters of  significant  judgment and  therefore  cannot be determined
       with precision.  Changes in assumptions could significantly affect the
       estimates.


                                      F-13

<PAGE>

                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 12 - SEGMENT INFORMATION


The Company operates primarily in a single operating segment,  distributing and
marketing resale grocery products to military commissaries.

NOTE 13 - INCOME TAXES

The  differences  between  income  tax  provisions  (benefits)  in the financial
statements and the tax expense (benefit) computed at the U. S. Federal Statutory
rate  of  34%  are  as  follows:
<TABLE>
<CAPTION>


                                                                          December 31,
                                                              -------------------------------------
                                                                   2002                 2001
                                                              ----------------     ----------------
<S>     <C>                                                         <C>                  <C>

  Tax provision (benefit at the U. S. Federal Statutory rate            (34)%                (34)%

  Net operating loss carryover                                           34 %                 34 %
                                                              ----------------     ----------------
  Effective tax rates                                                  -    %               -    %
                                                              ================     ================

       Significant  components of the Company's  deferred tax assets at December
31, 2002 are as follows:

                  Deferred Tax Assets
                        Net operating loss carryforwards                       $      1,264,000
                        Less valuation allowance                                      1,264,000
                                                                                 ---------------
                        Total Deferred Tax Assets                              $              -
                                                                                 ===============
</TABLE>

       As  of  December  31,  2002,   the  Company  had  a  net  operating  loss
       carryforward for federal income tax purposes of approximately $3,160,000,
       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
       the Company's  effective tax rate to differ from the statutory income tax
       rate. The net operating loss carryforward,  if not utilized,  will expire
       between  2017 and 2022.  At  December  31, 2002 the  valuation  allowance
       increased by $880,000.

NOTE 14 - 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-14


<PAGE>

                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 14 - 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 volatily                                            233% - 253%

      Compensation cost charged to operations was $222,000 at December 31, 2002.
      Prepaid  consulting  costs are $58,667 at December 31, 2002.  Common stock
      options  granted  under the plan during the year ended  December  31, 2002
      were 800,000.  Exclusive of the plan, an additional  500,000 stock options
      were granted to Oncor Partners, Inc., a related party (see Note 5).
<TABLE>
<CAPTION>

      The following is a summary of the status of stock options granted:
                                                                                             Number of            Weighted
                                                                                              Shares              Average
                                                                                                               Exercise Price
                                                                                          ----------------    -----------------
<S>                         <C>                                                               <C>                   <C>

                           Outstanding at December 31, 2001
                           Granted                                                              1,000,000   $             0.50
                           Exercised                                                                    0
                                                                                                                             0
                           Expired                                                                      0                    0
                                                                                          ----------------    -----------------
                           Outstanding at December 31, 2001                                     1,000,000   $             0.50
                                                                                          ================    =================

                           2002

                           Granted                                                              1,300,000                 0.50
                           Exercised                                                                    0
                                                                                                              0
                           Expired                                                              1,000,000
                                                                                                              0
                                                                                          ----------------    -----------------
                           Outstanding at December 31, 2002                                     1,300,000   $             0.50
                                                                                          ================    =================
</TABLE>

NOTE 15 - SECURITIES ISSUED FOR SERVICES

      During the year ended  December 31, 2002,  the Company issued an aggregate
      1,675,000  of the  Company's  common  shares to  various  consultants  for
      services provided or to be provided.  A consulting expense of $489,500 was
      recognized  in 2002  and a  prepaid  consulting  expense  of  $57,750  was
      recorded in 2002. These amounts were based on the fair market value of the
      shares on the date of issuance.

NOTE 16 - NEW ACCOUNTING PRONOUNCEMENTS

     Standards Implemented
       In  April 2002, the Financial Accounting Standards Board (FASB) issued
       SFAS  No.  145,  "Rescission  of  FASB  Statements  No.  4, 44 and 64,
       Amendment  of  FASB  Statement  No.  13,  and  Technical Corrections,"
       effective  May  15, 2002. SFAS No. 145 eliminates the requirement that
       gains  and  losses  from  the extinguishment of debt be aggregated and
       classified  as  an  extraordinary  item, net of tax, and makes certain
       other  technical  corrections.

                                      F-15
<PAGE>


                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 16 - NEW ACCOUNTING PRONOUNCEMENTS, Continued

        SFAS No. 145 did not have a material effect on the Company's Financial
        Statements.

        In October 2001,  the FASB  issued  SFAS No.  144,  "Accounting  for the
        Impairment  or Disposal of  Long-Lived  Assets."  SFAS No. 144 addresses
        significant  issues  relating  to the  implementation  of SFAS No.  121,
        "Accounting  for the Impairment of Long-Lived  Assets and for Long-Lived
        Assets to Be Disposed Of," and develops a single accounting model, based
        on the framework established in SFAS No. 121 for long-lived assets to be
        disposed of by sale,  whether  such assets are or are not deemed to be a
        business. SFAS No. 144 also modifies the accounting and disclosure rules
        for  discontinued  operations.  The  standard  was adopted on January 1,
        2002,  and did not have a  material  impact on the  Company's  Financial
        Statements.

        In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and
        SFAS No.  142,  "Goodwill  and Other  Intangible  Assets."  SFAS No. 141
        requires  the use of the  purchase  method of  accounting  for  business
        combinations  and prohibits the use of the pooling of interests  method.
        Under the  previous  rules,  the  company  used the  purchase  method of
        accounting.  SFAS No. 141 also  refines  the  definition  of  intangible
        assets acquired in a purchase  business  combination.  As a result,  the
        purchase  price  allocation  of  current  business  combinations  may be
        different  than the  allocation  that would have resulted  under the old
        rules.  Business  combinations  must be accounted for using SFAS No. 141
        effective July 1, 2001.

        SFAS No. 142 eliminates the  amortization  of goodwill,  requires annual
        impairment  testing of goodwill and introduces the concept of indefinite
        life intangible  assets.  The company adopted SFAS No. 142 on January 1,
        2002.  The  new  rules  also  prohibit  the   amortization  of  goodwill
        associated with business  combinations  that closed after June 30, 2001.
        The  adoption of SFAS No. 141 and 142 did not have a material  effect on
        the Company's Financial Statements.

      New Standards to be Implemented
        In June  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
        Retirement  Obligations." SFAS No. 143 provides accounting and reporting
        guidance  for  legal  obligations  associated  with  the  retirement  of
        long-lived  assets  that result from the  acquisition,  construction  or
        normal  operation  of a  long-lived  asset.  SFAS No. 143  requires  the
        recording of an asset and a liability  equal to the present value of the
        estimated  costs  associated  with the  retirement of long-lived  assets
        where a legal or contractual obligation exists. The asset is required to
        be depreciated over the life of the related  equipment or facility,  and
        the  liability  is required to be accreted  each year based on a present
        value  interest  rate.  The  standard  is  effective  for the company on
        January 1,  2003.  The  company  has  reviewed  the  provisions  of this
        standard,  and its adoption is not expected to have a material effect on
        the Company's Financial Statements.

        In July  2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Costs
        Associated  with Exit or Disposal  Activities."  SFAS No. 146 supersedes
        EITF 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 that a liability for a cost
        associated  with an exit or  disposal  activity be  recognized  when the
        liability is incurred. Such liabilities should be recorded at fair value
        and  updated  for any  changes  in the fair  value of each  period.  The
        company is currently  evaluating the possible effect on future Financial
        Statements.

NOTE 17 - CONTINGENCIES

        The Company is a defendant in pending litigation  regarding its former
        premises. The plaintiff is the former landlord, who is seeking damages
        for an  alleged  breach  of  the  terms  of  several  operating  lease
        agreements for office and warehouse space located in Colorado Springs,
        Colorado.  The Company intends to vigorously defend against such claim
        and also intends to pursue its counterclaims for damages caused by the
        landlord's constructive eviction from the premises.

                                      F-16
<PAGE>


                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 17 - CONTINGENCIES, continued

The  pending  litigation  is in  its  preliminary  stages,  with  a  trial  date
anticipated  in November  2003.  The  estimated  contingent  liability  for this
litigation is not expected to exceed $75,000, including the costs of defense.

NOTE 18 - SUBSEQUENT EVENTS

In February 2003 the Company  entered into an agreement with an entity to act as
the  Company's  financial  advisor,  investment  banker and  placement  agent in
connection with the placement of credit facilities and securities. The agreement
calls for an equity  retainer of 200,000  shares of restricted  common stock and
$5,000 per month through August 2003, as well as the following:

      A credit facility  financing fee,  payable in cash upon the closing of the
      placement  of the Credit  Facilities  (the "Credit  Facilities  Closing"),
      equal to: 1) three  percent  (3.0%)  of the total  proceeds  raised by the
      Company in the  placement of such Credit  Facilities  if (i) the Investors
      were  introduced  to the  Company  by the  Advisor  and (ii)  the  Advisor
      substantially   participated   in  such  placement  by   structuring   the
      transaction and coordinating the activities  necessary and incident to the
      closing of the  placement;  or 2) one and one-half  percent  (1.5%) of the
      total  proceeds  raised by the  Company in the  placement  of such  Credit
      Facilities if (i) the Investors  were not introduced to the Company by the
      Advisor  but  (ii)  the  Advisor,   at  the  Company's   written  request,
      substantially   participated   in  such  placement  by  assisting  in  the
      structuring  of the  transaction  and the  coordination  of the activities
      necessary  and incident to the closing of the  placement;  or 3) no credit
      facilities  financing fee in the placement of such Credit  Facilities,  if
      (i) the  Investors  were not  introduced to the Company by the Advisor and
      (ii) the  Advisor  was not  requested  by the  Company  to  assist  in the
      structuring  of the  transaction  or the  coordination  of the  activities
      necessary  and  incident  to the  closing of the  placement  (the  "Credit
      Facilities Financing Fee").

      A debt financing fee, payable in cash upon the closing of the placement of
      the Debt Securities (the "Debt Closing"), equal to: 1) five percent (5.0%)
      of the total  proceeds  raised by the Company in the placement of the Debt
      Securities  if (i) the  Investors  were  introduced  to the Company by the
      Advisor and (ii) the Advisor participated in such placement by structuring
      the transaction and coordinating the activities  necessary and incident to
      the closing of the placement; or 2) two and one-half percent (2.5%) of the
      total  proceeds  raised  by the  Company  in  the  placement  of the  Debt
      Securities, if (i) the Investors were not introduced to the Company by the
      Advisor  but (ii)  the  Advisor,  at the  Company's  participated  in such
      placement by  assisting  in the  structuring  of the  transaction  and the
      coordination  of the  activities  necessary and incident to the closing of
      the  placement;  or 3) no debt financing fee in the placement of such Debt
      Securities if (i) the Investors  were not introduced to the Company by the
      Advisor and (ii) the Advisor was not requested by the Company to assist in
      the structuring of the  transaction or the  coordination of the activities
      necessary  and  incident  to the  closing  of  the  placement  (the  "Debt
      Financing Fee").

      An equity financing fee, payable in cash upon the closing of the placement
      of the Equity Securities (the "Equity Closing",  and collectively with the
      Debt Closing,  the  "Closings"),  equal to: 1) eight percent (8.0%) of the
      total  proceeds  raised by the  Company in the  placement  of such  Equity
      Securities  if (i) the  Investors  were  introduced  to the Company by the
      Advisor and (ii) the Advisor participated in such placement by structuring
      the transaction and coordinating the activities  necessary and incident to
      the  closing  of the  placement;  or 2) four  percent  (4.0%) of the total
      proceeds raised by the Company in the placement of such Equity Securities,
      if (i) the  Investors  were not  introduced  to the Company by the Advisor
      but(ii) the Advisor,  at the Company's  participated  in such placement by
      assisting in the structuring of the  transaction  and the  coordination of
      the activities necessary and incident to the closing of the placement;  or
      3) no equity  financing fee in the placement of such Equity  Securities if
      (i) the  Investors  were not  introduced to the Company by the Advisor and
      (ii) the  Advisor  was not  requested  by the  Company  to  assist  in the
      structuring  of the  transaction  or the  coordination  of the  activities
      necessary  and  incident  to the  closing of the  placement  (the  "Equity
      Financing Fee"); and


                                      F-17

<PAGE>

                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 18 - SUBSEQUENT EVENTS, Continued

      An equity  financial  advisory  fee,  payable in warrants  upon the Equity
      Closing,  consisting of warrants to acquire  shares of the common stock of
      the  Company  equal to:  1) three  percent  (3.0%)  of the  fully  diluted
      shareholder  interest of the Company  after the effect of the  issuance of
      the Equity Securities, with a strike price equal to the implied sale price
      per share in the placement of such Equity  Securities if (i) the Investors
      were  introduced  to the  Company  by the  Advisor  and (ii)  the  Advisor
      substantially   participated   in  such  placement  by   structuring   the
      transaction and coordinating the activities  necessary and incident to the
      closing of the  placement;  or 2) one and one-half  percent  (1.5%) of the
      fully diluted shareholder  interest of the Company after the effect of the
      issuance  of the  Equity  Securities,  with a  strike  price  equal to the
      implied sale price per share in the placement of such Equity Securities if
      (i) the  Investors  were not  introduced to the Company by the Advisor but
      (ii)  the  Advisor,  at  the  Company's  written  request,   substantially
      participated  in such  placement by assisting  in the  structuring  of the
      transaction and the coordination of the activities  necessary and incident
      to the closing of the placement; or 3) no

      equity financing  advisory fee in the placement of such Equity  Securities
      if (i) the Investors were not introduced to the Company by the Advisor and
      (ii) the  Advisor  was not  requested  by the  Company  to  assist  in the
      structuring  of the  transaction  or the  coordination  of the  activities
      necessary  and  incident  to the  closing of the  placement  (the  "Equity
      Advisory Fee"), with a term of five (5) years,  without transfer costs and
      with customary and ordinary  piggy-back  registration  rights. In no event
      shall an Investor be considered to be  "introduced"  to the Company by the
      Advisor if such  Investor  was  personally  known to the Company as of the
      date of this Agreement.

      In February 2003, the Company amended one of its consulting agreements
      as follows:

      Common  Stock to be issued of 250,000  shares  with an option to  purchase
      650,000  shares  of the  Company's  common  stock at the lower of $.50 per
      share or the price per share  granted to any other  advisor or employee of
      the Company  during the term of the  agreement.  The agreement is for five
      years.

      Subsequent  to  year  end, the Company issued 792,414 shares of common
      stock  pursuant  to  consulting  agreements.

      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.

      In February 2003, the Company entered into a Lease Modification  Agreement
      for its 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 will increase to $2,100 for the subsequent eight months and
      $1,980 for the remaining forty months.

NOTE 19 - RESTATEMENT

      The Company has restated its cash flows from  financing  activities on the
      statements of cash flows for the year ended December 31, 2001, to properly
      disclose the proceeds  received upon the issuance of the convertible notes
      and the payments made on the convertible notes. In addition, capital lease
      cash and  non-cash  activity  were added to the  statement  of cash flows.
      There is no effect on net income as a result of this restatement.

      The Company has restated its  statement of  operations,  statement of cash
      flows, and statement of  stockholders'  equity for the year ended December
      31, 2001, to properly disclose the beneficial conversion feature resulting
      from the issuance of convertible  debt.  When  convertible  debt is issued
      with a beneficial  conversion feature, a portion of the proceeds should be
      allocated  to the  intrinsic  value  of the  conversion  feature,  and the
      resulting

                                      F-18

<PAGE>

                           MILITARY RESALE GROUP, INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 19 - RESTATEMENT, continued

discount  should be amortized as  additional  interest  expense.  The  discounts
should  be  amortized  from the date the  security  issued  to the date it first
becomes convertible.  The intrinsic value of the conversion feature for the year
ended December 31, 2001 was $35,000 and has been allocated to additional paid in
capital.  The  expense  associated  with the  beneficial  conversion  feature of
$35,000 is disclosed  on the  statement  of cash flows as an  adjustment  in the
reconciliation  of net loss and cash used in operations as well as the statement
of operations as interest expense.

      For the year ended  December  31,  2001,  the  Company  has  restated  the
      financial  statements  to properly  reflect the cost of 875,000  shares of
      common stock issued to employees and directors.

      As a result of these  restatements,  net loss for the year ended  December
      31, 2001 increased by $280,000 and the net loss per common share increased
      from ($0.08) to ($0.13).

      The Company has restated  Note 5 Related Party  Transactions,  to disclose
      the value and  aggregate  cost of shares  issued for  consulting  services
      rendered  and to disclose  where the cost is  reflected  in the  financial
      statements for the year ended December 31, 2001. There is no effect on net
      income as a result of this restatement.

NOTE 20 - RECLASSIFICATIONS

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


                                      F-19

<PAGE>
                                   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 2, 2003.

                                     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:

<TABLE>
<CAPTION>

                SIGNATURE                                   TITLE                                DATE
<S>                 <C>                                      <C>                                 <C>
  /s/ Edward T. Whelan                      Chairman of the Board, Chief Executive         May 2, 2003
  --------------------------------------      Officer  (Principal Executive Officer)
  Edward T. Whelan


  /s/ Ethan D. Hokit                        President, Chief Operating Officer, Director   May 2, 2003
  --------------------------------------      (Principal Accounting Officer and
  Ethan D. Hokit                              Principal Financial Officer)


  /s/ Richard H. Tanenbaum                  Director                                       May 2, 2003
  --------------------------------------
  Richard H. Tanenbaum

                                       28
</TABLE>
<PAGE>

                                  CERTIFICATION

         I, EDWARD T. WHELAN, CHIEF EXECUTIVE OFFICER of MILITARY RESALE GROUP,
INC., certify that:

         1. I have reviewed this Annual Report on Form 10-KSB of Military Resale
Group, Inc.;

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

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

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

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

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

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

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

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

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

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

Date:  May 2, 2003

                                          /s/ Edward T. Whelan
                                          -----------------------------------
                                              Edward T. Whelan
                                              Chief Executive Officer

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                                  CERTIFICATION

         I, ETHAN D. HOKIT, CHIEF FINANCIAL OFFICER of MILITARY RESALE GROUP,
INC., certify that:

         1. I have reviewed this Annual Report on Form 10-KSB of Military Resale
Group;

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

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

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

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

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

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

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

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

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

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

Date:  May 2, 2003

                                                     /s/ Ethan D. Hokit
                                                     ---------------------------
                                                         Ethan D. Hokit
                                                         Chief Financial Officer


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