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

                                   FORM 10-QSB

                                   (Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the quarterly

                           period ended June 30, 2004

[ ]  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

                           MILITARY RESALE GROUP, INC.
           (Name of small business issuer as specified in its charter)



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


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

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

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 [ ]

As of August 15, 2004, there were 31,113,832 shares of the issuer's common stock
outstanding.

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



<PAGE>


                           MILITARY RESALE GROUP, INC.

                                   FORM 10-QSB


                                      INDEX

                                                                        Page No.


PART I.       Financial Information

Item 1.       Financial Statements

              Balance Sheets - June 30, 2004 and December 31, 2003........... 1

              Statements of Operations - three and six months ended June 30,
                2004 and 2003................................................ 3

              Statements of Cash Flows - six months ended June 30,
                2004 and 2003................................................ 4

              Notes to Financial Statements.................................. 6

Item 2.       Management's Discussion and Analysis or Plan of Operation......11

Item 3.       Controls and Procedures........................................16

PART II.      Other Information

Item 2.       Changes in Securities and Small Business Issuer Purchases
                 of Equity Securities........................................17

Item 6.       Exhibits and Reports on Form 8-K...............................18

Signatures ..................................................................19


                                       i


<PAGE>







ITEM 1.  FINANCIAL INFORMATION


                           MILITARY RESALE GROUP, INC.
                                 BALANCE SHEETS


                                     ASSETS

                                                 CONSOLIDATED
                                                     AS OF
                                                    JUNE 30,     DECEMBER 31,
                                                      2004           2003
                                                  -----------    -----------
CURRENT ASSETS:                                   (UNAUDITED)
  Cash                                            $     6,277    $     2,862
  Accounts receivable - trade                         699,189        765,851
  Inventory                                           417,925        334,950
  Prepaid consulting                                  102,236        484,506
  Deposits                                             37,118         33,218
  Prepaid interest                                     46,245         92,681
  Prepaid expenses                                     14,030             --
                                                  -----------    -----------
     Total Current Assets                           1,323,020      1,714,068
                                                  -----------    -----------

PREPAID INTEREST, NET OF CURRENT PORTION              132,038        132,038

EQUIPMENT
  Office equipment                                     24,507         15,047
  Warehouse equipment                                 159,444        159,444
  Software                                             16,324         16,324
                                                  -----------    -----------
                                                      200,275        190,815
  Less accumulated depreciation                      (124,350)      (106,103)
                                                  -----------    -----------
    Net equipment                                      75,925         84,712
                                                  -----------    -----------

OTHER ASSETS
  Deferred offering costs                              23,947             --
  Investment Property                                 345,468             --
                                                  -----------    -----------
    Total Other Assets                                369,415             --
                                                  -----------    -----------

     Total Assets                                 $ 1,900,398    $ 1,930,818
                                                  ===========    ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Accounts payable and accrued expenses           $ 2,258,151    $ 2,507,544
  Accounts payable, related party                     154,056         72,632
  Current maturities of capital lease obligations      28,402         51,981
  Deferred rent                                         2,729          2,729
  Current portion of accrued interest payable         127,856         99,561
  Current portion of notes payable                     16,025         90,235
  Current portion of convertible notes payable         65,000         85,000
  Related party demand note payable                    75,000             --
  Other Current Liabilities                             7,655             --
                                                  -----------    -----------
     Total Current Liabilities                      2,734,874      2,909,682


                                       1

<PAGE>


                           MILITARY RESALE GROUP, INC.
                                 BALANCE SHEETS
                                  (CONTINUED)


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

DEFERRED RENT, NET OF CURRENT PORTION                  21,832         21,832

RELATED PARTIES CONVERTIBLE NOTES PAYABLE             360,000        360,000

NOTES PAYABLE, NET OF CURRENT PORTION                  98,975         98,975

CONVERTIBLE NOTES PAYABLE, NET OF CURRENT PORTION     160,000        160,000

MORTGAGE PAYABLE                                       71,187             --
                                                  -----------    -----------
     Total Liabilities                              3,483,219      3,586,840
                                                  -----------    -----------

STOCKHOLDERS' EQUITY (DEFICIT):
  Preferred stock, par value $.0001, 10,000,000
  shares authorized, -0- issued and outstanding            --             --
  Common Stock Reserved                               (11,750)            --
  Common stock, par value $.0001, 50,000,000
  shares authorized, 30,293,832
  and 21,448,011 issued and outstanding                 3,030          2,144
  Additional paid-in capital                        5,475,071      4,248,547
  Accumulated (deficit)                            (7,049,172)    (5,906,713)
                                                  -----------    -----------
     Total Stockholders' Equity (Deficit)          (1,582,821)    (1,656,022)
                                                  -----------    -----------

     Total Liabilities and Stockholders'
        Equity (Deficit)                          $ 1,900,398    $ 1,930,818
                                                  ===========    ===========


            SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS.


                                        2

<PAGE>


                                         MILITARY RESALE GROUP, INC.
                                          STATEMENTS OF OPERATIONS
                              THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
                                                  UNAUDITED


<TABLE>
<CAPTION>

                                                CONSOLIDATED                   CONSOLIDATED
                                               FOR THE THREE    THREE          FOR THE SIX      SIX
                                                MONTHS ENDED    MONTHS ENDED    MONTHS ENDED    MONTHS ENDED
                                               JUNE 30, 2004   JUNE 30, 2003   JUNE 30, 2004   JUNE 30, 2003
                                               -------------   -------------   -------------   -------------
<S>                                            <C>             <C>             <C>             <C>
REVENUES:
  Resale revenue                               $   1,859,784   $   1,534,377   $   3,821,328   $   3,146,974
  Commission revenue                                 160,957         135,188         334,389         281,554
                                               -------------   -------------   -------------   -------------
        Total Revenues                             2,020,741       1,669,565       4,155,717       3,428,528

COST OF GOODS SOLD                                 1,698,938       1,334,367       3,481,499       2,846,693
                                               -------------   -------------   -------------   -------------

GROSS PROFIT                                         321,803         335,198         674,218         581,835

OPERATING EXPENSES:
  Stock based compensation                           378,493         356,484         789,320         562,853
  Salary and payroll taxes                           193,879         141,971         356,668         259,109
  Professional fees                                   72,507         136,056         101,599         200,090
  Occupancy                                           59,356          59,356         118,712         118,712
  General and administrative                         197,181         126,734         336,795         276,793
  Depreciation and amortization                        8,805           2,670          18,247          17,661
                                               -------------   -------------   -------------   -------------
        Total Expenses                               910,221         823,271       1,721,341       1,435,218
                                               -------------   -------------   -------------   -------------
        Net (Loss) From Operations                  (588,418)       (488,073)     (1,047,123)       (853,383)

OTHER (EXPENSES):
  Interest expense                                   (38,229)        (97,911)        (95,336)       (233,296)
                                               -------------   -------------   -------------   -------------

        Total Other (Expense)                        (38,229)        (97,911)        (95,336)       (233,296)
                                               -------------   -------------   -------------   -------------

NET (LOSS)                                     $    (626,647)  $    (585,984)  $  (1,142,459)  $  (1,086,679)
                                               =============   =============   =============   =============

NET (LOSS) PER COMMON SHARE BASIC AND DILUTED  $       (0.02)  $       (0.05)  $       (0.04)  $       (0.09)
                                               =============   =============   =============   =============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING, BASIC AND DILUTED                  27,913,739      12,533,035      25,705,861      12,134,457
                                               =============   =============   =============   =============



                          SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS

</TABLE>

                                                     3


<PAGE>


                           MILITARY RESALE GROUP, INC.
                            STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED JUNE 30, 2004 AND 2003
                                    UNAUDITED


                                                    CONSOLIDATED
                                                       FOR THE
                                                     SIX MONTHS      SIX MONTHS
                                                        ENDED          ENDED
                                                       JUNE 30,       JUNE 30,
                                                         2004            2003
                                                    ------------    -----------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
   Net (loss)                                       $ (1,142,459)   $(1,086,679)
   Adjustments to reconcile net (loss) to net cash
       used in operating activities:
     Depreciation and amortization                        18,247         17,661
     Amortization of option based interest expense        46,436        133,333
     Stock issued for services                           682,770        491,580
     Options issued for services                          94,800             --
     Beneficial conversion feature                            --         75,000
     Stock issued for liquidated damages                  11,750             --
   Changes in assets and liabilities:
     Decrease (Increase) in accounts receivable           66,662       (388,512)
     Decrease (Increase) in inventory                    (82,975)       (50,335)
     (Increase) in other assets                               --         (3,856)
     (Increase) in deposits                               (3,900)            --
     (Increase) in prepaid expenses                      (13,642)            --
     Increase in accounts payable and accrued
      expenses                                          (249,395)       577,635
     Increase in related party accounts payable           81,425             --
     Increase in accrued interest payable                 44,085             --
     Increase  in deferred rent obligation                    --          4,094
     Decrease in mortgage payable                           (109)            --
     Increase in other liabilities                         7,655         54,533
                                                    ------------    -----------
      Net Cash (Used In) Operating Activities           (438,650)      (175,546)
                                                    ------------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

   Purchase of fixed assets                               (9,459)        (1,765)
                                                    ------------    -----------
      Net Cash (Used in) Investing Activities             (9,459)        (1,765)
                                                    ------------    -----------

CASH FLOWS FROM (TO) FINANCING ACTIVITIES:

   Payments on capital lease obligations                 (23,579)        (8,941)
   Payments on notes payable                             (60,000)            --
   Proceeds from issuance of notes                        75,000        185,000
   Proceeds from issuance of common stock                547,500             --
   Payments of offering costs                            (63,450)            --
   Payments on deferred offering costs                   (23,947)            --
                                                    ------------    -----------
      Cash Flows Provided by Financing Activities        451,524        176,059
                                                    ------------    -----------

NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                              3,415         (1,252)
CASH AND CASH EQUIVALENTS, beginning of period             2,862          2,072
                                                    ------------    -----------
CASH AND CASH EQUIVALENTS, end of period            $      6,277    $       820
                                                    ============    ===========


                                       4

<PAGE>


                           MILITARY RESALE GROUP, INC.
                            STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED JUNE 30, 2004 AND 2003
                                    UNAUDITED
                                  (CONTINUED)

Supplementary information:
     Cash paid for:

   Interest paid                                    $      3,921    $       466
                                                    ============    ===========

   Income taxes                                     $         --    $        --
                                                    ============    ===========

                                                         2004           2003
                                                    ------------    -----------

Non-cash investing and financing activities:

Issuance of stock and options in
   exchange for services                            $    263,300    $   716,202
                                                    ============    ===========

Issuance of common stock and options as
   payment of notes payable                         $     50,000    $        --
                                                    ============    ===========

Issuance of common stock in payment of
   accrued compensation                             $         --    $    52,445
                                                    ============    ===========

Issuance of stock options in exchange for
   note extensions                                  $         --    $   364,500
                                                    ============    ===========



            SEE ACCOMPANYING NOTES TO UNAUDITED FINANCIAL STATEMENTS

                                        5


<PAGE>


                           MILITARY RESALE GROUP, INC.
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with accounting  principles  generally  accepted in the United States of America
for interim  financial  information and with the instructions to Form 10-QSB and
Item  310  of  Regulation  S-B.  Accordingly,  they  do not  include  all of the
information and footnotes required by generally accepted  accounting  principles
for  complete  financial  statements.   The  accompanying   unaudited  financial
statements  reflect all  adjustments  that,  in the opinion of  management,  are
considered necessary for a fair presentation of the financial position,  results
of  operations,  and cash  flows  for the  periods  presented.  The  results  of
operations  for such  periods  are not  necessarily  indicative  of the  results
expected  for the full fiscal year or for any future  period.  The  accompanying
financial  statements  should be read in conjunction with the audited  financial
statements  of  Military  Resale  Group,  Inc.,  included in Form 10-KSB for the
fiscal year ended December 31, 2003.

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 has a working
capital deficit 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.

PRINCIPLES OF CONSOLIDATION
The  consolidated  financial  statements  include the accounts of the  following
entities,  collectively  referred to as  "Company"  or "DGTL".  All  significant
inter-company transactions have been eliminated.

Military Resale Group, Inc.                 Corporation
Ohio Street Partners, Inc.                  Corporation

Military Resale Group, Inc. acquired Ohio Street Partners, Inc. on June 10, 2004
and is now a wholly owned  subsidiary of Military  Resale Group,  Inc. (See Note
11).

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


NOTE 2 - EARNINGS PER SHARE

The Company  computes  earnings per common share in accordance with Statement of
Financial  Accounting Standards No. 128, Earnings per Share (SFAS No. 128). This
Statement  simplifies  the  standards  for  computing  earnings  per share (EPS)
previously  found in Accounting  Principles  Board Opinion No. 15,  Earnings Per
Share, and makes them more comparable to international  EPS standards.  SFAS No.
128 replaces the  presentation  of primary EPS with a presentation of basic EPS.
In addition,  the Statement  requires dual presentation of basic and diluted EPS
on the face of the  income  statement  for all  entities  with  complex  capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS  computation  to the  numerator  and  denominator  of the  diluted EPS
computation.  However,  such  presentation  is not  required  if the  effect  is
antidilutive. Accordingly, no such presentation has been made.

NOTE 3 - PREPAID CONSULTING

Prepaid  consulting  expenses are recorded in  connection  with common stock and
options  issued to  consultants  for future  services and are amortized over the
agreement  term.  As of June 30, 2004,  the Company had a balance of $102,236 in
prepaid consulting expense.


                                        6


<PAGE>


                           MILITARY RESALE GROUP, INC.
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS


NOTE 4 - PREPAID INTEREST

Prepaid interest is recorded in connection with the issuances of options for the
extension of various notes payable. The prepaid interest is being amortized over
the extension  period,  with $46,436 charged to interest  expense during the six
months ended June 30, 2004.

NOTE 5 - RELATED PARTY TRANSACTIONS

On March 31, 2004 and June 30, 2004 pursuant to a consulting  agreement with the
Company's former chief executive officer, the Company issued 247,560 and 303,261
shares of common stock,  respectively,  and granted options to purchase  247,560
and 303,261 shares of common stock, respectively, at $.25 per share for a period
of five years for services  rendered valued at $144,000.  The value of the stock
and the value of the options was $72,000  each based on $12,000  each per month.
The number of shares and options  issued was  determined by dividing  $36,000 by
80% of the average low price of the common stock in each quarter.

NOTE 6 - SECURITIES ISSUED FOR SERVICES

During the six months  ended June 30,  2004,  the  Company  issued an  aggregate
200,000 of the Company's common shares to a consultant for services provided and
expensed $40,000 (the value of the services) as stock based compensation.

During the six months ended June 30, 2004 the Company  issued  100,000 shares of
the Company's  common stock valued at $9,000 to a consultant  for services to be
provided.  The value of the stock is recorded as prepaid  consulting and will be
amortized over the six month term of the agreement.

On January 29, 2004 the Company  issued  50,000 shares of common stock valued at
$11,000 as a retainer  fee for  services  to be  performed  in  connection  with
raising of capital  (See Note 9). This amount is recorded as prepaid  consulting
and is being amortized over the six month term of the agreement.

During the six months  ended June 30, 2004  pursuant to a  consulting  agreement
with an unrelated party, the Company granted warrants to purchase 320,000 shares
of the  Company's  common  stock at  $.125  for a period  of five  years.  These
warrants were valued at $52,870, the fair value using the Black-Scholes European
Pricing  Model.  The average risk free interest rate used was 3.39%,  volatility
was  estimated at 96% and the expected  life was five years.  The warrants  were
granted as compensation to the Company's  investment banker for raising $500,000
by selling  4,000,000  shares of common stock.  This investment  banker was also
paid $40,000 as commission for the sale of stock.

During the six months ended June 30, 2004 the Company  issued  100,000 shares of
common stock valued at $17,000 to a consultant  for services to be rendered over
a period of 180 days. This amount is recorded as prepaid consulting and is being
amortized over the term of the agreement.

During the six months  ended June 30, 2004 the Company  entered  into a one-year
business  consulting  agreement  with an  unrelated  party  for  management  and
financial consulting  services.  Under the terms of the agreement the consultant
will receive $5,000 per month for the term of the agreement and received 250,000
shares of common  stock  valued at  $47,500.  This amount is recorded as prepaid
consulting and is being amortized over the term of the agreement.

During the six months ended June 30, 2004 the Company  issued  500,000 shares of
common stock to a consultants  for services  rendered and expensed  $70,000 (the
fair  value  of the  common  stock  on the  date of  issuance)  as  stock  based
compensation.

During the six months ended June 30, 2004 the Company  issued  200,000 shares of
common stock and granted  warrants to purchase  200,000  shares of the Company's
common stock at $.25 per share for a period of five years to a  stockholder  for
services rendered. The stock was valued at $34,000 (the fair value of the common
stock on the date of  issuance)  and expensed as stock based  compensation.  The
warrants were valued at $22,800, the fair value using the Black-Scholes European
Pricing  Model and expensed as stock based  compensation.  The average risk free
interest rate used was 3.96%,  volatility  was estimated at 93% and the expected
life was five years.


                                        7

<PAGE>

                           MILITARY RESALE GROUP, INC.
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS


NOTE 7 - COMMON STOCK

During the six months ended June 30, 2004 the Company sold  4,000,000  shares of
common stock to several  individuals at $.125 per share for total  consideration
of $460,000,  net of offering costs paid of $40,000. These individuals were also
given  warrants to purchase  2,000,000  shares of common stock at $.25 per share
for a period  of five  years.  The terms of the  stock  subscription  agreements
provide that in the event the average  closing bid price of the common stock for
the ten days preceding the effective date of the  Registration  Statement (to be
filed) is $.17 or below,  then the purchase  price for the shares shall be reset
to a purchase  price equal to the average  price minus $.05,  provided  that the
purchase  price is not less than $.065 per  share.  Upon the  occurrence  of the
price  adjustment,  the Company  will issue to each  subscriber  the  additional
shares they are entitled to based upon the adjusted price.  In addition,  if the
Registration Statement (to be filed) is not declared effective on or before June
30,  2004,  then  commencing  on the first day of each  month  thereafter  until
December 1, 2004 or the declared  effective date of the Registration  Statement,
the Company will issue each subscriber, as liquidated damages, additional shares
of  common  stock  equal  to 10% of the  number  of  shares  purchased  by  each
subscriber (See Note 12).

During the six months  ended June 30, 2004 the Company  sold  450,000  shares of
common  stock to  several  individuals  for $.10 to $.125  per  share  for total
consideration  of $43,250,  net of offering costs of $4,250.  In accordance with
the terms of the stock subscription  agreements,  if the Company's  Registration
Statement  (to be filed) is not  declared  effective on or before June 30, 2004,
then commencing on the first day of each month thereafter until December 1, 2004
or the declared effective date of the Registration  Statement,  the Company will
issue each subscriber,  as liquidated  damages and not as a penalty,  additional
shares of common  stock equal to 10% of the number of shares  purchased  by each
subscriber (See Note 12).

During the six months ended June 30, 2004,  the Company  issued 62,500 shares of
common stock valued at $11,750 to a stockholder  as  liquidated  damages for the
Company not registering the stockholder's  common stock by January 31, 2004. The
Company also recorded common stock reserved of $11,750 for an additional  62,500
shares of common  stock that should have been  issued as  additional  liquidated
damages.

NOTE 8 - PROMISSORY NOTE PAYABLE

On March 27, 2003, the Company issued a promissory  note for $100,000 to Romano,
Ltd.  The note bears  interest  at 15% per annum and was due on March 26,  2004,
subject to the following  contingent payment terms upon the Company's raising or
securing additional funding from any third party source:


<TABLE>
<CAPTION>

ADDITIONAL FUNDING      TERMS MODIFICATION
---------------------   -----------------------------------------------------------
<S>                     <C>
$250,000                Payment of 10% of outstanding principal and accrued interest
$500,000                Payment of 15% of outstanding principal and accrued interest
$1,000,000 or more      Payment of 100% of outstanding principal and accrued interest

</TABLE>


When  the  Company  failed  to  secure  any of the  above-referenced  additional
funding,  nor another  significant  event,  such as a merger or  acquisition  of
another company,  the Company was required to pay $8,000 per month commencing on
July 1, 2003 until the full obligation was paid.

The Company  repaid  $25,000  during the year ended December 31, 2003 and repaid
the remaining  $75,000 principal balance during the three months ended March 31,
2004. The Company paid $25,000 and 400,000 shares of the Company's  common stock
and  warrants  to  purchase   250,000  shares  of  the  Company's  common  stock
exercisable  at $.25 per  share for a period  of three  years.  The value of the
common stock and  warrants was $50,000,  based upon the fair market value of the
note. At the time the note was exchanged for stock and warrants, the Company had
entered into private placements of common stock on terms similar to the exchange
transaction.

The Company signed a $30,000 note with Romano, Ltd., for the accrued interest on
the original $100,000 loan with interest at 15% per annum,  payable beginning on
April 1, 2004 with equal  consecutive  installments  payable on the fifteenth of
every  month in the amount of $5,000  until paid in full or March 26,  2005.  At
June 30, 2004 the balance remaining on this note was $15,000.


                                        8


<PAGE>


                           MILITARY RESALE GROUP, INC.
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS


NOTE 9 - RELATED PARTY DEMAND NOTE PAYABLE

During the six months ended June 30, 2004 the Company issued a note payable to a
related party who is now the Company's Chief  Executive  Officer and Chairman of
the Board of  Directors  in the amount of $75,000.  The note is due on demand or
September 10, 2004, or upon the sale of the San Diego condominium (See Note 11),
whichever occurs sooner and bears interest at the rate of 8% per annum.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

On January 29, 2004 the Company  entered  into a business  consulting  agreement
with an unrelated party for financial  advisory and investment  banking services
and issued the  consultant  50,000 shares of its common stock valued at $11,000.
The consultant will advise the Company as to issues of capital formation, assist
the  Company on the market  awareness  of its stock by setting up road shows and
will assist the Company in raising $300,000 through the issuance of common stock
at $.125 and warrants to purchase  1,200,000 shares of common stock  exercisable
at $.25 per share for five years.  Upon successful  closing of the above raising
of capital,  the Company will pay the consultant a cash fee commission of 10% of
the capital raised plus a cash non-accountable  expense allowance of 2.5% of the
capital raised.  In addition,  upon raising the capital,  the consultant will be
entitled to 300,000  warrants  with similar terms as those issued in the capital
raised. No capital has been raised as of June 30, 2004.

The Company was the plaintiff in litigation with one of its vendors.  During the
six months ended June 30, 2004 the Company entered into a judgment in which they
were ordered to pay the vendor  $5,356 with the amount due accruing  interest at
8% per annum.  As of June 30,  2004 the  Company had not paid any amount to this
vendor but has accrued  $5,437 at June 30, 2004.  Subsequent  to March 31, 2004,
the  Company  received  a Writ of  Garnishment  and are  expecting  to have  the
original  judgment  amount of $5,356  plus  interest  and other  charges of $181
garnished  from one of their bank  accounts.  Subsequent  to June 30,  2004 this
amount was garnished from the Company's bank account.

NOTE 11 - PURCHASE OF OHIO STREET PARTNERS, INC.

On June 10, 2004 the Company acquired Ohio Street  Partners,  Inc.  ("Ohio"),  a
Delaware   corporation  from  Data  Recovery   Continuum,   Inc.  ("DRCI").   As
consideration for all of the outstanding shares of the common stock of Ohio, the
Company  issued  1,920,000  shares of common stock valued at $211,200  (the fair
market value of the common stock on the date the  agreement was signed) and five
year warrants to purchase  960,000  shares of common stock at $.25 to DRCI.  The
warrants were valued at $63,360, the fair value using the Black-Scholes European
Pricing  Model.  The average risk free interest rate used was 3.96%,  volatility
was estimated at 93% and the expected life was five years. Ohio's sole asset was
a single-family  residential condominium located in San Diego,  California.  The
property is valued at $345,468  (based upon the common stock and warrants issued
and debt  assumed) and is subject to a mortgage of $71,297.  Subsequent  to June
30, 2004, in accordance  with the terms of the agreement,  the owner of DRCI was
appointed  to the Board of  Directors  of the  Company and as of August 9, 2004,
became the  Company's  Chief  Executive  Officer  and  Chairman  of the Board of
Directors (See Note 12).

As part of the  acquisition,  the  owner  of DRCI  loaned  the  Company  $75,000
evidenced  by a demand note (See Note 9). DRCI signed a  subscription  agreement
with the Company for the 1,920,000  shares of common stock issued.  The terms of
the stock  subscription  agreement provide that in the event the average closing
bid price of the common stock for the ten days  preceding the effective  date of
the  Registration  Statement  (to be filed) is $.17 or below,  then the purchase
price for the shares  shall be reset to a purchase  price  equal to the  average
price minus $.05,  provided  that the purchase  price is not less than $.065 per
share.  Upon the occurrence of the price  adjustment,  the Company will issue to
DRCI the additional  shares they are entitled to based upon the adjusted  price.
In  addition,  if the  Registration  Statement  (to be  filed)  is not  declared
effective on or before June 30, 2004,  then  commencing on the first day of each
month  thereafter  until December 1, 2004 or the declared  effective date of the
Registration  Statement,  the Company will issue DRCI,  as  liquidated  damages,
additional shares of common stock equal to 10% of the number of shares issued to
DRCI. (See Note 12)

NOTE 12 - SUBSEQUENT EVENTS

On July 16, 2004 the Company sold  400,000  shares of common stock under a stock
subscription   agreement  to  a  stockholder   at  $.125  per  share  for  total
consideration of $50,000.  The stockholder was also granted warrants to purchase
200,000 shares of common stock at $.25 per share for a period of five years. The
terms of the stock subscription agreements provide that in the event the average
closing bid price of the common stock for the ten days  preceding  the effective
date of the  Registration  Statement  (to be filed)  is $.17 or below,  then the
purchase  price for the shares  shall be reset to a purchase  price equal to the
average  price minus $.05,  provided  that the  purchase  price is not less than
$.065 per share. Upon the occurrence of the price  adjustment,  the Company will
issue to each  subscriber the additional  shares they are entitled to based upon
the adjusted price. In addition, if the Registration  Statement (to be filed) is
not declared  effective on or before  August 31, 2004,  then  commencing  on the
first day of each  month  thereafter  until  December  1,  2004 or the  declared
effective  date of the  Registration  Statement,  the  Company  will  issue each
subscriber,  as liquidated  damages,  additional shares of common stock equal to
10% of the number of shares purchased by each subscriber.


                                        9

<PAGE>

NOTE 12 - SUBSEQUENT EVENTS (CONTINUED)

On August 7, 2004 Ed Whelan resigned as the Company's  Chief  Executive  Officer
and Chairman of the Board of Directors.  Mr.  Whelan  entered into an agreement,
release and waiver.  In consideration  for his  resignation,  Mr. Whelan will be
paid  monthly in arrears  for a period of six months,  for the period  beginning
September 1, 2004 in restricted  shares of the Company's  common stock according
to the same  formula  he was paid  prior to his  resignation  (See Note 5).  Mr.
Whelan will also receive an equal  amount of five-year  warrants to purchase the
Company's common stock at $0.25 per share. The Company will pay for Mr. Whelan's
cost of healthcare  from September 1, 2004 to February 28, 2005. In addition Mr.
Whelan will be  reimbursed  $84,751  for  expenses  incurred by him  directly in
connection with his role and obligations as Chief Executive Officer and Chairman
of the Board,  payable  in equal  monthly  installments  by the  Company  over a
twenty-four  month period  beginning on September 30, 2004 and will be evidenced
by a promissory  note.  Mr.  Whelan will also receive as further  consideration,
two-year warrants to purchase 1,000,000 shares of common stock of the Company at
$0.25 per share and  two-year  warrants to purchase  1,000,000  shares of common
stock of the Company at $5.00 per share to be issued within 45 days of execution
of the agreement.

On August 7, 2004  Richard  Tannenbaum  resigned as both counsel to and from the
Company's Board of Directors. Mr. Tannenbaum entered into an agreement,  release
and waiver.  In consideration  for his resignation,  Mr. Tannenbaum will be paid
for past  services  rendered in the amount of $111,954  payable in equal monthly
installments  over the twenty-four  month period beginning on September 30, 2004
and will be evidenced by a promissory note. Mr.  Tannenbaum will also receive as
further  consideration,  two-year  warrants to purchase 400,000 shares of common
stock of the  Company  at $0.25 per  share and  two-year  warrants  to  purchase
1,000,000  shares of common stock of the Company at $5.00 per share to be issued
within 45 days of execution of the agreement.

In connection with the acquisition of Ohio Street Partners,  Inc., (See Note 11)
Mr. Lee Brukman was  appointed  to the  Company's  Board of Directors on July 6,
2004. On August 9, 2004 after the  resignation  by Ed Whelan as Chief  Executive
Officer and Chairman of the Board of Directors  and Richard  Tannenbaum as legal
counsel and member of the Board of Directors,  the Company appointed Lee Brukman
as Chairman of the Board of Directors and Chief Executive Officer.

Subsequent  to June 30, 2004  pursuant to their  stock  subscription  agreements
entered  into during the six months ended June 30, 2004 (See Notes 7 and 11) the
Company  issued 440,000 shares of common stock value at $61,600 (the fair market
value of the common stock on July 1, 2004) to several shareholders as liquidated
damages for the month of July 2004. In addition,  pursuant to the terms of their
stock  agreements  entered  into during  2003 and the six months  ended June 30,
2004,  the Company  should have issued an  additional  257,000  shares of common
stock  valued at $35,980  (the fair market  value of the common stock on July 1,
2004) to several additional  shareholders as liquidated damages for the month of
July 2004. Pursuant to the terms of the agreements, each shareholder is entitled
to ten percent of the original  shares  purchased  each month  beginning July 1,
2004 if the common  stock was not  registered  by June 30,  2004.  In  addition,
because the registration  statement has not been declared effective as of August
1, 2004, these same shareholders are entitled to an additional 697,000 shares of
common  stock  valued at $90,610  (the fair market  value of the common stock on
August 2, 2004) as liquidated damages for the month of August.


                                       10

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

GENERAL

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

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

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


                                       11


<PAGE>


RESULTS OF  OPERATIONS  - THREE  MONTHS  ENDED JUNE 30,  2004  COMPARED TO THREE
MONTHS ENDED JUNE 30, 2003

Revenues.  Total  revenue for the three months ended June 30, 2004 of $2,020,741
reflected  an increase of  $351,176,  or  approximately  21%,  compared to total
revenue of $1,669,565 for the three months ended June 30, 2003. 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 include (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.  The  increase in our total  revenues was
primarily due to the addition of the frozen chicken line of Tyson Foods, Inc. in
December 2003, a line of health and beauty aids  manufactured by Alberto Culver,
Inc. in January 2004 and a frozen  vegetable  line produced by VIP Sales Company
Inc. in January 2004, all of which we sell to commissaries on a resale basis.

Resale revenue for the three months ended June 30, 2004 of $1,859,784  reflected
an increase of $325,407,  or approximately 21.2%,  compared to resale revenue of
$1,534,377  for the three months ended June 30, 2003. For the three months ended
June 30,  2004,  approximately  50% of our gross  profit was derived  from sales
involving resale revenue  compared to  approximately  59.7% for the three months
ended June 30, 2003. The increase in resale revenue was  attributable  primarily
to addition of the suppliers discussed above. We cannot be certain as to whether
this trend will continue.  However, in the long term, we are seeking to increase
the  ratio  of our  sales of  products  sold on a resale  basis,  rather  than a
commission  basis,  because we believe we can increase our profitability on such
sales by  taking  advantage  of  payment  discounts  frequently  offered  by the
manufacturers  and  suppliers  of  such  products.   Provided  we  can  generate
sufficient cash from operations or financing  activities,  we intend to do so by
seeking to add new products that we can offer to  commissaries on a resale basis
from our existing manufactures and suppliers and from others with whom we do not
currently have a working relationship.

Commission  revenues  for the  three  months  ended  June 30,  2004 of  $160,957
reflected an increase of $25,679,  or approximately  19%, compared to commission
revenues of $135,188 for the three  months  ended June 30,  2003.  For the three
months  ended June 30, 2004,  approximately  50% of our gross profit was derived
from sales involving  commission revenues as compared to approximately 40.3% for
the three months ended June 30, 2003.  The increase in  commission  revenues was
attributable  primarily to a change in our supplier of fresh chicken products in
the third quarter of 2003 from Tyson Foods,  Inc.,  whose  products we sold on a
resale basis,  to ConAgra  Foods,  Inc.,  whose products we sell on a commission
basis.

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 three months ended June 30, 2004,  cost of goods sold
increased by $364,571, or approximately 27.3%, to $1,698,938 from $1,334,367 for
the three months ended June 30, 2003. This increase was  attributable  primarily
to  increased  sales of  products  that we sold on a resale  basis as  discussed
above.  We cannot be certain  as to  whether  or not this  trend will  continue;
however, in the long term we are seeking to increase the ratio of our sales on a
resale basis, as discussed above.

Gross Profit. Gross profit for the three months ended June 30, 2004 decreased by
$13,395,  or  approximately  4.2%,  compared to the three  months ended June 30,
2003, from $335,198 for the three months ended June 30, 2003 to $321,803 for the
three months ended June 30, 2004.


                                       12


<PAGE>


Operating  Expenses.  Total operating expenses aggregated $910,221 for the three
months  ended June 30, 2004 as compared to $823,271  for the three  months ended
June 30, 2003, representing a increase of $86,949, or approximately 10.6%.

Interest  Expense.  Interest  expense of $38,229 for the three months ended June
30, 2004  reflected  a decrease  of $59,682 as  compared to interest  expense of
97,911 for the three  months  ended June 30,  2003.  The  decrease  in  interest
expense was attributable  primarily to decreased interest expense resulting from
the recognition of the beneficial  conversion feature (the right to convert debt
into shares of our common  stock at a discount  to the fair market  value of our
common stock) of  convertible  promissory  notes.  We issued  $60,000  aggregate
principal amount of convertible  promissory notes in the three months ended June
30, 2003, but did not issue any convertible notes in the three months ended June
30, 2004

Net Loss.  Primarily as a result of the increased  operating  expenses discussed
above,  we incurred a net loss of $626,647  for the three  months ended June 30,
2004 as compared to a net loss of $585,984  for the three  months ended June 30,
2003.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003

Revenues.  Total  revenue for the six months  ended June 30, 2004 of  $4,155,717
reflected an increase of $727,189,  or  approximately  21.2%,  compared to total
revenue of $3,428,528 for the six months ended June 30, 2003.

Resale revenue for the six months ended June 30, 2004 of $3,821,328 reflected an
increase of $674,354,  or  approximately  21.4%,  compared to resale  revenue of
$3,146,974 for the six months ended June 30, 2003. For the six months ended June
30,  2004,  approximately  50.4% of our gross  profit  was  derived  from  sales
involving  resale  revenue  compared to  approximately  51.6% for the six months
ended June 30, 2003. The increase in resale revenue was  attributable  primarily
to addition of the suppliers discussed above. We cannot be certain as to whether
this trend will continue.  However, in the long term, we are seeking to increase
the  ratio  of our  sales of  products  sold on a resale  basis,  rather  than a
commission  basis,  because we believe we can increase our profitability on such
sales by  taking  advantage  of  payment  discounts  frequently  offered  by the
manufacturers  and  suppliers  of  such  products.   Provided  we  can  generate
sufficient cash from operations or financing  activities,  we intend to do so by
seeking to add new products that we can offer to  commissaries on a resale basis
from our existing manufactures and suppliers and from others with whom we do not
currently have a working relationship.

Commission revenues for the six months ended June 30, 2004 of $334,389 reflected
an increase of $52,835, or approximately 18.8%,  compared to commission revenues
of $281,554  for the six months  ended June 30,  2003.  For the six months ended
June 30,  2004,  approximately  49.6% of our gross profit was derived from sales
involving  commission  revenues as compared to  approximately  48.4% for the six
months ended June 30, 2003. The increase in commission revenues was attributable
primarily  to a change in our  supplier of fresh  chicken  products in the third
quarter of 2003 from  Tyson  Foods,  Inc.,  whose  products  we sold on a resale
basis, to ConAgra Foods, Inc., whose products we sell on a commission basis.

Cost of Goods Sold.  Cost of goods sold for the six months  ended June 30, 2004,
cost of goods sold increased by $634,806,  or approximately 22.3%, to $3,481,499
from  $2,846,693  for the six months  ended June 30,  2003.  This  increase  was
attributable  primarily to increased  sales of products that we sold on a resale
basis as discussed  above.  We cannot be certain as to whether or not this trend
will continue; however, in the long term we are seeking to increase the ratio of
our sales on a resale basis, as discussed above.

Gross Profit.  Gross profit for the six months ended June 30, 2004  increased by
$92,383, or approximately 15.9%, compared to the six months ended June 30, 2003,
from  $581,835  for the six months  ended June 30, 2003 to $674,218  for the six
months ended June 30, 2004.


                                       13


<PAGE>


Operating Expenses.  Total operating expenses aggregated  $1,721,341 for the six
months  ended June 30, 2004 as compared to  $1,435,218  for the six months ended
June 30, 2003, representing an increase of $286,123, or approximately 19.9%.

Interest Expense.  Interest expense of $95,336 for the six months ended June 30,
2004 reflected a decrease of $137,960 as compared to interest expense of 233,296
for the six months ended June 30, 2003.

Net Loss.  Primarily as a result of the increased  operating  expenses discussed
above,  we incurred a net loss of  $1,142,459  for the six months ended June 30,
2004 as compared to a net loss of  $1,086,679  for the six months ended June 30,
2003.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2004,  we had a cash balance of $6,277.  Since 2001,  we have funded
our  operations  primarily  from the sale of  common  stock  and  borrowings  of
approximately  $850,000  through the  issuance of demand  notes and  convertible
notes bearing interest at either 8% or 9% per annum and having original maturity
dates of three to five months following the date of issuance of such convertible
notes.  At June 30, 2004, none of such demand notes was outstanding and $585,000
aggregate  principal  amount of  convertible  notes were  outstanding,  of which
$520,000 aggregate  principal amount mature on or about June 3, 2006 and $65,000
aggregate  principal  amount  have  matured  but have not yet  been  paid.  Such
convertible  notes require us to register  under the  Securities Act of 1933 the
shares our common stock issuable upon conversion of such convertible  notes. The
terms of our convertible  notes provide  generally that the holders may convert,
at any time and from time to time, all or a portion of the  outstanding  balance
under  each  convertible  note  into a number  of  shares  (subject  to  certain
anti-dilution adjustments) of our common stock that will allow the noteholder to
receive  common  stock  having a  market  value  equal to 150% of the  converted
balance of the note. To achieve this result,  the conversion price of such notes
has been initially set at $0.25;  provided,  that the closing price per share of
our common stock as reported on the OTC Bulletin Board on the date of conversion
is at least  $0.375 per share.  If such  closing  price is less than  $0.375 per
share, the conversion price shall be proportionately reduced, but in no event to
a conversion  price that is less than $0.25 per share,  to permit the noteholder
to receive the number of shares discussed above.

Our current cash levels, together with the cash flows we generate from operating
activities, are not sufficient to enable us to execute our business strategy. As
a result, we intend to seek additional capital through the sale of shares of our
common  stock.  In December  2001,  we filed with the  Securities  and  Exchange
Commission  a  registration  statement  relating  to such shares for gross sales
proceeds  of up to  $5,000,000.  Such  registration  statement  has not yet been
declared  effective,  and  there can be no  assurance  that the  Securities  and
Exchange  Commission will declare such registration  statement  effective in the
near future,  if at all. In the interim,  we intend to fund our operations based
on our cash position and the near term cash flow generated from  operations,  as
well as additional  borrowings and the sale of unregistered shares of our common
stock in private  placements  to accredited  investors.  In the six months ended
June 30,  2004,  we sold and  issued  shares of our common  stock to  accredited
investors for aggregate gross proceeds of $547,500.  Such proceeds were used for
the repayment of current liabilities and for working capital purposes.

In the event we are able to generate  sales proceeds of at least $750,000 in our
proposed  public  offering,  we  believe  that the net  proceeds  of such  sale,
together with anticipated revenues from sales of our products,  will satisfy our
capital requirements for at least the next 12 months.  However, we would require
additional  capital  to  realize  our  strategic  plan  to  expand  distribution
capabilities and product  offerings.  These conditions raise  substantial  doubt
about our ability to continue as a going concern.  Our actual financial  results
may  differ  materially  from the stated  plan of  operations.  Our  independent
auditors have indicated in its report on our 2003 financial  statements that our
recurring losses from operations and our  difficulties in generating  sufficient
cash flow to meet our obligations and sustain our operations  raise  substantial
doubt about our ability to continue as a going concern.  Such  qualification may
hinder our  ability to raise or obtain the capital we require or have an adverse
impact on the terms upon which we are able to attract or obtain such capital. In
addition,  such  qualification  may adversely  impact our ability to attract and
maintain new customer accounts.

Assuming  that we receive net  proceeds of at least  $750,000  from our proposed
offering (of which there can be no assurance), we expect capital expenditures to
be  approximately  $100,000  during  the  next  12  months,  primarily  for  the
acquisition of an inventory  control system and a web-based  marketing  software
program.  It is expected that our principal uses of cash during that period will
be to  provide  working  capital,  to  finance  capital  expenditures,  to repay
indebtedness  and for other  general  corporate  purposes,  including  sales and
marketing  and  new  business  development.  The  amount  of  spending  for  any
particular  purpose is  dependent  upon the total cash  available  to us and the
success of our public offering of common stock.


                                       14


<PAGE>


At June 30,  2004,  we had liquid  assets of  $705,466,  consisting  of cash and
accounts  receivable  derived  from  operations,  and  other  current  assets of
$617,554,  consisting  primarily  of  inventory  of  products  for  sale  and/or
distribution  and  prepaid  expenses.  Long term  assets of  $577,378  consisted
primarily of warehouse equipment used in operations, the investment property and
the long-term portion of prepaid interest.

Current  liabilities  of  $2,734,874  at June 30, 2004  consisted  primarily  of
$2,412,207 of accounts  payable and accrued  expenses,  including  related party
amounts.

Our working  capital  deficit was $1,411,854 as of June 30, 2004 for the reasons
described above.

During  the three  months  ended  June 30,  2004,  we used cash of $ 438,650  in
operating  activities,  primarily as a result of the net loss we incurred during
this period.

During  the three  months  ended June 30,  2004,  we used net cash of $ 9,459 in
investing activities, all of which was used for capital expenditures.

Financing  activities,  consisting  primarily  of  proceeds  from  the  sale and
issuance of shares of our common stock, provided net cash of $451,524 during the
three months ended June 30, 2004.

OFF BALANCE SHEET ARRANGEMENTS

At June 30, 2004,  we had no  off-balance  sheet  arrangements  that had or were
reasonably likely to have a current or future effect on our financial condition,
changes in financial  condition,  revenues or expenses,  results of  operations,
liquidity,  capital  expenditures or capital  resources that are material to our
stockholders.


                                       15


<PAGE>


ITEM 3. CONTROLS AND PROCEDURES

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

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


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<PAGE>


                           PART II. OTHER INFORMATION

ITEM 2. CHANGES IN  SECURITIES  AND SMALL  BUSINESS  ISSUER  PURCHASES OF EQUITY
        SECURITIES

(c)  Recent Sales of Unregistered Securities.

(i)  In the three  months  ended  June 30,  2004,  we issued to  investors  in a
private  placement  investment  units  consisting  of an  aggregate of 1,920,000
shares of our common  stock and  five-year  warrants to purchase an aggregate of
960,000  shares of our common stock at $0.125 per share for gross proceeds to us
of $360,000.  In connection with such issuances,  we granted registration rights
to such  investors.  Such shares and warrants  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 and such persons were "accredited investors" as defined in Regulation D
under the Securities Act of 1933, as amended.

(ii) In the three months ended June 30, 2004,  we issued an aggregate of 200,000
shares of our common  stock and five year  warrants to purchase an  aggregate of
200,000  shares  of our  common  stock at $0.125 to a  consultant  for  business
consulting services to be rendered to the Company, which services were valued at
$49,000 in the aggregate. 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.

(iii)In the three months ended June 30, 2004,  we issued  247,560  shares of our
common  stock and  five-year  options to purchase  247,560  shares of our common
stock at $0.25 per share to our Chief  Executive  Officer for services  rendered
during  the  three  months  ended  June 30,  2004  pursuant  to the terms of his
employment  arrangement.  The services were valued at $72,000.  Such shares were
issued in reliance upon the exemption from registration provided by Section 4(2)
of the Securities  Act of 1933, as amended,  on the basis that such issuance did
not involve a public  offering,  no underwriter fees or commissions were paid in
connection  with such issuance and such person was an  "accredited  investor" as
defined in Regulation D under the Securities Act of 1933, as amended.


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<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.  The following  exhibits are filed herewith or are incorporated by
reference to Exhibits previously filed.

                                  EXHIBIT INDEX



EXHIBIT NO.   DESCRIPTION
-----------   -----------

10.1          Agreement, Realease & Waiver, dated August 5, 2004, between
              Edward Whelan and the Company.

10.2          Agreement, Realease & Waiver, dated August 7, 2004, between
              Richard Tanenbaum and the Company.

31.1          Certification of our Principal Executive Officer, Lee Brukman,
               pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

32.1          Certification of our Principal Executive Officer, Lee Brukman,
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

(b)   Reports on Form 8-K.

      On June 29, 2004 we filed a current report on Form 8-K providing a copy of
      the transcript from management's  teleconference  presentation on June 21,
      2004

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<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 August 10, 2004.

                                      MILITARY RESALE GROUP, INC.



                                      By: /s/ Ethan D. Hokit
                                        -------------------------
                                        Name:  Ethan D. Hokit
                                        Title: President
                                               (Principal Accounting Officer
                                                and Principal Financial Officer)



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