This is a neutral area, so no one can attack you unless you attack first. Just keep going right until you find a door and enter it. In the first door you find a free bullet and in the second you find the flare bombs. You can use the grapple arm to get them from across the spikes. After that, go left until you go off the screen to end the area.
Now you should have some life circles, so it's time to go and get some continues. If you don't, you will not be able to continue when your lives run out.
The continues are available on the stages found by descending on the green trucks that roam the board. There are two types of stages. On the first, you will get the continues (they look like a white bird insignia) by killing the enemy soldiers that have shields. On the other, you get them by destroying the jeeps. Get at least four continues (you can go back and get more as needed) and then proceed to Area 4.