MR3 Systems says investor failed to make final payment in $1 million convertible preferred offering

By Sheri Kasprzak

New York, Dec. 9 - MR3 Systems, Inc. said it is in negotiations with MRD Holdings Inc., the investor in a $1 million convertible preferred deal completed back in June.

MR3 alleges that MRD failed to make a final payment of $184,000 on the deal and has not yet exercised its option to buy $4.5 million in notes or preferred stock as required upon the achievement of certain milestones.

"The company has received in excess of $800,000 pursuant to the [stock purchase and loan option agreement] with the final payment approximating $184,000 having been due on or about Aug. 1, 2005," said an 8-K that MR3 filed with the Securities and Exchange Commission. "On Nov. 8, 2005, the company issued a notice of 'demand for payment' to MRD in connection with MRD's failure to make payment of the final $184,000 due under the SPLOA."

MR3 said in the 8-K that it issued another notice to MRD on Nov. 10, demanding payment by close of business Nov. 11. That deadline, the company says, was extended to Nov. 17.

On Nov. 22, MR3 says it issued a notice of default to MRD.

Under the terms of the offering, MRD agreed to buy 400,000 shares of series B convertible preferred stock at $2.50 each and also agreed to buy up to $4.5 million in either notes or preferreds upon MR3's successful completion of certain milestones.

The option was to be funded in three tranches due on Oct. 28, Nov. 28 and Dec. 9. None of those payments has been made, MR3 alleges.

"The company is presently seeking redress on these financing matters through further negotiation with MRD," MR3 said in the 8-K. "The company has advised MRD that MR3 will hold its aforementioned notice of default in abeyance until the principals of the two companies have an opportunity to meet to negotiate reconciliation of outstanding issues. The company reserves the right to take appropriate legal action if necessary to resolve the dispute.

"Management acknowledges that the circumstances leading up to the deadlock in the continued infusion of capital into the company pursuant to the aforementioned agreements are presently in dispute between the parties."

Based in San Francisco, MR3 extracts metals from metal-based source materials.

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