MR3 Systems Inc – ‘10KSB/A’ for 12/31/02

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Amendment to Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB/A     Amendment to Annual Report -- Small Business          86    428K 
 2: EX-10.11    Material Contract                                      2     13K 
 3: EX-23.1     Consent of Experts or Counsel                          1      6K 

10KSB/A   —   Amendment to Annual Report — Small Business
Document Table of Contents

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

 FORM 10-KSB-A
--------------------------------------------------------------------------------
 Amendment no. 1

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

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

 Commission File Number: 000-32343

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

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

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

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

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

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

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

Check whether the issuer (1) filed all reports required to be filed by Section  
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter  
period that the registrant was required to file such reports), and (2) has been 
subject to such filing requirements for the past 90 days. Yes [ ] No [X ]       

Check if there is no disclosure of delinquent filers in response to Item 405 of 
Regulation S-B contained in this form, and no disclosure will be contained, to  
the best of registrant's knowledge, in definitive proxy or information          
statements incorporated by reference in Part III of this Form 10-KSB or any     
amendment to this Form 10-KSB. [X]                                              

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

State the aggregate market value of the voting stock held by non-affiliates     
computed by reference to the price at which the stock was sold, or the average  
bid and asked prices of such stock, as of a specified date within the past 60   
days. $6,799,212 (Based on price of $0.36 per share on October 31, 2003)        

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

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

DOCUMENTS INCORPORATED BY REFERENCE                                             

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

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 MR3 Systems, Inc.

 TABLE OF CONTENTS

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

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

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

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

 PART II

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

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

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

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

PART III

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

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

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

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

 PART IV

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

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

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

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

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

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

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PART I

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

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

ITEM 1.  DESCRIPTION OF BUSINESS                                                

Business Development                                                            

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

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

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

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

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

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

Principal Product and Services                                                  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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MR3 Technology                                                                  

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

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

General Overview                                              

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

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

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

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

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

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

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

Development of MR3 Media                    

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

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

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

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

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

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

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

Potential Applications                      

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

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

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Technical Specifications                    

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

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

Related Markets                                                                 

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

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

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

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

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Current Operations                                                              

MR3 Processing Facilities                                                       

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

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

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

Consolidated Empire Gold                                      

    On June 18, 2002, the Company entered into a MR3 Metals Extraction
Agreement with Consolidated Empire Gold, Inc. ("Empire Gold"), of Evergreen,    
Colorado, an unrelated party, to process gold from the gold tailings and dumps  
located at Grace Gold Mine Complex in Empire, Colorado. On October 23, 2002, the
Company signed an amended agreement with Empire Gold, which replaced the prior  
agreement, to expand its initial gold extraction agreement to include the       
exclusive processing of their additional gold ore at the Empire Complex,        
estimated to contain over 1,000,000 ounces of gold. Estimates of gold amounts at
the Empire Mine site are based on the results of ore drilling programs conducted
by independent third parties to a depth of 500 feet below the surface in the    
1980-1989 timeframe.                                                            

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

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

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

Linsa Joint Venture                         

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

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

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

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

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

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

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

Competition                                                                     

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

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

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

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

Intellectual Property                                                           

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

Research and Development                                                        

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

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

Government Regulation                                                           

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

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

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

Compliance with Environmental Laws                                              

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

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

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

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

Patents, Trademarks and Other Licenses                                          

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

Royalty or Revenue Sharing Agreements                                           

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

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

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

Employees                                                                       

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

Financial and Public Relations                                                  

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

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

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

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Risk Factors Relating to the Company's Business                                 

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

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

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

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

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

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

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

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Loss of key personnel may negatively affect the Company       

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

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

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

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

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

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

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

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

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

Limited Public Market for the Common Stock                    

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

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

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

ITEM 2.  PROPERTIES                                                             

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

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

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

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

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

ITEM 3.  LEGAL PROCEEDINGS                                                      

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

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

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

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 PART II

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

Market Information                                                              

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

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

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

                June 30, 2001                   $  0.19          $  0.05

                September 30, 2001              $  0.22          $  0.05

                December 31, 2001               $  0.22          $  0.05

2002             March 31, 2002                  $  0.20          $  0.02 

                June 30, 2002                   $  0.32          $  0.04

                September 30, 2002              $  0.28          $  0.10

                December 31, 2002               $  0.36          $  0.12

2003             March 31, 2003                  $  0.26          $  0.09 

                June 30, 2003                   $  0.28          $  0.11

                September 30, 2003              $  0.33          $  0.17

                Through December 8, 2003        $  0.50          $  0.22

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

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

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

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

Record Holders                                                                  

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

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

Dividends                                                                       

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

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Equity Compensation Table                                                       

     The following table provides information about the Company's common
stock that may be issued upon the exercise of options, warrants and rights under
all of the Company's equity compensation plans as of December 31, 2002. As of   
the end of fiscal year 2002, the Company had not adopted any formal equity based
compensation plan for the benefit of employees and/or non-employees. All        
securities noted in the table below resulted from individual compensation       
arrangements with employees, consultants or advisors.                           

                                                        [Enlarge/Download Table]


                      EQUITY COMPENSATION PLAN INFORMATION                                                

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

                                              (a)                    (b)                     (c)          
                                                                                                          
Equity compensation plans                     -0-                    -0-                     -0-          
approved by security holders                                                                              
Equity compensation plans not             17,270,305               $ 0.086                   -0-          
approved by security holders                                                                              
Total                                     17,270,305               $ 0.086                   -0-          

Recent Sales of Unregistered Securities                                         

Funding and Dilutive Instruments                              

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

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

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

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

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

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

Fiscal Year 2002 Stock Issuances                              

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

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

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

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

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

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

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

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

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

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

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

Overview                                                                        

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

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

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

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

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

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

Results of Operations                                                           

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

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

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

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

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

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

      The Company recorded an extraordinary expense item of $202,907 under
operating expenses for 2002. The expense item related to the valuation of       
property and equipment in light of the closure of the Company's Butte, Montana  
facility. Some equipment was designated for sale, while other equipment and     
property were scheduled for transfer to Lakewood. Upon review of the state of   
the property and equipment, it was determined that certain MR3 manufacturing    
property and equipment were impaired, as determined based on the quoted market  
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equipment was written down and an impairment loss in the amount of $202,907 was 
included in operating expenses during the year ended December 31, 2002. There   
was no such write down of property and equipment in 2001.                       

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

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

Net Operating Losses                                                            

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

Liquidity and Capital Resource                                                  

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

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

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

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

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

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

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

Plan of Operation                                                               

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

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

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

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

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

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

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

      The Company's licensing activities are directed toward three primary
sectors--Mining, Industrial and Environmental. The Company's direct effort in   
identifying mining related prospects has yielded numerous interested parties.   
The Company's preliminary strategy is to price its licensing fees in the range  
of $3 million for an initial site master license with an option to expand to    
additional site licenses at $1 million each. The design of the MR3 System lends 
itself to be scalable without material difficulty. The Company will supply the  
initial materials and provide for recurring materials (equipment, reagents, and 
media) to the licensee at its cost plus a reasonable markup. In addition, the   
Company will also likely provide technical consulting services, over and above  
normal services in line with the original license, at a predetermined price to  
the licensee. The Company further expects to charge a negotiated percentage of  
the precious metals extracted from the concentrates as well as a monthly fee    
related to the licensee savings in capital and operating costs from their normal
operations. Management believes that it has a reasonable probability of         
negotiating a license sale by first quarter 2004, but makes no assurance that it
will do so by that time. In addition, management recognizes that it may be      
required to adjust its pricing strategy for its licensing product due to market 
demand and other economic considerations.                                       

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Effects of Inflation                                                            

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

Recent Accounting Pronouncements                                                

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

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

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

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

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

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

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

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                            

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

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

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

PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                     

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Other Senior Management, Significant Persons and Contributors 

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

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

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

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Section 16(a) Beneficial Ownership Reporting Compliance                         

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

Audit Committee                                                                 

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

ITEM 10. EXECUTIVE COMPENSATION                                                 

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

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                                                        [Enlarge/Download Table]

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

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

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

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

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

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

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

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                                                        [Enlarge/Download Table]

                      Option/SAR Grants in Last Fiscal Year                              

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

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

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

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

 Aggregated Option Exercises in Last Fiscal Year

 None exercised.

Employment Agreements                                                           

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

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

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

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

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

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT         

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

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

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

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

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

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

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

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

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

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

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

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

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

* Director and/or executive officer or executive management             

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         

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

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

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

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

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

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

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

 PART IV

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

21.1     Subsidiary of the Company(2)                                           

23.1     Consent of Pohl, McNabola, Berg & Company                              

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

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

Reports on Form 8-K                                                             

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

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ITEM 14. CONTROLS AND PROCEDURES                                                

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

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

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SIGNATURES

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

                           MR3 Systems, Inc.

Date:  December 11, 2003                                                        
                                 By: /s/ RANDALL S. REIS
                                                 -------------------------------
                                 Randall S. Reis
                                       Chairman of the Board

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

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

/s/ RANDALL S. REIS               Chairman of the Board        December 11, 2003
--------------------------                                                      
Randall S. Reis                                                                 

/s/ BRADLEY N. ROTTER             Chief Executive Officer      December 11, 2003
--------------------------        and Director                                  
Bradley N. Rotter                                                               

/s/ JOHN K. BURNS                 President and Director       December 11, 2003
--------------------------                                                      
John K. Burns                                                                   

/s/ GARY ABREIM                   Chief Financial Officer      December 11, 2003
--------------------------                                                      
Gary Abreim                                                                     

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Bradley N. Rotter, certify that:                                             

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

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

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

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

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

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

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

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

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

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

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

                               /s/ BRADLEY N. ROTTER
                                             -----------------------------------
Date: December 11, 2003                      Bradley N. Rotter                  
                                 Chief Executive Officer

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CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Gary Abreim, certify that:                                                   

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

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

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

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

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

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

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

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

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

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

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

                         /s/ GARY ABREIM
                                             -----------------------------------
Date: December 11, 2003                      Gary Abreim                        
                                 Chief Financial Officer

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MR3 SYSTEMS, INC

FINANCIAL STATEMENTS

 DECEMBER 31, 2002, 2001, AND 2000

 C O N T E N T S

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

Report of Independent Certified Public Accountants                 F-1  

Balance Sheets                                                     F-2  

Statements of Operations                                           F-3  

Statements of Shareholders' Equity                                 F-4  

Statements of Cash Flows                                     F-5 - F-6  

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

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders                                             
MR3 Systems, Inc                                                                

We have audited the balance sheets of MR3 Systems, Inc, as of December 31, 2002,
2001 and 2000, and the related statements of operations, shareholders' equity   
and cash flows for the years then ended. These financial statements are the     
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements based on our audits.                      

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

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

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

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

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

                                                        [Enlarge/Download Table]

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

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

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

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

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

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

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

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

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

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

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

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

         TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                                                      
                                                                  $   239,022   $   343,476   $   422,166 
                                                                  ===========   ===========   =========== 

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

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

                                                        [Enlarge/Download Table]

                                                 2002           2001           2000     
                                             ------------   ------------   ------------ 
                                                                                        
Income                                                                                  
  Sales                                      $         --   $     57,749   $    130,566 
  Cost of goods sold                               87,802        387,635        288,267 
                                             ------------   ------------   ------------ 

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

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

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

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

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

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

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

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

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

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

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

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

                                                        [Enlarge/Download Table]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                        [Enlarge/Download Table]

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

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

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

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

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

       Net cash provided by financing activities       $   333,981   $   663,385   $ 1,157,469 
                                                       -----------   -----------   ----------- 

 (continued)

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

 F-5

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

                                                        [Enlarge/Download Table]

                                                          2002          2001          2000    
                                                       -----------   -----------   -----------
                                                                                              
        Increase (decrease) in cash and                                                       
        short-term investments                         $    12,441   $    (3,146)  $     2,263
                                                       -----------   -----------   -----------

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

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

Supplemental disclosures:                                                                     

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

Supplemental Schedule of Non-Cash Investing and Financing Activities:                         

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

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

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

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

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

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

    Conversion of Accounts payable into Note Payable   $        --   $        --   $    84,254
                                                       ===========   ===========   ===========

Dividend-in-kind:                                                       
    During the year ended December 31, 2000, the net assets of the Company's
  discontinued division, Airponic Growing Systems, of $164,296 have been
charged to the Company's accumulated deficit.                       

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Use of estimates                                                                
----------------                                                                

The preparation of financial statements in conformity with generally accepted   
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosures of    
contingent assets and liabilities at the date of the financial statements, as   
well as the reported amounts of revenues and expenses during the reporting      
period. Significant estimates include reserve for obsolete inventory, and       
depreciation. Actual results could differ from those estimates.                 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Inventory                                                                       
---------                                                                       

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

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

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

Computer and manufacturing equipment       5-10 years     

Office furniture and fixtures              3-7 years      

Building and improvements                  3-25 years     

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                                    2002
                                                                    ----------

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

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

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

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

                                                                    2001
                                                                    ----------

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

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

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

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

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

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

                                                                    2000
                                                                    ----------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                        [Enlarge/Download Table]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                        [Enlarge/Download Table]

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

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

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

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

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

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

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

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

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

Year ended December 31, 2001:                               

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

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

Year ended December 31, 2002:                               

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

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

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

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

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

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

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

Independent Consultant Stock Options and Warrants                               

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

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

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

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

                                                        [Enlarge/Download Table]

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

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

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

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

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

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

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

                       22,826,898                         $   0.11          22,826,898       $   0.11 
                   ==================                    ==========  =====================  ==========

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

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

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

                                                        [Enlarge/Download Table]

                           Warrants and Options Outstanding          Warrants and Options Exercisable 
                   ------------------------------------------------  ---------------------------------
                                           Weighted                                                   
                                           Average        Weighted                           Weighted 
                         Number           Remaining       Average           Number           Average  
    Range of        Outstanding as of    Contractual      Exercise     Exercisable as of     Exercise 
 Exercise Prices    December 31, 2001        Life          Price       December 31, 2002      Price   
-----------------  ------------------   --------------   ----------  ---------------------  ----------
                                                                                                      

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

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

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

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

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

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

                       14,965,657                         $   0.29          14,965,657       $   0.29 
                   ==================                    ==========  =====================  ==========

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

                                                        [Enlarge/Download Table]

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

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

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

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

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

                       11,299,090                         $   0.35          11,299,090       $   0.35 
                   ==================                    ==========  =====================  ==========

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

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

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

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

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

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

                                                        [Enlarge/Download Table]

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

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

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

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

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

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

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

Options and warrants repricing                                                  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Employment Agreements                                                           

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

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

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

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

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

Employment Agreements (continued)                                               

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

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

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

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

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

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

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

F-35

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB/A’ Filing		Date		First		Last			Other Filings
		10/1/07		69
		12/31/06		18
		10/30/06		22
		3/1/06		7		84
		9/30/04		21		75			10QSB
		12/31/03		18					10KSB
Filed on:		12/12/03
		12/11/03		48		50
		12/8/03		23
		12/1/03		52					3
		11/30/03		7
		11/24/03		7		84
		11/1/03		7		84
		10/31/03		1		43
		10/21/03		13		46
		10/14/03		7		84
		10/8/03		35
		9/30/03		23					10QSB,  10QSB/A
		8/19/03		46					10KSB,  3/A,  4
		8/8/03		34
		6/30/03		23					10QSB,  10QSB/A
		6/14/03		44
		6/13/03		45
		5/6/03		46
		5/1/03		6		46
		4/1/03		36		45			3
		3/31/03		23					10QSB,  10QSB/A
		3/20/03		52
		3/15/03		34
		2/15/03		21		83
		1/23/03		14
		1/15/03		40
		1/1/03		45					3
For Period End:		12/31/02		1		86			10KSB,  10KSB/A
		12/13/02		46
		10/28/02		46
		10/23/02		12		58
		10/1/02		21		75
		9/30/02		23
		6/30/02		23
		6/18/02		6		12
		6/15/02		33		65
		4/10/02		13		46
		3/31/02		23
		1/12/02		35
		1/1/02		33		65
		12/31/01		21		86			10KSB,  10KSB/A
		12/15/01		33		65
		9/30/01		23
		7/1/01		33		65
		6/30/01		23		65
		6/1/01		44
		3/31/01		23
		2/12/01		45		46			10SB12G
		12/31/00		30		86
		7/1/00		78
		6/8/00		45
		5/8/00		4
		4/29/00		4		66
		4/28/00		4		45
		3/31/00		3		58
		3/6/00		3		58
		1/31/00		4		73
		1/12/00		78
		12/31/99		86
		10/19/99		42		44
		10/8/99		23
		6/8/99		3		58
		2/19/99		18
		12/15/98		78
		10/7/97		3		58
		10/3/97		45
		2/26/97		3		45
		7/5/96		83
		3/9/92		3		45
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