SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000        Commission file No. 000-28515
                                       OR

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

                          IN STORE MEDIA SYSTEMS, INC.
                          ----------------------------
        (Exact name of small business issuer as specified in its Charter)

           NEVADA                                                84-1249735
-------------------------------                                  ----------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

15423 EAST BATAVIA DRIVE, AURORA, COLORADO                           80011
------------------------------------------                           ------
(Address of principal executive offices)                            (Zip Code)

                                 (303) 364-6550
                         ------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:  None

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                               YES [X] NO [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference of Part 111 of this Form 10-K, or any
amendment to this Form 10-K. [X]

         On March 30, 2001, the Registrant had 31,469,312 shares of common
voting stock held by non-affiliates. The aggregate market value of shares of
common stock held by non-affiliates was $39,336,640 on this date. This
valuation is based upon the average of the high and low prices for shares of
common voting stock of the Registrant on the "Electronic Bulletin Board" of the
National Association of Securities Dealers, Inc. ("NASD") on March 30, 2001.

         On March 30, 2001, the issuer had 60,482,931 shares of its no par value
common stock outstanding.


<PAGE>

                                     PART I

ITEM 1 - BUSINESS
-----------------

         Our business is subject to certain risks and uncertainties that are
discussed in the section entitled "Business Risks" below.

Forward Looking Statements

         This Annual Report on Form 10-K includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. This
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves so long as they
identify these statements as forward looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements other than statements of
historical fact, including statements regarding industry prospects and future
results of operations or financial position, made in this Annual Report on Form
10-K are forward looking. We use words such as "anticipates," "believes,"
"expects," "future" and "intends" and similar expressions to identify
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. The Company's actual results
may differ significantly from management's expectations. The following
discussion includes forward-looking statements regarding expectations of future
profitability of our business, gross margin, improvement in operating loss and
sales, all of which are inherently difficult to predict. Actual results could
differ significantly for a variety of reasons, including the accessibility to
additional capital, the rate of growth and consumer acceptance of the Internet
and online commerce, the amount that the Company invests in new business
opportunities and the timing of those investments, customer spending patterns,
the mix of products sold to customers, the mix of revenues derived from product
sales as compared to services, and risks of fulfillment throughput and
productivity. These risks and uncertainties, as well as other risks and
uncertainties, could cause the Company's actual results to differ significantly
from management's expectations

GENERAL

         In Store Media Systems, Inc., a Nevada corporation (the "Company" or
"ISMSI"), has its corporate offices at 15423 East Batavia Drive, Aurora,
Colorado 80011. The Company is a development stage enterprise that is
developing, and plans to manufacture and distribute, its in-store, closed-loop
couponing system, which incorporates the Company's patent pending process for
electronically clearing cents-off coupons redeemed by consumers at supermarkets
and other retail locations. The Company also has developed a system for
dispensing coupons to supermarket and other retailer consumers through its
patented Coupon Exchange Center(TM), which is added on to the Company's
electronic coupon clearing systems. When used at participating retailers, the
coupon clearing systems will validate each coupon to the product purchased, will
provide daily reimbursement to the retailer for discounts given consumers and
will relieve retailers of the responsibility of handling and shipping coupons.
The clearing systems are also expected to provide manufacturers with extremely
current and accurate coupon promotion data and sharply reduce occurrences of
coupon misredemption that costs coupon issuing manufacturers hundreds of
millions of dollars annually. Manufacturers also use coupon redemption
information including, in some cases customer's identity, to "close the loop" by
adjusting their next coupon promotion incentive. The Coupon Exchange Center is
expected to offer a way to "close the loop" because manufacturers can react
overnight to redemption information, modify their promotion accordingly and
download the revised promotion to specific Coupon Exchange Centers via the
Internet. When the Coupon Exchange Center, in-store coupon distribution system
is available for use by consumers, they will receive InstaCash(TM) coupons that
are redeemed for instant cash rebates at the checkout lane when consumers
purchase the specified products. Each InstaCash Coupon will be registered
electronically using the Company's electronic coupon clearing systems and
usually contains specific household identifiers.

                                      -2-
<PAGE>
         To date, the Company has been primarily engaged in developing its
technology, securing patent protection, formulating its business strategy,
raising initial capital and developing necessary relationships with third
parties, such as supermarkets, packaged goods manufacturers and others, such as
Unisys Corporation, in connection with the manufacture of the hardware and
systems incorporated into the Company's product line. We regard these
relationships as necessary, since further development of our systems and
products, their introduction to the market and their acceptance by consumers
will require the assistance and participation of these and other participants in
the coupon industry.

         In December 1992, In Store Media Systems, Inc., a Colorado corporation
and a predecessor to the Company (the "Predecessor") was organized to develop a
computerized, point-of-sale marketing platform, the Coupon Exchange Center,
which incorporates certain components that are proprietary to the Company.
Point-of-sale ("POS") system is a commonly used term used to describe the system
through which stores record product sales and accept payment through terminals
located in each checkout lane of a supermarket. The heart of the POS system is
the store's central computer, which can be used to record the details of every
transaction.

         The Company believes that its Coupon Exchange Centers offer numerous
advantages over existing methods of delivering promotions for consumer products.
In the course of developing the Coupon Exchange Center, the Company also has
developed a stand-alone electronic coupon clearing system for installation and
use at supermarket checkout lanes. The Company has conducted market research and
completed over 30 field interviews with key industry participants, including
representatives from Proctor & Gamble, Coca-Cola, Ralston Purina, Brown &
Williamson, RJ Reynolds, Nestle, SmithKline Beecham, Nabisco, Tropicana and
Gillette. We also rely on published industry information set forth in the
"Electronic Coupon Clearing Guidelines A Best Practices Approach", which was
prepared by Robert D. Hemphill & Associates for the Joint Industry Coupon
Committee. Based on the Company's market research and published industry
information, the Company believes an immediate need exists for electronic coupon
clearing at virtually every checkout lane in every supermarket in the United
States. Based on our research, similar systems do not exist in the market today,
and we are not aware of any such system scheduled for introduction.

         In October 1998, the Predecessor merged with and into Crescent Gold
Corporation, a Nevada corporation. Crescent Gold Corporation, which was the
surviving corporation in the merger, had no operations or assets at the time of
the merger. However, its common stock was publicly traded on the Over the
Counter Bulletin Board at the time of the merger. After the merger, Crescent
Gold Corporation changed its name to "In Store Media Systems, Inc." and changed
its OTC Bulletin Board symbol to "ISMS." In the merger, the shareholders of the
Predecessor exchanged all of their issued and outstanding common shares for
approximately 44.0 million shares of Crescent Gold Corporation Common Stock.
Immediately following the exchange, the shareholders of the Predecessor owned
approximately 88% of the total outstanding shares of the Company.

         The Company has not generated any revenue from operations to date.
Since inception through December 31, 2000, the Company incurred accumulated
losses of $15,621,302. The Company will rely upon the proceeds of anticipated
sale of debt and equity securities, as well as anticipated revenues from
operations to finance equipment production as well as operating costs and
expenses.

RECENT DEVELOPMENTS

         To facilitate the initial introduction of its systems, the Company has
entered into a financing agreement with In Store Capital LLC, an independent
company formed specifically to provide equipment and receivables financing for
In Store Media Systems, Inc. After the anticipated successful introduction of
each of its products, In Store Capital has agreed to obtain equipment and
receivables financing facilities of up to $100 million through Morris and Mozer,
Inc., an investment banking firm located in Minneapolis, Minnesota. The funds
available through this line of credit is expected to start small and grow
rapidly as the Company's systems are installed in more market areas. Under this
agreement, In Store Capital will provide the initial capital required to
commercially test first the Coupon Bank System, then the InStaClearing and
Coupon Exchange Center systems respectively, in several commercial applications.
After successful commercial demonstrations, In Store Capital will provide the
structure through which other major investment banking firms can join In Store
Capital in financing rollout of the respective systems of the Company. In Store
Capital has committed to provide financing for the Coupon Bank System, but is
not obligated to finance other systems on a binding time table. In the past, the
Company has experienced substantial product installation delays resulting
primarily from inadequate financial resources. The ability to execute its
product introduction plan will depend upon the resources provided by and through
In Store Capital, LLC.
                                      -3-
<PAGE>

         The investment group that provided additional development capital to
the Company and that formed In Store Capital LLC, was introduced to the Company
by Morris and Mozer Financial, Inc., of which Michael T. Mozer, a director of
the Company, is a principal. In addition, Morris and Mozer Financial, Inc.
secured a conditional agreement with Coast Business Credit on behalf of the
Company, which if finalized, will provide the Company with funding through In
Store Capital LLC. As compensation for its services, Morris and Mozer Financial,
Inc. will receive warrants to purchase 3,150,000 shares of the Company's common
stock that can be exercised anytime in the third, fourth or fifth year after the
date on which they were issued. The warrants will vest and become exercisable
only after the completion of a financing agreement acceptable to the Company.
The exercise price is $2.00 per share and the Company may call the warrants
anytime after two and one-half years at $4.00 per share. In addition, Morris and
Mozer Financial, Inc. will receive a one-time fee equal to 1% of the amount of
each "draw" made by the Company against either the equipment financing or the
receivables revolver.

COUPON INDUSTRY INFORMATION

         The $6.8 billion coupon industry is part of the over $280 billion spent
annually in the United States to advertise and promote goods and services, and
it is an influential force in the over $400 billion retail food industry. The
coupon is the only "cash instrument" in the United States not cleared
electronically. Today it takes up to eight weeks to process coupons and get
reimbursement to retailers. It takes much longer to get meaningful coupon
performance data to the manufacturers' brand managers, and such data is
incomplete. The Company intends to replace the present methods of clearing and
marketing coupons with systems that provide manufacturers and retailers with
near daily access to their promotion data.

INDUSTRY STATISTICS

         The following industry statistics were compiled from information
presented in the 2000 State of the Industry report prepared by NCH NuWorld
Marketing Limited. NCH NuWorld Marketing Limited is one of the oldest and
largest manufacturer agent clearinghouse in the coupon redemption industry. See
section entitled "Competition-Coupon Redemption Competition."

         o        Manufacturers distributed 248 billion coupons in 2000

         o        There were 4.5 billion coupons redeemed in 2000

         o        Coupons are used by 77% of United States population

                     2000 Cost in Cents Per Redeemed Coupon

Face Values Redeemed                          $   0.75           (55.9%)
Distribution Costs                                0.49           (36.7%)
Handling Fees                                     0.08            (5.9%)
Processing Fees & Other Costs                     0.02            (1.5%)
                                              --------         ---------

Total Costs Per Redeemed Coupon*              $   1.34            (100%)
                                              ========         =========

         * Note: This figure does not include the cost of coupon fraud or
           misredemption. All figures are rounded to the nearest whole number.

MARKET FOR EFFICIENT COUPON PROCESSING

         The number, variety, and face value of coupons continued to increase in
2000. By far the most common coupons are those that are distributed as free
standing inserts ("FSI") in newspapers which constitute 82.4% of all coupon
distribution and a similar proportion of coupon redemption. Other forms of
coupon distribution include direct mail, in-store by a variety of means,
"in-ad," in/on-pack, and even a fractional percentage of coupons distributed
over the Internet. Virtually all such coupons are presented by consumers at the
store checkout lane. The processing of these billions of coupons is inefficient
and expensive. Manufacturers must wait many weeks to get promotion marketing

                                      -4-
<PAGE>

data and the failure to link coupons with product purchases opens the door to
significant coupon misredemption problems. From the retailer perspective,
fully-burdened coupon handling costs exceed the $.08 per coupon handling fee and
waiting six to eight weeks for reimbursement from manufacturers means
perpetually tying up millions of dollars in coupon receivables. Electronic
coupon processing at the store is the obvious answer to the present
inefficiencies and many store POS systems have the inherent ability to read
coupon bar codes. However, store POS systems vary from chain to chain and
sometimes store to store within the chain, which makes a standardized electronic
clearing process difficult. Moreover, the problem of misredemption has made
manufacturers reluctant to rely entirely on the retailer for coupon counts and
invoices.

MARKET FOR IN-STORE COUPONING

         While the overall coupon industry is growing slowly, the in-store
distribution segment of the industry has experienced and sustained a 20%-plus
long-term growth rate over the last ten years. In-store coupons are one of the
best ways to encourage new product trials, induce brand switching and protect
market share. Based on an article published in the October 1999 issue of Promo
Magazine, industry sources estimate that the annual revenues from this segment
is $700 to $800 million. Promo Magazine is a monthly trade publication focused
on the retail promotion industry.

         Because the in-store coupon can be more easily targeted to a specific
consumer, it should continue to enjoy long-term growth as the manufacturers'
database marketing programs become more sophisticated and retailer loyalty
programs become more entrenched. Retailer loyalty programs are promotional
programs that supermarkets implement to motivate shoppers to shop repeatedly
either at a particular store or a particular chain. The most common retailer
loyalty program is the "frequent shopper card," which provides consumers special
savings at the checkout on repeat purchases. The ISMSI Free Money Card(TM) is
the Company's version of the frequent shopper card, which can be used to
complement or substitute similar supermarket programs.

PRODUCTS AND SERVICES

         The Company is still in the process of developing its products and
systems, and therefore cannot assure or guarantee that it will develop its
products and introduce them to market successfully. The Company has completed
development of its first-stage, electronic coupon clearing system ("The Coupon
Bank(TM) System" or "CBS") and will make its first installations in the first
quarter of 2001. The Company's second-stage, in-lane, coupon clearing system
(InStaClearing(TM)) is in prototype form and is scheduled for initial
introduction in the third or fourth quarter of 2001. The Company's third-stage
system (The Coupon Exchange Center(TM)) is in prototype form and scheduled for
initial introduction in the fourth quarter of 2001. The Company intends to
continue development of its products and services subject to the availability of
additional funds. The Company's products and services incorporate patent
protected technology. Patents are pending on the Coupon Bank System and
InStaClearing System. The Coupon Exchange Center is protected by a patent issued
in January 1996 and owned by the Company, which includes 37 allowed claims. The
Company's proprietary consumer marketing data system (InstaData(TM)) patent
application has been allowed and is expected to formally issue under the title
"Merchandising Using Consumer Data from Surveys" in April 2001.

         The ultimate application of the Company's proprietary technology is the
distribution of customer-specific InstaCash coupons through its Coupon Exchange
Centers. However, the Company intends to first introduce its Coupon Bank System
to clear ordinary coupons currently redeemed at supermarket checkout lanes. The
Coupon Bank System will, when deployed, verify that the products were purchased
with the coupons redeemed, delivers timely promotional data to manufacturers and
reimburses retailers within a day or two for coupon discounts passed on to
consumers at checkout. In stores with high coupon volume, the Coupon Bank System
is expected to be displaced by the Company's in-lane InStaClearing System, which
matches coupons to products in near real-time, creates an electronic record and
destroys the coupon on the spot. After retail stores accept and use the
electronic coupon clearing systems, the Company will market its Coupon Exchange
Center systems, which interface with and build upon the coupon clearing systems.
Each Coupon Exchange Center includes the distribution of targeted coupons and
touch-screen consumer surveys that are expected to increase the revenue
potential with many business-to-business and business-to-consumer Internet
possibilities. Descriptions of the Company's pending products and services are
provided below.

                                      -5-
<PAGE>

         The Coupon Bank System

         The Company will enter the coupon clearing industry with its
proprietary Coupon Bank System. The CBS will be installed in a store's back
office instead of the checkout lane. The advantage of the CBS is that it uses
the accepted, industry-wide coupon processing infrastructure while providing
most of the benefits of the more costly in-lane system. The CBS equipment is
being manufactured by Kiosk Information Systems (KIS), one of the nation's
leading interactive kiosk producer.

         THE INSTACLEARING SYSTEM. The Company's second product introduction is
anticipated to be its in-lane InStaClearing System. This system will replace CBS
units, or be installed initially, in some stores later in 2001 where coupon
volumes average 500 coupons per day or higher. The InStaClearing System improves
on the Coupon Bank System by matching redeemed coupons to products on a real
time basis at checkout. The comparison is made by equipment to be manufactured
by the Unisys Corporation, Payment Systems Division. Redeemed coupons are
destroyed at checkout when the coupon sale is validated so that electronically
cleared coupons need not be handled, sorted or mailed, and no coupons remain
that can be misredeemed. It is expected that ISMSI field personnel will service
the in-lane equipment.

         COUPON EXCHANGE CENTERS(TM). The Company's third product introduction
is expected to be the Coupon Exchange Center. The Coupon Exchange Centers
deliver "InstaCash(TM)" coupons directly to the consumer in exchange for
unwanted or expired manufacturers' coupons obtained from newspapers or other
sources. Upon purchase of the applicable product, the consumer may redeem the
InstaCash(TM) coupons for cash, in the form of a bearer check for the aggregate
value of all InstaCash coupons redeemed. The check is issued by the Coupon
Exchange Center's coupon scanner/checkwriter(TM) system, at the checkstand.

         The Coupon Exchange Centers are expected to deliver, to packaged goods
manufacturers, supermarkets and other retailers, real-time data on transactions
and coupon performance. At the present, brand managers may be required to wait
four to six months to receive marketing research results from a previously
completed promotional coupon program. The Company's system, when available, is
expected to permit the brand manager to enter an order for a promotional program
in the morning and receive a printout of the InstaCash redemption results almost
immediately. Each Coupon Exchange Center and in-lane clearing system will be
connected through the Internet to a centralized data repository, which is
constantly communicating information across the system network. The Coupon
Exchange Center is designed to targeted promotions, instant feedback and quick
response to marketplace changes. The Company believes that these characteristics
are the merchandising trends that will drive the competitive environment.

         From the consumer's perspective, the In$taCash coupon is very similar
to ordinary cents-off coupons distributed in newspaper publications. Instead of
a discount, however, the consumer receives a cash rebate at checkout (in the
form of a negotiable check) equal to the aggregate amount of the rebate value of
all of the In$taCash coupons redeemed. In either case, the face value of the
coupon is established by the manufacturer sponsoring the incentive program. The
average face value discount of a coupon redeemed in the United States is $0.75.
Thus, assuming a rebate value of $.75 per coupon, a consumer who redeemed eight
In$taCash coupons at checkout would receive a check for $6.00.

         DATA DRIVEN MARKETING, INC. A fourth anticipated product of the Company
is its application of consumer information to marketing products. The Company
has a wholly-owned subsidiary, Data Driven Marketing, Inc. ("DDMI"). DDMI's
mission is to collect the transaction data and combine it with additional
demographic household data, which is collected by the Company. The Company
intends to collect data directly through its clearing system, as well as by
telephone and written surveys conducted in connection with the issuance of the
Free Money Cards. The Company also intends to collect data indirectly by
acquisition from third-party sources. This data, which will be continually
supplemented with transaction data from the Company's systems, will allow DDMI
to offer a unique product to the manufacturers -- household specific data on
consumers' purchasing history and intentions. In addition, the Company is in the
process of establishing an Internet website which will provide manufacturers
access to coupon redemption data for payment and verification, and customized
marketing data for withdrawal and analysis.

                                      -6-
<PAGE>

         As of December 31, 2000, the Company has not generated any revenue nor
incurred any expenses in conjunction with DDMI. The Company anticipates
utilizing the services of DDMI upon the attainment of all milestones in
association with the completion of the Company's private equity funding
agreement.

PRODUCT LAUNCH AND DISTRIBUTION

         EXISTING PROTOTYPES. The Company has developed the Coupon Bank System
and will produce eight CBS units for installation in participating stores in the
first quarter of 2001.

         The Company also expects to introduce its InStaClearing in-lane coupon
clearing system and its Coupon Exchange Center system in the fourth quarter of
2001. Currently, the Company has prototypes of the in-lane InStaClearing system
and of the Coupon Exchange Center system at Unisys' offices and at the Company's
offices. The Company has installed a model supermarket at its offices, which it
uses to demonstrate the InStaClearing and Coupon Exchange Center prototype
operating features. The model supermarket is complete with a wide range of
grocery items and point of sale checkout system. The Company has also
demonstrated Coupon Exchange Center prototypes at various trade shows over the
last six years including the National Grocers Association Show (twice), the Food
Marketing Institute Show, the Promo Magazine "Expo" show and the Florida Grocers
Association Show.

         The Company has developed a service network concept called the POD
system ("Planned Operations Development"), through which the Company will build
or contract for a network of local offices across the country. The POD system is
intended to be a hub and spoke support system to provide routine servicing of
the Company's systems at participating retailers. The Company intends to
contract for these services with a national food brokerage company that has an
existing network of offices and personnel in all major U.S. market areas. Using
an existing service network is expected to avoid many of the limitations on the
Company's ability to rapidly roll out its systems nationally.

         MANUFACTURING SUPPORT. Since inception, the Company has been engaged
primarily in the development of the technology underlying the Coupon Exchange
Center system. The Company has developed the concept, created renderings,
prototypes and specifications for the Coupon Exchange Center and also the
clearing systems. However, the Company determined that it would require a
manufacturing arrangement with one or more companies having proven capacity and
credibility to demonstrate to supermarkets and manufacturers that ISMSI has the
ability to deliver a high quality product. The Company therefore established a
development and manufacturing relationship with Kiosk Information Systems (KIS)
for the Coupon Bank System and with the Unisys Corporation for the InStaClearing
and Coupon Exchange Center systems. KIS, the U.S. leader in producing
interactive kiosks has produced four Coupon Bank System units for installation
in participating stores. Four additional CBS units will be produced in the first
quarter of 2001 for similar commercial demonstrations. Thereafter, the Company
anticipates that KIS can produce CBS units at a rate sufficient to meet the
Company's rollout objectives.

         Unisys and the Company are developing an arrangement under which Unisys
will provide manufacturing support to the Company, in connection with the
manufacture of the Company's systems and products. Beginning in January 1997,
the Company entered into four memorandums of understanding (the "MOUs") with the
Payment Systems Division of the Unisys Corporation ("Unisys"). The MOUs outline
the parties' mutual understanding regarding their arrangement relating to the
production of the Coupon Exchange Center kiosks, the coupon scanner check-writer
and the data center. The parties expect to enter into a definitive master
agreement covering the terms and subject matter of the MOUs when the Company
secures the necessary funds to proceed with this production effort.

         Under the terms outlined in the MOUs, Unisys agreed to provide most of
the hardware, software and depot level maintenance for the Company's Coupon
Exchange Center kiosk. Unisys agreed to manufacture the Coupon Exchange Centers
for a price to be determine by volume. Under the terms of the MOUs, Unisys has
provided certain services for which the Company has advanced funds to Unisys, as
described below. By mutual agreement, Unisys will complete the remaining work
when the Company has in place the necessary funds to continue production.

                                      -7-
<PAGE>

         As part of the arrangement, the Company will pay Unisys a royalty on
each InstaCash coupon redeemed by the Coupon Exchange Center, subject to an
annual minimum. Unisys also will receive additional license fees per Coupon
Exchange Center installation and additional royalties for each redeemed free
standing insert coupon cleared in stores that have Coupon Exchange Centers
installed.

         Through December 31, 1998, the Company paid Unisys $693,716 and
recorded a payable of $740,688. In 1999, the Company paid Unisys an additional
$250,000. Currently, the Company owes Unisys $490,688. The Company estimates
that it will owe Unisys an estimated $1.1 million upon delivery of the products
and engineering deliverables specified in the development agreements. Unisys
Corporation will not continue further services until the Company has made such
payments. Unisys and the Company have suspended work on the in-lane clearing and
Coupon Exchange Center systems as the Company focuses its resources on the
rollout of the Coupon Bank System. The Company believes it will be able to
resume development with Unisys in the third quarter of 2001 provided that
additional development capital is available.

PLAN OF OPERATIONS

         The Company is a development-stage enterprise, has not generated any
revenue from operations and has incurred losses continuously since the inception
of its Predecessor in 1992. As of December 31, 2000, the Company had an
accumulated deficit of $16,375,905. The Company expects that its cash reserves
will be sufficient to fund its operations through the end of August of this
year. The Company will need additional funds to implement its business strategy.
Since December 31, 2000, the Company has received limited additional funding and
commitments. See "Recent Developments" above. The Company may be unable to
continue as a going concern if it fails to generate sufficient revenue or obtain
additional funds in a timely manner to finance its capital requirements. The
Company intends to complete the development of its products, beginning with the
Coupon Bank clearing system. Upon completion, the Company will test the system
at selected retailers. Such test sites have been established. After initial
testing, and assuming such tests prove to be successful, the Company will
commence the commercial introduction of the Coupon Bank. Contingent upon
sufficient funding, the Company believes that it can achieve the following
results in the next twelve months:

         (a)      A demonstration of the Company's entire coupon clearing and
                  distribution system at its mock supermarket showroom.

         (b)      Completion of the development of the Coupon Bank clearing
                  system and its successful field trials.

         (c)      Commercial introduction of the Company's Coupon Bank clearing
                  system.

         (d)      Completion of the development of the InStaClearing and Coupon
                  Exchange Centers and start of their field trials.

         The completion of development will require additional research and
development in the following areas: data center development, continuation of
mechanical, electrical, computer hardware and software engineering development
and user ergonomic development.

         The completion of the development of the Company's InStaClearing and
Coupon Exchange Center products is contingent upon securing additional
financing. However, until the additional financing has been accomplished, the
Company continues to refine the development of these products through continuing
communications with retailers and manufacturers and through the creation of
prototypes for testing and trials.

         To continue systems development, the Company needs to continue to pay
its operating expenses, including payroll, rent, leases, utilities and other
overhead expenses such as insurance, telephone, postage, office supplies and
other periodic expenses including network maintenance, office equipment and
professional services.

         The Company has no plan to expand its plant and equipment, and does not
foresee any anticipated material changes in number of employees in the various
departments such as research and development, production, sales or
administration until product introduction commences.

                                      -8-
<PAGE>

SALES AND MARKETING

         The Company does not intend to sell its system. The Company expects to
install, service, maintain, and operate its equipment at no charge to
supermarkets. The Company's coupon clearing equipment will reduce the
supermarkets' costs and provide important data about coupon redemptions; its
coupon distribution systems will increase sales and attract new customers to
hosting retailers. The Company expects to earn revenues from manufacturers that
pay a standard handling fee for clearing coupons and that will also pay on a per
redeemed coupon basis to have its coupon offers distributed in stores. The
Company also expects to earn revenues from marketing transactional and household
-- specific data that is not now generally available to manufacturers.

RETAIL SALES AND MARKETING FORCE

         The Company's first marketing efforts will be to introduce the Coupon
Bank System into retail stores. Once the commercial introduction of the Coupon
Bank System has commenced, the retail marketing efforts will be focused on two
objectives. The first will be to continue to expand the Coupon Bank System to
additional stores. The second is to encourage currently installed retailers to
add the Company's Coupon Exchange Center. The Company believes it has identified
supermarkets that will agree to the installation of the Company's products and
services. However, the Company does not have any binding agreements with such
companies.

MANUFACTURER SALES FORCE

         The primary focus of the Company's marketing effort is to attract
national consumer packaged goods manufacturers who will place their product
coupons in the Coupon Exchange Center. The sales force will focus on larger
manufacturers, and will work with them on a consultative basis to develop and
implement customized, targeted marketing programs that fit each brand's
strategies and objectives. The Company has had initial discussions with some the
nation's most prominent packaged goods manufacturers and believes that such
manufacturers will include product coupons in the Coupon Exchange Centers.
However, the Company has received no binding commitments from such
manufacturers.

BUSINESS RISKS

         NEED FOR ADDITIONAL CAPITAL. The Company may require additional funds
to continue development of its systems and implement its plan of operation for
the next 12 months. At December 31, 2000, the Company had $191,039 in cash. Such
amount was insufficient to implement the plan intended by the Company. Also, the
Company is in default of its repayment obligations on notes issued between 1996
and 1999. At December 31, 2000, the Company was in default of repayment
obligations in the amount of $1,417,476. For the period from January 1, 2001
through March 31, 2001, the Company had reduced such notes and related accrued
interest by an additional $878,946. If the Company is unable to negotiate the
conversion of such Notes into common stock or an extension of their respective
maturity dates, the Company would face substantial additional capital
requirements and would be required to seek alternative or additional financing
to continue operations. In January 2001, the Company completed a financing
arrangement with a private equity group, through which the Company received
initial equity proceeds of $1,000,000. In March 2001, under this same financing
arrangement, the Company satisfied the first of two requirements and became
entitled to receive $500,000 of additional proceeds from escrow. Assuming full
conversion or deferment of the Notes, the Company expects that the initial
proceeds, together with the $500,000 of additional proceeds to which the Company
is entitled under the above-described financing arrangement, will be sufficient
to finance its operating costs through August 2001 (based on the Company's
current expense rate). If the Company satisfies the second of two requirements
(under this same financing arrangement) by securing long-term contracts with at
least 150 customers by the required date, $552,000 of additional proceeds will
become available to the Company. If the Company receives all such funds under
the above-described arrangement, based on the Company's current expense rate,
the Company will have the funds necessary to finance its operating capital
requirements through December 31, 2001. If the Company is unable to secure the
required number of contracts by the specified date or if such funds otherwise do
not become available to the Company by August 2001, or if the Company's
operating costs and expenses are higher than currently anticipated, the Company
may be required to raise additional capital through other sources. The Company
may be required to attempt to raise additional capital through the sale of
equity and/or debt securities in private transactions. The Company also may seek
bridge financing and other forms of financing through venture capital firms in
the future. If operating costs and expenses are more than currently expected,
the need for additional working capital may arise earlier than expected. There
can be no assurance that any such financing will be available when needed to
execute the plan on terms that are acceptable to the Company. The inability to
obtain additional capital would restrict the Company's ability to grow and could
reduce the Company's ability to continue as a going concern.

         DEPENDENCE ON RELATIONSHIPS WITH MANUFACTURERS, SUPERMARKETS AND
OTHERS. The Company's future success will depend in large part upon its ability
to establish and maintain relationships with packaged goods manufacturers,
supermarkets and retailers. Packaged goods manufacturer will need to agree to
promote and advertise their products using the Coupon Exchange Centers and agree
to clear their coupons through the Company's electronic coupon clearing system.
The supermarkets and other retailers will need to agree to allow the Company to
place the Coupon Exchange Centers and the electronic clearing systems in their
stores. The Company believes it has identified a number of product manufacturers

                                      -9-
<PAGE>

that will advertise with and use the Company's products and services. The
Company also believes it has identified supermarkets that will install the
Company's products and services. However, the Company does not have any binding
agreements with such companies. Therefore, there can be no assurance that the
supermarkets and manufacturers currently identified by the Company will enter
into contractual relationships.

         The Company has made arrangements that will enable it to clear coupons
without the need to secure individual agreements with each coupon issuing
manufacturer. In January, 2000 the Company entered a coupon processing agreement
with NCH NuWorld Marketing, Ltd, one of the three leading coupon processors and
the company that serves as manufacturer's agent for the majority of all coupon
issuing manufacturers. See the section entitled "Coupon Redemption Competitors."
The agreement specifies that NCH will provide clearing services to ISMSI for
coupons initially processed by the Coupon Bank System, assist the Company to
develop clearing procedures that do not require shipment of paper coupons and
work with the Company to provide valuable data to the packaged goods
manufacturers whose coupons are processed by ISMSI and NCH. The initial term of
the agreement ends November 2001.

         DEPENDENCE ON COUPON USAGE. The Company's success will depend in part
upon the acceptance and usage by consumers. Any decrease in the demand for, or
usage of coupons may materially affect the Company's business. Since demand for
the Company's products and services by consumer product manufacturers, retailers
and consumers is substantially interrelated, any lack of demand by any one of
these would effect the Company's overall market acceptance.

         DEPENDENCE ON EXPANSION OF OPERATIONS. To a significant extent, the
Company's future success will be dependent upon its ability to engage in a
successful expansion program. It will be dependent, in part, upon its ability to
secure participating retailers in its chosen markets, attract customers for its
coupon distribution and data products, maintain adequate financial controls and
reporting systems, manage its growth, and obtain additional capital upon
favorable terms. There can be no assurance that the Company will be able to
successfully implement its planned expansion, finance its growth or manage the
resulting larger operation.

         PATENTS, TRADEMARKS AND TRADENAMES. The Company holds a United States
patent containing 37 allowed claims on various aspects of its Coupon Exchange
Centers and has three patents pending, each with multiple claims, for its
electronic clearing and data based marketing systems. "Allowed claims" is a term
used by the United States Patent Office to define the unique features of a
patent. Each allowed claim (or "issued claim") of the patent is protected under
the patent number awarded and is allowed over other prior art, publications or
devices. In addition, the Company regards certain computer software and
applications as proprietary and attempts to protect them through use of
copyright and trademark laws and non-disclosure agreements.

         Although the Company believes that such proprietary rights offer a
competitive advantage to the Company, it is possible that such rights may be
invalid or that the Company has infringed or may infringe on existing or future
patents or proprietary rights. In addition, certain aspects of the Company's
products and services may not be adequately protected from infringement or
copying by competitors. Further, there can be no assurance that the Company's
patent would be upheld if challenged or that competitors might not develop
similar or superior processes or services beyond the scope of the Company's
proprietary rights.

         The Company has registered with the Patent and Trademark Office the
following trademarks: InStaClearing, InstaCash, ShareSwitch and ShareTrax. In
addition, the Company has filed, but not been granted, registration for others.
Therefore, the Company may not receive protection with respect to some of its
proprietary marks. The Company also intends to prepare and file for federal
trademark registration on other proprietary marks. However, there can be no
guarantee that any registration will be granted.

         The Company believes that proprietary rights are very important in the
coupon clearing and marketing industry, and that such rights are a fundamental
basis for competition in the industry. The Company will continue to take action
to protect the new technology it develops and intends to defend vigorously
against infringement of its proprietary rights.

                                      -10-
<PAGE>

         COMPETITION

         COUPON REDEMPTION COMPETITORS. In the coupon clearing industry, several
companies have well-established manual alternatives. Although to the Company's
knowledge, no electronic clearing system is being extensively employed today,
competitors have expressed an intention to develop such a system.

         The coupon redemption industry has two segments. One segment is the
retail clearinghouses and the other segment is the manufacturers' agents. The
retail clearinghouses assist the retailer to collect, to count and to process
the coupons redeemed by the consumers. The manufacturers' agents assist the
manufacturers to enforce their redemption policies and to reimburse the
retailers the face value of the coupons and dispense the coupon handling fee
($0.08 per coupon is the standard in the industry). Often the retail
clearinghouse and the manufacturers' agents are divisions of the same company.
The three leading companies in the industry are NCH NuWorld Marketing Limited,
Inmar, Inc. and International Data.

         NCH NuWorld is one of the oldest and largest manufacturer agent
clearinghouses servicing over 450 manufacturers but with fewer retailers using
its retail clearinghouse services. Inmar, Inc. is the parent company for
Carolina Coupon Clearing, Carolina Manufacturers Service, and Carolina
Reclamation Service. Inmar, Inc. was the second entrant into the industry, and
its activities and services are equally balanced between manufacturers' agent
and retail clearinghouse services. International Data, Inc. is a merger of
Indiana Data and North American Data Processors and Consumer Response
Corporation resulting in the largest retail clearinghouse provider. These three
private companies represent the Company's largest competitors in this industry.

         IN-STORE COUPONING COMPETITORS. The coupon industry is highly
competitive, and the Company will encounter significant competition in
connection with the operation of its business. These competitive conditions may
adversely affect the Company's revenues, profitability and ability to meet its
business objectives. In the in-store marketing industry, many formats including
television, radio, newspapers and other coupons, compete for the advertising and
promotion dollars spent by packaged goods manufacturers to help sell their
products. A number of competitors have introduced and are successfully operating
competing coupon systems, including checkout coupons, on-the-shelf coupon
dispensers, computer-screen equipped shopping carts and others. The Company will
be competing with many established companies having much greater financial
resources, experience, and market share than the Company.

         The Company's primary competitors in this industry segment are Catalina
Marketing Corp., News America Marketing, Inc., a division of News Corp., and
InterAct. Catalina Marketing has installed its couponing system in approximately
12,000 stores in the United States. News America has an installed base of
approximately 15,000 food stores in the United States.

         The Company believes that its primary methods of competition are in
system effectiveness and the ability to target market and confirm market
results. While the Company believes that its products and services offer
numerous advantages over existing systems, there can be no assurance that it can
effectively compete against other companies. The Company's competitors have
significantly greater financial resources, established management, and a
significant market presence, including name recognition. While the Company
anticipates it system will operate in stores with competitive systems, to the
extent that a competitor has installed another system in its retail locations,
it may be more difficult for the Company to replace or add the Coupon Exchange
Center and/or the electronic coupon clearing systems. Further, the retailer may
be contractually bound to maintain the existing system for several years.

RESEARCH AND DEVELOPMENT ACTIVITIES

         Of the $3,275,352 spent from inception to date by the Company on
research and development, $1,923,363, or 59%, was spent in 1997 and 1998. In
1996 and prior, the Company spent $1,050,766 on research and development. In
1997, it spent $1,728,466, in 1998, it spent $194,897, in 1999, it spent
$250,873, and in 2000 $50,350. Such research and development expenses related
predominantly to developing the technology included in the Coupon Exchange
System and the coupon clearing systems. The Company anticipates that research
and development expenses will continue to be one of its most significant
expenditures until product introduction.

                                      -11-
<PAGE>

COST OF COMPLIANCE WITH ENVIRONMENTAL LAWS

         The Company is unaware of any pending or proposed environmental laws,
rules or regulations, the effect of which would be adverse to its contemplated
operations.

EMPLOYEES

         The Company currently has eight full-time employees. The Company
considers its relations with its employees to be excellent. None of the
employees are represented by a labor union, and the Company has not experienced
any work stoppage. The Company anticipates that it will be required to add a
significant number of new employees when Coupon Exchange Centers and electronic
coupon clearing systems are installed. The Company has identified several
management personnel with experience and qualified backgrounds who have
indicated they will accept employment with ISMSI. The Company does not have
employment agreements with such persons and the Company may not be able to
retain their services when desired or on terms acceptable to the Company.

ITEM 2 - PROPERTIES
-------------------

         The Company's principal executive offices and manufacturing facility
are located at 15423 East Batavia Drive, Aurora, Colorado. The Company is
leasing these premises (consisting of approximately 6,260 square feet) from
Freund Investments on a month-to-month basis at a rate of approximately $3,205
per month. The Company enjoys an excellent relationship with Freund Investments.
The property is sufficient to meet the needs of the Company at this time.

ITEM 3 - LEGAL PROCEEDINGS
--------------------------

         To the knowledge of management, during the fiscal year ended December
31, 2000, and to the date of this Annual Report, no material legal proceedings
to which the Company is a party are pending nor are any known to be
contemplated, and the Company knows of no legal proceedings pending or
threatened, or judgments entered against any director or officer of the Company
in his capacity as such.

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

         No matters were submitted to a vote of security holders during the past
quarter. The Company has scheduled its annual meeting for August 2001 in Aurora,
Colorado.

                                      -12-

<PAGE>
                                     PART II

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

         The common stock of the Company is listed on the "Electronic Bulletin
Board" of the National Association of Securities Dealers, Inc. ("NASD") under
the symbol "ISMS."

         The following table shows the range of high and low bid quotations for
the Company's common stock for the past two fiscal years, as reported by the OTC
Bulletin Board and previously on the National Quotation Bureau monthly reports
or "Pink Sheets." Prices reflect inter-dealer prices, and do not necessarily
reflect actual transactions, retail mark-up, mark-down, or commission.

                                STOCK QUOTATIONS
                                ----------------

                                          HIGH             LOW
                                          ----             ---

                       1999
                       ----

First Quarter                             $2.000          $1.250
Second Quarter                            $2.625          $1.250
Third Quarter                             $2.500          $1.000
Fourth Quarter                            $1.937          $1.250
                       2000
                       ----

First Quarter                             $2.050          $0.620
Second Quarter                            $2.000          $0.750
Third Quarter                             $1.030          $0.344
Fourth Quarter                            $0.906          $0.281


         At March 30, 2001, the number of record holders of the Company's common
stock was 320. These numbers do not include an indeterminate number of
stockholders whose shares are held by brokers as "nominees" or in street name.
Based on information made available to the Company in connection with the last
annual meeting of stockholders, the Company estimates that there are
approximately 800 beneficial owners of its common stock.

DIVIDENDS

         The Company has not paid any dividends with respect to its common
stock, and it is not anticipated that the Company will pay dividends in the
foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

         1999
         ----

         During the period commencing on January 1, 1999, through December 31,
1999, the Company sold the following unregistered securities:

         During the period from January 1, 1999, through August 4, 1999, the
Company sold and issued approximately 29.36 units (the "Units") to 40 investors
at an effective purchase price of $1.00 per share. The Units were offered and
sold in private transactions pursuant to the Company's Private Placement
Memorandum dated November 3, 1998. Each Unit consisted of 100,000 shares of
restricted common stock and warrants to purchase 100,000 additional shares of
common stock. The common stock purchase warrants are exercisable at $1.25 per
share and expire between June 30, 2001 and January 31, 2002. The Units were sold

                                      -13-
<PAGE>

in exchange for cash or the conversion of short term notes that were previously
issued by the Company's predecessor and assumed by the Company following the
merger with is predecessor on October 8, 1998. For a discussion of the
conversion of notes, see Note 5 to the Financial Statements for the year ended
December 31, 2000. Richmark Securities acted as placement agent in the offering.
The Units were offered and sold in reliance on the exemptions from registration
that are available under Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and Regulation D promulgated by the Securities and Exchange
Commission pursuant to the authority granted under the Act.

         2000
         ----

         During the period from January 1, 2000 through December 31, 2000, the
Company issued to certain accredited investors 1,389,000 shares of its common
stock in exchange for the cancellation of notes payable by the Company in the
principal sum of $460,111 and interest thereon in the amount of $145,267. The
notes were issued to such investors by the Company's predecessor before the
merger in 1998. The shares were issued in reliance on the exemptions under
Section 4(2) and Regulation D promulgated therein.

         The notes and associated warrants were issued and sold by the
predecessor to 200 accredited investors from 1996 through August of 1998. The
notes assumed by the Company are convertible into shares of the Company's common
stock at a conversion price of $1.00 per share. From time to time following the
effective date of the merger and through December 31, 2000, the Company issued
shares of its common stock upon conversion of such notes and exercise of such
warrants by the holders thereof. All holders of such notes and warrants
qualified as accredited investors. In connection with the conversion of certain
of the notes, the Company issued additional shares of common stock to the
holders. The notes were converted at prices ranging from $.20 to $1.00 per share
of common stock. Following the merger and through December 31, 2000, the Company
had issued a total of 4,169,852 shares of its common stock to 75 note holders
(1,389,000 shares in 2000, 1,084,871 in 1999 and 1,695,981 in 1998). Following
the merger and through December 31, 2000, the Company also had issued to five
accredited investors an additional 366,142 shares of common stock upon exercise
of the above-described warrants. The warrants were exercised at prices ranging
between $0.07 and $0.37 per share.

         Under the terms of an underwriting agreement, the Company issued to
Richmark Securities 520,000 shares of the Company's restricted common stock and
warrants to purchase 520,000 shares of the Company's common stock at an exercise
price of $1.25 as consideration for services rendered in connection with the
Company's offering pursuant to the Private Placement Memorandum dated November
3, 1998. The shares were issued in a private transaction in reliance on
exemptions from registration available under Section 4(2) of the Act and
Regulation D promulgated thereunder.

         During 2000, the Company granted to Mr. Thomas F. Carroll, the
Company's Vice President of Sales and Marketing, Mr. Robert L. Cohen, the
Company's Vice President and Chief Financial Officer and Mr. George Sattler, a
Director of the Company, also serving as a consultant, options to purchase
499,375 shares of the Company's common stock at a strike price of $.25 per
share. The Company also granted options to these same three individuals, to
purchase 775,000 shares of the Company's common stock at the lesser of $1.00 or
85% of the average market price of the Company's common stock for the 15 days
prior to the date of exercise. These options vest over time and upon the
attainment of certain milestones. During 2000, the Company issued options to a
consultant to purchase in the aggregate 400,000 shares of the Company's common
stock exercisable at $1.00 to $3.00 per share for two years.

         Each of the investors that purchased securities from the Company in
2000 executed a subscription agreement, under which they represented to the
Company as follows:

         (1) That such investor is a sophisticated investor and has such
knowledge and experience in financial and business matters so as to be capable
of making an informed decision regarding such investor's investment in the
Company.

         (2) That such investor was purchasing the securities for investment
purposes only for the investor's account and not for the account of or on behalf
of any other person or otherwise with a view to distributing such securities.

         (3) That such investor understood that the securities (including the
underlying securities) were not transferable other than pursuant to a valid
exemption from registration under the Securities Act.

                                      -14-
<PAGE>

         The Company provided a private placement memorandum to each investor.
In addition, investors had the opportunity to ask questions and receive answers
from the Company's executive officers regarding the Company's business and the
proposed investment.

         Each investor also completed and returned a questionnaire indicating
that such investor was an accredited investor at the time of the investment.

         At the time of the transactions described above, Richmark Securities
was a broker-dealer registered with the National Association of Securities
Dealers ("NASD").

ITEM 6 - SELECTED FINANCIAL DATA
--------------------------------

         The following table sets forth certain historical audited financial
data for In Store Media Systems, Inc., a Nevada corporation, for the fiscal
years ended December 31, 2000, 1999, 1998, 1997 and 1996 which have been derived
from the financial statements of In Store Media Systems, Inc. and its
predecessor, and the related notes thereto, which statements were audited by
Causey, Demgen & Moore, Inc., independent auditors.
<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31
                                                  1996            1997            1998            1999            2000
                                              -------------   -------------   -------------   -------------   -------------
<S>                                           <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Costs and Expenses:
     Research and development                 $    927,927    $  1,728,466    $    194,897    $    250,873    $     50,853
     General and administrative                    695,252         840,688         866,858       1,549,301       1,704,721
     Depreciation and amortization                  31,672          51,438          61,777          66,229          68,940
                                              -------------   -------------   -------------   -------------   -------------
         Operating Loss                         (1,654,851)     (2,620,592)     (1,123,532)     (1,866,403)     (1,824,011)
                                              =============   =============   =============   =============   =============

Other income (expense):
     Interest income                                19,039           4,791          28,147          30,422    $      7,561
     Litigation settlement                             -0-        (156,250)            -0-             -0-             -0-
     Restructuring Charges                             -0-             -0-             -0-             -0-        (196,511)
     Debt conversion costs                             -0-        (257,894)        (20,000)       (107,250)       (291,686)
     Interest expense                             (840,661)     (1,551,362)       (775,591)     (1,242,471)       (208,039)
                                              -------------   -------------   -------------   -------------   -------------
         Total other income                       (821,622)     (1,960,715)       (767,444)     (1,319,299)       (688,675)
         (expense)
                                              -------------   -------------   -------------   -------------   -------------
Net Loss                                      $ (2,476,473)   $ (4,581,307)   $ (1,890,976)   $ (3,185,702)   $ (2,512,686)
                                              =============   =============   =============   =============   =============
Basic and diluted net loss per common share   $      (0.06)   $      (0.11)   $      (0.04)   $      (0.06)   $      (0.05)
Weighted average common shares outstanding       41,300,00      40,800,000      49,000,000      57,900,000      51,600,000

BALANCE SHEET DATA:
Cash and cash equivalents                     $    704,740    $      1,726    $    316,444    $    248,325    $    191,039
Working capital (deficit)                       (2,044,309)     (4,937,870)     (3,680,153)     (2,989,244)     (3,301,391)
Total assets                                     2,441,274       1,375,016       1,299,568         876,535         496,711
Long term liabilities                               32,626         196,569         249,770         247,880             -0-
Shareholders equity (deficit)                   (1,200,288)     (4,267,082)     (3,227,921)     (2,791,628)     (3,045,914)
</TABLE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION
--------------------------------------------------------------------------------

  OVERVIEW

         The Company is a development stage company engaged in the development
of its system for distributing and electronically clearing coupons, certain
components of which are patented. The Company has generated no revenue from
operations and has incurred losses of $15,621,302 since inception through
December 31, 2000.

         At December 31, 2000, the Company had a stockholders' deficit of
$3,045,914, which reflects $13,329,991 of paid in capital (net of amount
attributable to treasury stock) less accumulated deficit of $16,375,905. The
accumulated deficit amount is primarily the result of the amount of interest
expense incurred in connection with short-term convertible notes and debentures
by the Company and its predecessor in private transactions in 1996, 1997, 1998,
1999, and 2000, research and development, and general and administrative
expenses incurred since inception. At December 31, 2000, the Company had a
working capital deficit of $3,301,391.

                                      -15-
<PAGE>

         The Company plans to continue on-going development of its coupon
clearing and distribution systems. Additionally, the Company anticipates the
launching of the pilot program of its proprietary electronic coupon clearing
system by the end of the first quarter of 2001. In order to initiate and fund
the commercial introduction of these systems, the Company was successful in
completing a private equity funding agreement in January 2001. Under the terms
of this agreement, the Company was provided $2,052,000 of equity. The Company
received initial proceeds of $1,000,000 in equity with an additional $1,052,000
of equity being held in escrow pending the Company attaining certain milestones
including the beginning of the pilot program and the initial signing of
long-term contracts with retailers. In addition to the equity proceeds, the
Company will require supplementary financing to fund the equipment and accounts
receivable financing required for the rollout of its systems beyond the pilot
program. The Company is in the process of seeking such supplemental financing
through a related party company that would be the sole debt-financing arm of the
Company. If successful, the Company would have the funds necessary to implement
its plan of operation over the next 12 months and beyond. The Company is unable
to provide any assurance that such fund raising efforts will be achievable.

         In February 2001, the Company repaid outstanding notes payable and
related accrued interest totaling $621,047. Additionally, the Company is seeking
to eliminate all remaining debt obligations through the conversion of these
notes and related exercise of warrants and through the buyout of these notes in
exchange for the Company's restricted common stock. Since December 31, 2000
notes and accrued interest totaling $878,946 have been converted and which
amounts were applied towards the exercise of warrants resulting in the issuance
of 2,040,000 shares of the Company's restricted common stock. Notes totaling
$262,500 have been extended to October 31, 2001.

         Through December 31, 2001 the Company remained burdened with debt
obligations and a continuing lack of working capital. The completion of the
private equity funding agreement in January 2001 relieved some of the burden
relating to the debt obligations and provided the necessary funding to commence
the pilot program of the Company's proprietary electronic coupon clearing
systems. If the Company is unsuccessful in eliminating all remaining debt
obligations either through conversion or buyout, the Company may require the
securing of additional working capital to continue its pilot program and
operations as planned. Otherwise, it may be forced to curtail or discontinue its
operations.

FINANCIAL CONDITION

         The Company had $496,711 in total assets and $3,542,625 in total
liabilities at December 31, 2000, as compared to $876,535 and $3,668,163 at the
end of fiscal 1999, respectively. Accounts payable and accrued expenses at the
end of fiscal year 1999 were $1,186,958 as compared to $1,256,775 at December
31, 2000. The Company had a working capital deficit of $3,301,391 at December
31, 2000, as compared to a working capital deficit of $2,989,244 at December 31,
1999. The difference primarily is attributed to reductions of $175,230 in
inventory and note receivable, and an increase in accrued interest and notes
payable of $67,259.

RESULTS OF OPERATIONS

         The Company's operational costs historically have increased or
decreased primarily due to the expansion or contraction of the Company's ongoing
research and development efforts. The Company has incurred operating expenses of
$10,059,068 from inception through December 31, 2000. These expenses include
$3,275,352 in research and development expenses and $6,490,384 in general and
administrative expenses. Subject to the availability of additional funds, the
Company expects its operational expenses and costs to increase as it expands its
efforts to complete the development of its systems, products and services, and
plans to commence manufacturing and installation of its equipment. The Company
also expects operational costs to increase as it expands its marketing and
promotional efforts in connection with the introduction of its products and
services.

YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999

         For the year ended December 31, 2000, the Company sustained net
operating losses of $2,512,686, as compared to net losses of $3,185,702 for the
year ended December 31, 1999. The decrease in operating losses primarily was due
to a decrease in interest expense, offset by increases in restructuring charges
and debt conversion costs.

                                      -16-
<PAGE>

         The Company's operating expenses for the year ended December 31, 2000,
decreased by approximately 2% to $1,824,011, as compared to operating expenses
of $1,866,403 for the same period last year. The decrease in operating expenses
in 2000 was due to decreases in research and development expenses, offset by
some increases in general and administrative expenses. Research and development
costs decreased by 80% to $50,350 for the year ended December 31, 2000, as
compared to research and development costs of $250,873 for the same period last
year. This decrease was due to the absence of certain expenses relating to
patent development. During 1999, the Company expensed as patent development
expenses a note receivable of $244,311 from the Company's former president,
which was exchanged for certain patents. General and administrative expenses
increased by $155,420 or 10% to $1,704,721 for the 2000 year, as compared to
general and administrative expenses of $1,549,301 for the same period last year.
The increase in general and administrative expenses primarily was due to
increases of $324,527 in stock based compensation to employees and consultants,
offset by decreases in advertising, travel and employee benefit expenses during
2000.

         The Company's net non-operating expense (including non-operating
interest income and interest expense) decreased to $688,675 for the year ended
December 31, 2000, as compared to non-operating expenses of $1,319,299 for the
year ended December 31, 1999. The decrease was primarily due to an 83% decrease
in interest expense for the year ended December 31, 2000. The decrease in
interest expense was primarily due to the decrease in value assigned to the
extension of the warrant exercise period related to the Company's debt
offerings. The effect of the valuation assigned to the warrants resulted in an
increase to interest expense of $959,859 and a decrease in interest expense of
$95,901 for the years ended December 31,1999 and 2000 respectively. Debt
conversion costs for the year ended December 31, 2000, increased by 172% to
$291,686 due to the increase in the number of notes converted to common stock
during 2000 as compared to 1999.

FISCAL YEAR ENDED DECEMBER 31, 1999, COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998

         For the fiscal year ended December 31, 1999, the Company sustained net
operating losses of $3,185,702, as compared to net losses of $1,890,976 for the
fiscal year ended December 31, 1998. The increase in operating losses primarily
was due to an increase in research and development expenses, and increase in
general and administrative expenses, an increase in depreciation and
amortization expenses and an increase in interest expense.

         The Company's operating expenses for fiscal 1999 increased by
approximately 66% to $1,866,403, as compared to operating expenses of $1,123,532
for the 1998 fiscal year. Operating expenses consist of research and development
expenses, general and administrative expenses and depreciation and amortization
costs and expenses. The increase in operating expenses in 1999 was due to an
increase in research and development costs, which increased by $55,976 to
$250,873 for the 1999 fiscal year, as compared to research and development
expenses of $194,897 for the 1998 fiscal year. The increase in research and
development expenses was due to an increase expenditures on design rendering of
the products to be produced, the creation of prototypes and the development of
an in-house lab, which is a mock, small-scale supermarket that is used for
testing and development. General and administrative expenses increased by
$682,443 or 79% to $1,549,301 for the 1999 fiscal year, as compared to general
and administrative expenses of $866,858 for the preceding fiscal year. The
increase in general and administrative expenses primarily was due to the
addition of Lawrence Mortimer Executive Marketing and Sales, Michael Parsons
Director of Project Management and Technology and the addition of other
marketing and programming personnel. Depreciation and amortization costs
increased by 7% to $66,229, as compared to depreciation and amortization costs
of $61,777 for the 1998 fiscal year. The increase in depreciation and
amortization costs primarily was due to the purchase of additional computer
equipment and production machinery.

         The Company's net non-operating expenses (including non-operating
interest income, debt conversion costs and interest expense) increased by
approximately 72% to $1,319,299 for the fiscal year ended December 31, 1999, as
compared to non-operating expenses of $767,444 for the 1998 fiscal year. The
increase  was primarily due to a 60% increase in interest expense, which
represented 94% of the non-operating expenses for 1999 and approximately 101% of
the non-operating expenses for the 1998 fiscal year. The increase in interest
expense was primarily due to value assigned to the extension of the warrant
exercise period related to the Company's debt offerings.

                                      -17-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Since inception, the Company's principal requirements for capital have
been to finance the cost of research and development of its coupon selection,
dispensing and clearing systems and related technologies, and to pay for
expenses associated with securing patent protection, formulating its business
strategy and developing strategic relationships with third parties, such as
Unisys Corporation, retailers and product manufacturers. The Company has
historically financed its operations through loans and investments by directors
and officers, and the sale of equity and debt securities in private transactions
in reliance upon exemptions from the registration and qualification requirements
under federal and state securities laws.

         At December 31, 2000, the Company had $3,542,625 in current
liabilities, of which $2,235,274 (including $555,298 of interest accrued
thereon) was in the form of convertible, short-term debentures issued by the
Company and its predecessor in private transactions during the 1998, 1997 and
1996 fiscal years. At December 31, 2000, the Company was in default of its
obligations under the notes issued to investors by the Company and its
predecessor in the amount of $1,417,476. A portion of the notes was converted
into shares of the Company's common stock during the 1998, 1999, and 2000 fiscal
years. Approximately $262,500 of notes have been extended to October 31,2001. In
October 2000, the Company issued a letter to all note holder's providing them
the option of extending their notes and accrued interest for one additional year
or converting their notes and accrued interest for shares of the Company's
common stock. At December 31, 2000, notes in the aggregate principal amount of
$1,679,976 remained outstanding, as compared to notes in the aggregate principal
amount of $2,140,087 that were outstanding on December 31, 1999. The remaining
portion of the Company's current liabilities is primarily comprised of
short-term note obligations totaling $605,874 and continuing payment obligations
of $490,688 (at December 31, 2000 and December 31, 1999) to Unisys Corporation.
The Company relies on the availability of additional capital to satisfy all such
obligations.

         The Company will require additional capital to continue and complete
development of its systems, to market its products and services and to implement
its business strategies.

         The Company has limited access to additional sources of equity and debt
financing and it can provide no assurance that additional funds will be
available on commercially acceptable terms or in a timely manner to enable the
Company to continue its operations as expected.

         Since the end of fiscal year 1999 through December 31, 2000, the
Company's cash position has declined. At December 31, 2000, the Company had
available cash of $191,039, as compared to available cash of $248,325 at
December 31, 1999.

         With the completion of the private equity funding agreement in January
2001 and the attainment of the first of two milestones required by the
agreement, the Company anticipates it has sufficient funds to continue its
operations through August 31, 2001. At that time, the Company would have to
either generate sufficient cash flow from its anticipated rollout of its
proprietary electronic coupon clearing systems or raise additional funds to
continue its operation as planned.

         During the year ended December 31, 2000, the Company issued 249,892
shares of its common stock and reduced accrued interest by $16,643 in connection
with the exercise of warrants. Warrants representing 2,009,202 shares of common
stock were exercised on a cashless basis pursuant to a settlement with a selling
agent in an offering of common stock. The Company also issued 1,389,000 shares
of its common stock to note holders who converted their notes into common stock.

         In January 2001, the Company completed a funding arrangement with a
private equity group resulting in the Company receiving equity proceeds of
$2,052,000. The Company received initial proceeds of $1,000,000 in equity with
an additional $1,052,000 of equity being held in escrow pending the Company
attaining certain milestones by June 30, 2001. With these funds, the Company is
able to begin the commercial introduction of its proprietary electronic coupon
clearing systems. Additionally if the Company is successful in securing
long-term contracts with a minimum number of customers, then all escrowed funds

                                      -18-
<PAGE>

would be released to the Company. This would allow the Company the ability to
continue the rollout of its systems, generate revenues and fund its operation
beyond December 31, 2001. Additionally, if successful, the Company would be in a
much stronger position to secure addition capital if the need should arise.
Failure to attain these milestones would require the Company to acquire
additional capital in the form of either debt or equity. If the Company were
unable to secure this additional capital, if needed, it would most likely impair
the ability of the Company to meet its obligations in the near or medium term.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
---------------------------------------------------------------------

         The Company does not own or invest in market risks sensitive
instruments for trading or other purposes.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

         The financial statements listed in the accompanying index to financial
statements are set forth under Part IV, Item 13 to this Report, and are
incorporated herein by reference.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

         There were no disagreements with the Company's current auditor.


                                      -19-
<PAGE>
                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

         Effective on March 8, 2000, due to failing health, our former Chief
Executive Officer, Everett E. Schulze, Jr. was replaced by Donald P. Uhl. Mr.
Schulze passed away in December 2000. Mr. Charles A. Schulze, son of Mr. Everett
Schulze, served as a Director of the Company through the end of the 2000 fiscal
year. Effective on February 23, 2000, Mr. Charles Schulze resigned from the
Board and was replaced by Mr. Thomas Carroll. Our executive officers and
directors and their ages at the date of this annual report are as follows:
<TABLE>
<CAPTION>

NAME                           AGE       POSITION
---------                    ------      --------------
<S>                            <C>       <C>
Donald P. Uhl                  66        Chief Executive Officer, President and Chairman
Robert L. Cohen                38        Vice President and Chief Financial Officer
Thomas F. Carroll              55        Vice President of Sales & Marketing and Director
Ron Anderegg                   47        Director
Frank J. Pirri                 59        Director
Joel Monsky                    62        Director
Ray Solomon                    47        Director
Mike Mozer                     51        Director
George Sattler                 64        Director
Derrick Bushman                35        Director
</TABLE>

         The following discussion includes biographical information regarding
the Company's officer, directors and significant employees.

         DONALD P. UHL, 66, President and Chairman, is a co-founder of the
Company. Since the inception of the Company's predecessor in December 1992 until
March 2000, Mr. Uhl served as the Executive Vice President and a Director of the
Company or its predecessor. Mr. Uhl was elected President and Chairman by the
Board of Directors on March 8, 2000. Before joining the Company, Mr. Uhl served
as an Officer, Director or Consultant to companies in the electronic testing
equipment, computer disc and coupon businesses. From February 1992 to October
1992 Mr. Uhl served as Executive Vice President of Es-Tech Corporation, where he
was responsible for facilitating the marketing and production of the aluminum
can recycling CanPactor(TM). Before working on the CanPactor project, Mr. Uhl
served as Vice President of Corporate Development for Premier Technologies Inc.,
a startup company engaged in the production of electronic cable-test equipment.
From 1988 to 1990, Mr. Uhl was the President of Capital Funding Advisors Inc., a
consulting firm specializing in developing financing proposals for small
emerging companies. Before that time, Mr. Uhl was founder, Chairman and
President of Western Energy Development Company Inc., a publicly held company
involved in oil and gas production. Mr. Uhl also served on the Governors Front
Range policy committee from 1980 to 1981, was the Mayor of Monument, Colorado
from 1978 to 1982, and was the Chairman of the Pike's Peak Area Council of
Governments from 1980 to 1982.

         ROBERT L. COHEN, 38, Corporate Secretary, Vice President and Chief
Financial Officer, joined the Company and was appointed to the above-mentioned
offices in July 2000. From 1998 to 2000, Mr. Cohen was Vice President and Chief
Financial Officer for Avanti Holdings, Inc., where among his other duties, he
managed the coupon redemption operations for 131 Avanti stores. From 1994 to
1998, Mr. Cohen served as Vice President/Chief Financial Officer of Kiddie Rides
USA, a manufacturer, distributor and operator of coin-operated children's
amusement rides. While at Kiddie Rides USA, he was involved in all phases of the
operations from manufacturing to daily financial controls of the business. From
1991 to 1994, Mr. Cohen was Director of Finance and then Vice President/Chief
Financial Officer for Omnibancorp, a privately-owned bank holding company.

         THOMAS F. CARROLL, 55, Director, Vice President Sales and Marketing,
joined the Company as Vice President in August of 2000 and became a Director on
February 23, 2001. Mr. Carroll has 32 years experience in the retail food
industry, working with both packaged goods manufacturers and food retailers
nationally. Before joining the Company, Mr. Carroll was the founder and
president of I.D.Y. Ltd., which was a company organized by Mr. Carroll in 1996
to create marketing programs for supermarket retailers nationally. I.D.Y. also
planned and executed marketing programs for small to mid-size consumer packaged

                                      -20-
<PAGE>

goods companies. Before his involvement with I.D.Y., from 1988 to 1996, Mr.
Carroll was Vice President of Marketing and Technology for Five Star Brokerage
Company, the leading food brokerage company in Colorado. Mr. Carroll previously
was a sales representative for Oscar Mayer and Company and a sales
representative for Gillette. He also served as Director of National Accounts for
Ragu.

         RONALD F. ANDEREGG, 47, Director, was elected to fill a vacancy on the
Company's Board of Directors on April 25, 2000. Mr. Anderegg currently is the
President and CEO of Parcus Networks, Inc., a provider of telecommunications
services. Before his involvement with Parcus Networks, Inc., from 1995 to 2000.
Mr. Anderegg was the is President/CEO of SouthNet Telecom Services, Inc.
(STSI.net). STSI.net is a wholesaler of network services, including Voice
Internet Protocol Telephony (VoIP), Data Transport Services, Internet access,
e-commerce web development, website hosting and co-location services. The
company provides dial-up VoIP and Internet access to over 1,800 cities, reaching
65% of the U.S. population with the largest VoIP network in the nation, and is
among the top 50 certified Competitive Local Exchange Carriers (CLEC) in the US.
Mr. Anderegg is also a Director of UltraBrowser.com. In addition, Mr. Anderegg
served as Division Vice President for TruGreen ChemLawn from 1979 to 1998.

         FRANK PIRRI, 59, Director, has been a director of the Company since
1995. He has over 37 years of experience in the management of consumer and
business-to-business motivational programs. Since December 1998 he has served as
a Senior Vice President, Offline Commerce for MyPoints.com, Inc. From May 1997
to November 1998, Mr. Pirri served as Executive Vice President of
Motivation.Net, an Internet Loyalty Marketing company. From January 1994 to May
1997, Mr. Pirri served as the President and Chief Executive Officer of Life
Facts, Inc., a medical information products company. From January 1993 to
January 1994, Mr. Pirri served as the Vice Chairman of S&H Citadel, Inc., an
incentive marketing services company, following its merger with S&H Motivation
and Citadel Motivation. From 1987 to January1993, Mr. Pirri served as President
and Chief Executive Officer of S&H Motivation, a consumer and
business-to-business performance improvement company. Before joining S&H
Motivation, Mr. Pirri held numerous positions over a 24-year period at The
Sperry & Hutchinson Company (S&H Green Stamps).

         JOEL MONSKY, 62, Director, has been a director of the Company since
1994. Mr. Monsky has 38 years of experience in management and the sales and
development of consumer databases with National Birth Record Company and
Demographics Systems, Inc. In 1994, Mr. Monsky, founded and became the President
of The Partnership for Shared Marketing (PSM), a data marketing company that
caters to several of the top packaged goods manufacturers, advertising agencies,
and supermarket chains. The Company has an agreement to utilize the 73 million
household database of PSM. These assets will be managed by the Company's
wholly-owned subsidiary called Data Driven Marketing, Inc. Before his
involvement with PSM. From 1991 to 1994, Mr. Monsky served as the Vice President
of Marketing for Datapulse, Inc., the developer of a new survey technology. From
1991 to present, Datapulse, Inc. has surveyed over 9.5 million individual
consumers in generating marketing data for major Fortune 500 companies. Since
1994, Datapulse, Inc. has been inactive and Mr. Monsky has continued his
involvement with the company as one of its principals and shareholders.

         RAYMOND SOLOMON, 47, Director since October 2000, is a licensed
attorney, Mr. Solomon has been engaged in solo practice specializing in the
areas of medical malpractice and children's lead poisoning cases since 1978. Mr.
Solomon is also a shareholder of ISMSI.

         MICHAEL T. MOZER, 51, Director, has been a director of the Company
since March 2000. In December 1999, he co-founded Morris & Mozer Financial, Inc.
("MMF"), where he currently serves as President. MMF provides financial
consulting, structuring and debt placement services for businesses throughout
the United States. From 1996 to 1999, he served as a Senior Vice President of
Dougherty Summit Securities, Inc., where he established structured finance and
fixed income divisions to serve the needs of financial institutions and
businesses throughout the United States. From 1983 to 1996, Mr. Mozer was
engaged in the private practice of law. From 1979 to 1983 he served as General
Counsel for Norwest Mortgage, Inc.

         GEORGE E. SATTLER, 64, Director, was elected to the Board of Directors
in October 2000. Mr. Sattler has 47 years experience in the retail food industry
with supermarkets and with major packaged goods manufacturers. From 1996 to
2000, Mr. Sattler was the president of G.E.S. Associates, which provides
consulting services to food brokers and retailers across the United States. In
1974, he co-founded the Mancini Groesbeck Brokerage Company, the first regional
food brokerage in the west. In 1987, Mr. Sattler bought out his partner and
merged with another local food broker to form Five Star Brokerage of Colorado.

                                      -21-
<PAGE>

Five Star operated in northern California, Oregon, Washington, Montana, Idaho,
Utah, and Colorado. In 1995, Five Star was acquired by Marketing Specialists, a
national sales and marketing company. Mr. Sattler remained chairman of the
Colorado operation, which served such clients as: Nabisco, H.J. Heinz, Borden
Foods, Ragu Corp., Jergens, Kelloggs, Mars, Dial, Quaker Oats Company, and many
others. Since leaving Marketing Specialists, George Sattler has devoted full
time to operating his master broker/consulting business, G.E.S. Associates,
bringing manufacturers together with brokers throughout the U.S.

DERRICK BUSHMAN, 35, Director, has been a Director of the Company since
February 2001. Mr. Bushman has over 20 years of experience in the financial
services industry. He currently is the President of Canton State Bank and holds
several management/ownership positions in several financial firms throughout the
upper Midwest. Mr. Bushman was a founding partner and the Chief Financial
Officer of Dealers Credit, which was organized in 1992 and later sold to BB&T in
1999. As the firm's CFO, he structured financing arrangements to address its
capital needs using both debt and equity methods of financing. He also was
responsible for the management of all financial functions for the firm in the
areas of lending and collections. Additionally, Mr. Bushman is involved in
several family-owned businesses in the produce and manufacturing industries. He
graduated from the University of Notre Dame in 1987 with a degree in Business
Administration.

Significant Employees
---------------------

         BEVERLY B. BARR, District Manager, has over 15 years experience with
coupon processing and in-store marketing systems. Ms. Barr was appointed as the
Company's District Manager in October 2000. From 1996 to the time of her
appointment as District Manager, Ms. Barr was a consultant to the Company. She
has experience in marketing coupon clearing services for supermarkets and on
coupon processing services for packaged goods manufacturers. Before joining the
Company, until 1996, Ms. Barr was employed by CompuCook, Inc., which provides a
recipe based, in-store coupon system to various large supermarket chains. Before
joining CompuCook, Inc., since 1994, Ms. Barr served as a Senior Sales Executive
for International Data, Inc. Her responsibilities included promoting and selling
coupon services to grocery retailers and purchased goods manufacturers
throughout the United States. From 1984 to 1994, Ms. Barr was a marketing
consultant for subsidiaries of Inmar Enterprises, Inc. As marketing consultant,
she was responsible for promoting and selling coupon clearing, reclamation and
related services.

         MICHAEL ADAMS, Manager Operations/Training, will manage field
operations and training for ISMSI's electronic coupon redemption and
distribution systems as they are rolled out nationwide. Mr. Adams joined the
Company as Manager Operation/Training in 2001. He has over seventeen years
experience in the food industry. Before joining the Company, he served as Vice
President, Retail Operations for Bromar Food Brokerage in Colorado where he
managed a $150 million sales division with a staff of 90 that serviced 600
retail accounts in five states. He also developed product launches for 90
manufacturers and managed the sales administration department. From 1979 to
1983, Mr. Adams was Store Manager and then District Manager for Albertson's
supermarkets where he prepared sales forecasts and P&L statements, and managed
union and non-union labor relations.

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

         No interlocking relationship exists between the Company's Board of
Directors or Compensation Committee and the Board of Directors or Compensation
Committee of any other Company. Nor has any such interlocking relationship
existed in the past.

                                      -22-
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance
-----------------------------------------------------------

         Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules of the Securities and Exchange Commission (the "Commission") thereunder
require the Company's executive officers, directors and greater than 10%
stockholders to file reports of ownership and changes in ownership of the Common
Stock with the Commission. Based upon a review of such reports, the Company has
determined that all such reports required by Section 16(a) were filed on time.

ITEM 11 - EXECUTIVE COMPENSATION
--------------------------------

REMUNERATION OF EXECUTIVE OFFICERS

         The following table sets forth information concerning the compensation
received for the fiscal years ended December 31, 2000, 1999, and 1998, for
services rendered to the Company in all capacities by the individual who served
as the Company's Chief Executive Officer at the end of the 2000 fiscal year and
other highly compensated executives of the Company. The total amount of the
annual salary and bonus payable to each of the Company's other executive
officers for the last completed fiscal year was below $100,000. See Item 13.
Certain Relationships and Related Transactions  Other Matters.
<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                                                           Long-Term Compensation
                                                                  ---------------------------------------
                                        Annual Compensation           Awards                    Payouts
                                   -----------------------------  ---------------             -----------
    Other name and                                                                  Stock
Principal Compensation     Fiscal   Salary                          Restricted     Options/
  Position station($)       Year      ($)     Bonus($)  Other($)  Stock Awards(#)   SARs(#)    ($)   All
-------------------------  ------  ---------  --------  --------  ---------------  ---------  ----  -----
<S>                         <C>    <C>          <C>     <C>            <C>       <C>           <C>   <C>
Everett E. Schulze, Jr.     2000   $ 100,000    -0-       -0-          -0-            -0-      -0-   -0-
Director (1)(2)(3)          1999   $ 120,000    -0-       -0-          -0-            -0-      -0-   -0-
                            1998   $ 120,000    -0-       -0-          -0-       1,000,000(6)  -0-   -0-

Donald P. Uhl               2000   $  80,000    -0-       -0-          -0-            -0-      -0-   -0-
President, Chief            1999   $  80,000    -0-       -0-          -0-            -0-      -0-   -0-
Executive Officer and       1998   $  80,000    -0-       -0-          -0-            -0-      -0-   -0-
Chairman (5)

Robert L. Cohen             2000   $  56,800    -0-       -0-          -0-         349,375(7)  -0-   -0-
Vice President and          1999         -0-    -0-       -0-          -0-            -0-      -0-   -0-
Chief Financial Officer     1998         -0-    -0-       -0-          -0-            -0-      -0-   -0-

Thomas F. Carroll           2000   $  62,500    -0-     $ 2,900        -0-         350,000(8)  -0-   -0-
Vice President Sales &      1999         -0-    -0-       -0-          -0-            -0-      -0-   -0-
Marketing                   1998         -0-    -0-       -0-          -0-            -0-      -0-   -0-
-------------------------------
</TABLE>

         (1)      All other compensation in the form of perquisites and other
                  personal benefits has been omitted because the aggregate
                  amount of such perquisites and other personal benefits
                  constituted the lesser of $50,000 or 10% of the total annual
                  salary and bonus of the named executive for such year.

         (2)      Mr. Schulze served as the Company's Chief Executive Officer
                  and Chairman of the Board at the end of the 1999 fiscal year.
                  Due to failing health, Mr. Schulze was replaced by Mr. Uhl in
                  April 2000.

         (3)      Mr. Schulze passed away in December 2000. His vacant position
                  as Director was filled by Mr. Derrick Bushman in February
                  2001.

         (4)      Annual compensation for Mr. Schulze includes $27,000 of wages
                  that were paid in 2001.

                                      -23-
<PAGE>

         (5)      Annual compensation for Mr. Uhl includes $16,665 of wages that
                  were paid in 2001.

         (6)      Includes shares that were to be issued upon exercise of
                  options previously granted to Mr. Schulze. All such options
                  were cancelled in 2001.

         (7)      Includes 264,375 shares issuable upon the exercise of options
                  granted to Mr. Cohen under his employment agreement. Also
                  includes 85,000 shares issuable upon the exercise of options
                  granted to Mr. Cohen on November 12, 2000. See Item 11.
                  Executive Compensation - Individual Option Grants.

         (8)      Includes 225,000 shares issuable upon the exercise of options
                  granted to Mr. Carroll under his employment agreement. Also
                  includes 125,000 shares issuable upon the exercise of options
                  granted to Mr. Carroll on November 12, 2000. See Item 11.
                  Executive Compensation - Individual Option Grants.

DIRECTOR COMPENSATION

         Directors of the Company who are also employees do not receive cash
compensation for their services as directors or members of committees of the
Board of Directors, but are reimbursed for their reasonable expenses incurred in
connections with attending meetings of the Board of Directors or management
committees.

         In January 2001 the Company's board of directors approved the sale of
25,000 shares of the Company's restricted common stock to each outside director
for each year of service provided to the Company at a price of $.25 per share.
The cost of these shares will be paid by a note from each director for their
respective shares and be collateralized by the corresponding stock. This
resolution is subject to final approval by the Company's shareholders that will
be voted upon at the 2001 Annual Shareholders' Meeting. See Item 13 - Certain
Relationships and Related Transactions.

EMPLOYMENT AGREEMENTS

         The Company and Mr. Robert Cohen are parties to an employment agreement
dated July 11, 2000, pursuant to which the Company retained Mr. Cohen as its
Chief Financial Officer and Vice President. The term of the agreement is 12
months ending on July 10, 2001. The agreement provides for a salary of $10,000
per month during its term. Under the employment agreement, the Company granted
to Mr. Cohen options to purchase 105,000 shares of the Company's common stock
under the employment agreement. These options are exercisable immediately at an
exercise price of $0.25 per share and will expire on the second anniversary of
the date on which they were granted. The employment agreement further provides
Mr. Cohen the right to receive options to purchase 12,500 additional shares of
the Company's common stock for each month during the term of the employment
agreement. These options will be exercisable at a per share exercise price equal
to the lesser of $1.00 or 85% of the average closing price of the stock during
the 15 calendar days before their exercise. They will expire on the second
anniversary of the date on which they were granted. The Company paid to Mr.
Cohen $1,750 in cash and granted to Mr. Cohen options to purchase 9,375
additional shares of common stock as consideration for services rendered before
the date of the agreement. These last set of options are fully vested and
exercisable at $0.25 per share. Additionally, Mr. Cohen is eligible to
participate in the Company's Stock Option and Incentive Plan and the Company's
Bonus Plan. He also is entitled to receive certain other benefits offered to
other employees of the Company. Mr. Cohen will be entitled to severance if the
Company terminates the agreement without cause. Mr. Cohen's employment agreement
also contains certain other customary terms and provisions, including provisions
relating to the treatment of confidential information and the solicitation of
customers and accounts belonging to the Company.

                                      -24-
<PAGE>

         The Company and Mr. Carroll are parties to an employment agreement,
which became effective onAugust 1, 2000, and pursuant to which Mr. Carroll
agreed to serve as the Company's Vice President of Marketing and Sales. Mr.
Carroll's employment agreement provides for a gross salary for $12,500 per month
during its term. In addition to salary compensation, Mr. Carroll received
options to purchase 75,000 shares of the Company's common stock, which are
immediately exercisable at an exercise price of $0.25 per share and will expire
two (2) years from the date on which they were granted. Under the employment
agreement, Mr. Carroll also is eligible to receive additional options to
purchase shares of the Company's common stock, which options shall be
exercisable at the date on which they will have been granted. These options will
be exercisable at an exercise price equal to the lesser of $1.00 per share or
85% of the average closing price of the stock during the 15 calendar days before
the date on which they will have been exercised. These options also will expire
on the second anniversary of the date on which they will have been granted. They
will be granted on the completion of certain performance benchmarks, as
described in the agreement. The remaining terms of Mr. Carroll's employment
agreement are substantially similar to the terms of Mr. Cohen's employment
agreement, as described above.

INDIVIDUAL OPTION GRANTS

         During the fiscal year ended December 31, 2000, options and warrants to
purchase 724,375 shares were granted to certain executive officers, directors
and employees and 975,000 shares to consultants at exercise prices ranging from
$0.25 to $1.00 per share pursuant to the vesting schedules of their respective
agreements. The following tables set forth certain information at December 31,
2000, and for the fiscal year then ended with respect to stock options granted
to and exercised by the individuals named in the Summary Compensation Table
above.
<TABLE>
<CAPTION>
                        OPTION GRANTS IN FISCAL YEAR 2000
                                                                                                  POTENTIAL REALIZABLE VALUE AT
                                                                                                  ASSUMED ANNUAL RATES OF STOCK
                                                                                                  PRICE APPRECIATION FOR OPTION
                                            INDIVIDUAL GRANTS                                                    TERM(4)
                         ---------------------------------------------------------------           -----------------------------
                          NUMBER OF       % OF
                         SECURITIES   TOTAL OPTIONS
                         UNDERLYING     GRANTED TO     EXERCISE     MARKET
                          OPTIONS      EMPLOYEES IN     PRICE        PRICE    EXPIRATION
NAME                     GRANTED(#)    FISCAL YEAR(1)  ($/SH)(2)   ($/sH)(7)     DATE(3)               0%       5%($)     10%($)
----                     ----------    --------------  ----------  ---------     -------            ------      -----     ------
<S>                       <C>             <C>          <C>           <C>        <C>                 <C>        <C>        <C>

Thomas F. Carroll          75,000         10.4%        $0.25         $0.875     July 31, 2002       $46,875    $53,602    $60,656
                          150,000         20.7%           - (5)      $0.875     July 31, 2002       $19,688(6) $33,141(6) $47,250(6)
                          125,000         17.3%        $0.25         $0.4375    November 12, 2002   $23,438    $29,043    $34,922

Robert L. Cohen           105,000         14.5%        $0.25         $0.875     July 10, 2002       $65,625    $75,042    $84,919
                            9,375          1.3%        $0.25         $0.875     July 10, 2002       $ 5,859    $ 6,700    $ 7,582
                          150,000         20.7%            -(5)      $0.875     July 10, 2002       $19,688(6) $33,141(6) $47,250(6)
                           85,000         11.7%        $0.25         $0.4375    November 12, 2002   $15,938    $19,749    $23,747

Other Employees            25,000          3.5%        $0.25         $0.4375    November 12, 2002   $ 4,688    $ 5,809    $6,984

------------
</TABLE>

                                      -25-
<PAGE>

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

(1)  Based on options granted to certain directors, executive officers and
     employees to purchase 724,375 shares of the Company's Common Stock, but not
     including options granted to certain consultants to purchase 975,000
     additional shares of common stock, including (without limitation) options
     granted to Mr. Sattler under the consulting agreement between the Company
     and G.E.S. Associates. See Item 13. Certain Relationships and Related
     Transactions.

(2)  The exercise price on certain options is the lower of (a) $1.00 per share
     or (b) 85% of the average closing price over the 15 calendar days prior to
     exercise.

(3)  The options have a term of five years commencing from the date on which
     they were granted, subject to earlier termination in certain events related
     to termination of employment.

(4)  The 5% and 10% assumed rates of appreciation are suggested by the rules of
     the Securities and Exchange Commission and do not represent the Company's
     estimate or projection of the future Common Stock price. There can be no
     assurance that any of the values reflected in the table will be achieved.

(5)  The exercise price is equal to the lesser of $1.00 or 85% of the average
     closing price for the 15 days preceding the exercise date.

(6)  Estimated value based on an exercise price equal to 85% of the market price
     of the stock on the date of grant. The value will depend on the exercise
     price described in the preceding footnote.

(7)  Based on the closing price of the Common Stock on the corresponding date of
     grant.

OPTION EXERCISES DURING LAST FISCAL YEAR
<TABLE>
                 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
                         AND 2000 YEAR END OPTION VALUES
<CAPTION>
                                                                    NUMBER OF SECURITIES
                                                                   UNDERLYING UNEXERCISED     VALUE OF UNEXERCISED
                                                                         OPTIONS AT         IN-THE-MONEY OPTIONS AT
                                                                    DECEMBER 31, 2000(#)    DECEMBER 31, 2000($)(2)
                                                                    --------------------    -----------------------
                              SHARES ACQUIRED         VALUE             EXERCISABLE/              EXERCISABLE/
NAME                          ON EXERCISE (#)    REALIZED ($)(1)        UNEXERCISABLE            UNEXERCISABLE
----                          ---------------    ---------------        -------------            -------------

<S>                                 <C>            <C>                <C>       <C>             <C>       <C>
George E. Sattler                   --             $     --           100,000 / 475,000         $35,000 / 42,750

Thomas F. Carroll                   --                   --           200,000 / 150,000         $70,000 / 13,500

Robert L. Cohen                     --                   --           261,875 / 87,500          $49,569 / 7,875

------------
</TABLE>

(1)      Calculated on the basis of the fair market value of the underlying
         securities at the exercise date minus the exercise price.

(2)      Calculated on the basis of the fair market value of the underlying
         securities at December 31, 2000 ( approximately $0.60 per share) minus
         the exercise price.

                                      -26-
<PAGE>

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

         Except as otherwise indicated, the following table sets forth certain
information regarding the beneficial ownership of the Company's capital stock at
December 31, 2000, by (i) each of the Company's directors and officers, (ii)
each person or entity who beneficially owned more than five percent of the
Company's capital stock, and (iii) all directors and officers of the Company as
a group.
<TABLE>
<CAPTION>
       SHARES OF COMMON
NAME AND ADDRESS OF BENEFICIAL         NUMBER OF SHARES OF COMMON              PERCENTAGE OF
OWNER BENEFICIALLY OWNED (1)              STOCK BENEFICIALLY OWNED                 STOCK
----------------------------------------------------------------------------------------------------
<S>                                            <C>                                 <C>
Ronald F. Anderegg                              4,886,921                           8.4%
1600 South Beacon Boulevard
Grand Haven, MI  49417

The E. Schulze Corporation                     20,144,198 (2)                      34.6%
6756 South Holland Way
Littleton, CO  80128

Donald P. Uhl                                   3,005,000                           5.2%
15423 East Batavia Drive
Aurora, Colorado  80011

Frank Pirri                                       525,000                             *
15423 East Batavia Drive
Aurora, Colorado  80011

Raymond Solomon                                   352,500                             *
15423 East Batavia Drive
Aurora, Colorado  80011

Michael T. Mozer                                  100,000                             *
15423 E. Batavia Dr.
Aurora, CO  80011

George E. Sattler                                 100,000 (4)                         *
15423 E. Batavia Dr.
Aurora, CO  80011

Robert L. Cohen                                   261,875 (5)                         *
15423 E. Batavia Dr.
Aurora, CO  80011

Thomas F. Carroll                                 200,000 (6)                         *
15423 E. Batavia Dr.
Aurora, CO  80011

                                               29,575,494 (1)(2)(3)(4)(5)          50.3%
All Officers and Directors as a Group
           (9 persons)
------------------
</TABLE>

*    Less than 1.0%
         (1)      Beneficial ownership is determined in accordance with the
                  applicable rules under the 1934 Act. In computing the number
                  of shares beneficially owned by a person and the percentage
                  ownership of that person, shares of Common Stock subject to
                  options held by that person that are currently exercisable, or
                  become exercisable within 60 days from the date hereof, are
                  deemed outstanding. However, such shares are not deemed
                  outstanding for purposes of computing the percentage ownership
                  of any other person. Percentage ownership is based on
                  58,818,754 shares of Common Stock outstanding.

                                      -27-
<PAGE>

         (2)      Includes shares previously issued and sold to American
                  International Investments, Inc. ("AII"), the entire
                  outstanding capital stock of which was owned by the children
                  of Mr. Everett E. Schulze, Jr., the Company's deceased
                  Chairman and CEO. In November, 2000 AII combined with The E.
                  Schulze Corporation, a Colorado corporation formed by Mr.
                  Schulze and Melissa Schulze, his wife, before the death of Mr.
                  Schulze. Melissa Schulze is president of The E. Schulze
                  Corporation. As a consequence, The E. Schulze Corporation now
                  holds 20,144,198 shares of common stock of the Company.
         (3)      Two hundred thousand shares are held in Mr. Uhl's name;
                  2,805,000 shares are held in the name of the PLDLC Family
                  Limited Partnership, a Colorado limited partnership. Mr. Uhl
                  is General Partner and exercises voting control with respect
                  to the stock in the partnership. Mr. Uhl disclaims beneficial
                  ownership of the PLDLC shares other than through his
                  derivative ownership interest in the PLDLC partnership.
         (4)      Includes shares issuable upon the exercise of options granted
                  to Mr. Sattler under a certain consulting agreement dated June
                  1, 2000, which options are exercisable at a per share exercise
                  price of $0.25. See Item 13. Certain Relationships and Related
                  Transactions - Other Matters.
         (5)      Includes 199,375 shares issuable upon the exercise of options
                  granted to Mr. Cohen under his employment agreement, which
                  options are exercisable at an exercise price of $0.25 per
                  share. Also includes 62,500 shares issuable upon the exercise
                  of options granted to Mr. Cohen under his employment
                  agreement, which are exercisable at an exercise price equal to
                  the lesser of $1.00 or 85% of the average price of the
                  Company's common stock for the 15 days preceding the exercise
                  date. See Item 11. Executive Compensation -- Employment
                  Agreements.
         (6)      Includes 200,000 shares issuable upon the exercise of options
                  granted to Mr. Carroll under his employment agreement, which
                  are exercisable at an exercise price of $0.25 per share.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

AMERICAN INTERNATIONAL INVESTMENTS' CUMULATIVE CONVERTIBLE DEBENTURE

         In March of 1998, American International Investments, Inc. ("AII")
transferred 929,552 of its shares of the common stock of the Company's
predecessor to satisfy past due lease payment obligations of approximately
$247,880 that the Company's predecessor owed to Northstar Financial
("Northstar"). The children of Mr. Everett E. Schulze, Jr., the Company's former
Chairman and CEO, owned all of the outstanding shares of capital stock of AII,
with respect to which Mr. Schulze disclaims beneficial ownership. As
consideration for AII's payment of such lease obligations, the Company issued to
AII a 16% cumulative convertible debenture in the principal amount of $247,880.
In December 2000, the Company settled its obligation under the debenture in the
amount of $380,050 (principle and interest) by the payment of $126,000 in cash
and applying a related deposit held of $27,880.

LOANS TO AND FROM OFFICERS

         In January 1994, the Company made a loan to Mr. Schulze in the
principal amount of $195,000. On May 7, 1999, the Company acquired all right,
title and interest in the United States Patent application file number 2937-9
titled "Merchandising Using Consumer Information From Surveys" from Everett E.
Schulze, Jr., the inventor, in satisfaction of all principal and interest in the
amount of $244,311 payable under the loan to the Company from Everett E.
Schulze, Jr.

         During 1997 and 1998, the Company borrowed funds from AII. Such loans
were evidenced by promissory notes bearing interest at an annual rate of 10% and
payable upon demand by the holder. Management believes that such funds were
borrowed on terms no less favorable than would otherwise have been available to
the Company through unrelated third-party sources. In February 2001, the Company
paid all principal and interest payable under the loan in the amount of
$130,180.

                                      -28-
<PAGE>

         In September 2000, the Company borrowed $30,000 from Mr. Donald Uhl,
President and Chief Executive Officer of the Company. This loan was evidenced by
a promissory bearing interest at an annual rate of 9.5%. In February 2001, the
Company paid all principal and interest payable under the loan in the amount of
$31,281.

         In November 2000, the Company borrowed $180,000 from a partnership
whose general partner is Mr. Donald Uhl, President and Chief Executive Officer
of the Company. This loan was evidenced by a promissory note bearing interest at
an annual rate of 9.5%. In February 2001, the Company paid all remaining
principal and interest due under the promissory note in the amount of $133,631.

         In November 2000, the Company borrowed $160,000 from the Bushman Group,
LLC. This loan was evidenced by a promissory note bearing interest at an annual
rate of 9.5%. Mr. Derrick Bushman, who became a Director of the Company in March
2001, is a principal of the Bushman Group. Management believes that the terms of
the transaction were no less favorable than would otherwise have been available
to the Company through unrelated third-party sources. In February 2001, the
Company repaid all principal and interest due under the promissory note in the
amount of $163,623.

         In December 2000, the Company borrowed $160,000 from the Bushman Group,
LLC. This loan was evidenced by a promissory note bearing interest at an annual
rate of 9.5%. Management believes that the terms of the transaction were no less
favorable than would otherwise have been available to the Company through
unrelated third-party sources. In February 2001, the Company repaid all
principal and interest due under the promissory note in the amount of $162,332.

CERTAIN BUSINESS RELATIONSHIPS

         Pursuant to a promissory note dated March 7, 1997, the Company loaned
$50,000 to Mr. Joel Monsky, a Director of the Company, and two relatives of Mr.
Monsky, all of whom are shareholders of The Partnership For Shared Marketing,
Inc ("Partnership"). On January 27, 1999, the Company entered into an Asset
Purchase Agreement with Partnership, under which the Company agreed to purchase
certain of the assets of Partnership in exchange for $500,000 and 1,500,000
shares of the Company's common stock. In December 2000, the asset purchase
agreement was cancelled and the Company forgave this note and all related
accrued interest in the amount of $69,608 as consideration for certain services
rendered by the partnership on behalf of the Company.

OTHER MATTERS

         In January 2001, the Company granted to Mr. Donald P. Uhl, Chief
Executive Officer, options to purchase 700,000 shares of common stock at an
exercise price of $.30 per share. The options are immediately exercisable and
will expire in January 2006.

         In January 2001, the Company's Board of Directors approved for the
Company to grant options to each of the Company's directors, based on their
respective years of service. The Board approved for the Company to grant options
to purchase 400,000 total shares of the Company's common stock at an exercise
price of $0.25 per share, subject to the subsequent approval of the Company's
shareholders. If approved, all such options would expire two years after the
date on which they will have been granted.

         In June 2000, the Company entered into an agreement with George E.
Sattler/G.E.S. Associates, which provided for various marketing services to
assist the Company in obtaining and developing working relationships with
various retail customers. Mr. Sattler, a Director of the Company, receives
$2,400 per month for these services provided to the Company. As further
consideration for services rendered to the Company under the consulting
agreement, the Company granted to Mr. Sattler options to purchase 575,000 shares
of the Company's common stock. Options to purchase 100,000 shares are fully
vested and immediately exercisable at an exercise price of $0.25 per share. The
remaining options to purchase a total of 475,000 shares vest in various amounts
on the achievement of certain performance benchmarks, as set forth in the
consulting agreement. These second set of options will be exercisable at an
exercise price per share equal to the lesser of $1.00 or 85% of the average
closing price of the common stock over the 15 days preceding the date of
exercise. The agreement provides for a term of one year commencing on June 1,
2000. The agreement may be terminated by the Company for cause (as described in
the agreement) and on various other grounds, including (without limitation) the
death or disability of Mr. Sattler.

                                      -29-
<PAGE>

  To facilitate the initial introduction of its systems, the Company has
entered into a financing agreement with In Store Capital LLC, an independent
company formed specifically to provide equipment and receivables financing for
In Store Media Systems, Inc. After the anticipated successful introduction of
each of its products, In Store Capital has agreed to obtain equipment and
receivables financing facilities of up to $100 million through Morris and Mozer,
Inc., an investment banking firm located in Minneapolis, Minnesota. The funds
available through this line of credit is expected to start small and grow
rapidly as the Company's systems are installed in more market areas. Under this
agreement, In Store Capital will provide the initial capital required to
commercially test first the Coupon Bank System, then the InStaClearing and
Coupon Exchange Center systems respectively, in several commercial applications.
After successful commercial demonstrations, In Store Capital will provide the
structure through which other major investment banking firms can join In Store
Capital in financing rollout of the respective systems of the Company. In Store
Capital has committed to provide financing for the Coupon Bank System, but is
not obligated to finance other systems on a binding time table. In the past, the
Company has experienced substantial product installation delays resulting
primarily from inadequate financial resources. The ability to execute its
product introduction plan will depend upon the resources provided by and through
In Store Capital, LLC.

         The investment group that provided additional development capital to
the Company and that formed In Store Capital LLC, was introduced to the Company
by Morris and Mozer Financial, Inc., of which Michael T. Mozer, a director of
the Company, is a principal. In addition, Morris and Mozer Financial, Inc.
secured a conditional agreement with Coast Business Credit on behalf of the
Company, which if finalized, will provide the Company with funding through In
Store Capital LLC. As compensation for its services, Morris and Mozer Financial,
Inc. will receive warrants to purchase 3,150,000 shares of the Company's common
stock that can be exercised anytime in the third, fourth or fifth year after the
date on which they were issued. The warrants will vest and become exercisable
only after the completion of a financing agreement acceptable to the Company.
The exercise price is $2.00 per share and the Company may call the warrants
anytime after two and one-half years at $4.00 per share. In addition, Morris and
Mozer Financial, Inc. will receive a one-time fee equal to 1% of the amount of
each "draw" made by the Company against either the equipment financing or the
receivables revolver.

                                      -30-
<PAGE>

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------

         Audited Financial Statements for the fiscal year ended December 31,
2000, including report of independent auditors.

(a)      EXHIBITS AND FINANCIAL STATEMENTS.

(1) The following financial statements of the Company are included.

   AUDITED FINANCIAL  STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND
   2000 AND FOR THE PERIOD FROM DECEMBER 30, 1992  (INCEPTION)  THROUGH DECEMBER
   31, 2000:

   Report of Independent Certified Public Accountants                       F-2

   Balance Sheet as of December 31, 1999 and 2000                           F-3

   Statement of Operations for Years Ended December 31, 1998,
   1999 and 2000, and for the Period from  December 30, 1992
   (Inception)  Through  December  31, 2000                                 F-5

   Statement of Changes in  Stockholders'  Equity  (Deficit)
   For the Period from December 30, 1992 (Inception) Through
   December 31, 2000                                                        F-6

   Statement of Cash Flows For Years Ended December 31, 1998,
   1999 and 2000, and for the Period from December  30, 1992
   (Inception)  Through  December  31,  2000                                F-11

   Notes to Financial Statements                                            F-13


(2) The following exhibits are filed as part of this Report.

Exhibit
Number   Description
------   -----------------------------------------------------------------------

2.1      Merger Agreement and Plan of Reorganization dated September 15, 1998,
         by and between the Registrant (formerly known as Crescent Gold
         Corporation) and In Store Media Systems, Inc., a Colorado corporation
         (1)

3.1      Articles of Incorporation (1)

3.1.2    Certificate of Amendment filed with the Nevada Secretary of State as of
         October 7, 1998 (1)

3.2      Bylaws of the registrant (as amended) (1)

4.1      Specimen of Common Stock of Registrant (1)

10.1     Memorandum of Understanding dated January 13, 1997, with Unisys
         Corporation (1) (3)

10.1.2   Memorandum of Understanding dated February 25, 1997, with Unisys
         Corporation (1) (3)

10.1.3   Memorandum of Understanding dated March 19, 1997, with Unisys
         Corporation (1)(3)

10.1.4   Memorandum of Understanding dated April 4, 1997, with Unisys
         Corporation (1) (3)

10.2     Employment Agreement dated August 1, 1999 by and between Registrant and
         Lawrence Mortimer (1)

10.3     Revised Incentive Bonus Program dated June 7, 1999, relating to bonus
         program for Thomas Gorman (1)

10.4     Commitment Letter dated February 17, 1998, addressed to the Company
         from Dougherty Funding LLC (1)

10.5     Asset Purchase Agreement by and between Registrant and Partnership for
         Shared Marketing, Inc., and amendments thereto (1)

10.6     Employment Agreement dated July 11, 2000, between Registrant and Robert
         L. Cohen (2)

10.7     Employment Agreement dated July 11, 2000, between Registrant and Thomas
         F. Carroll (2)

                                      -31-
<PAGE>

10.8     NCH Retailer Services Coupon Redemption Service Agreement between
         Registrant and NCH Promotional Services, Inc. (2)

10.9     Loan Agreement dated September 5, 2000, between Registrant and Donald
         P. Uhl (2)

10.10    Loan Agreement dated November 8, 2000, between Registrant and PLDLC
         Family Limited Partnership (2)

10.11    Warrant Agreement dated March 8, 2000, between Registrant and issued to
         Morris and Mozer Financial Services (2)

21.1     List of Subsidiaries (2)

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

(1)      Previously filed with the Commission with the Company's Registration
         Statement on Form 10, as amended.

(2)      Filed herewith.

(3)      Portions omitted pursuant to a confidential treatment request to be
         filed separately with the Commission.

(b)      REPORTS ON FORM 8-K.

         There were no Reports on Form 8-K of the Securities and Exchange
Commission filed during the quarter ended December 31, 2000.



                                      -32-
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on to be signed
on its behalf by the undersigned, thereunto duly authorized.

                            IN STORE MEDIA SYSTEMS, INC.

Date: April 5, 2001         By:   /s/ DONALD P. UHL
                                  ----------------------------------------------
                                  Donald P. Uhl
                                  President, Chief Executive Officer, and
                                  Chairman of the Board


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:

                            IN STORE MEDIA SYSTEMS, INC.


Date: April 5, 2001         By:   /s/ DONALD P. UHL
                                  ----------------------------------------------
                                  Donald P. Uhl, President, Chief Executive
                                  Officer, and Chairman of the Board


Date: April 5, 2001         By:   /s/ ROBERT L. COHEN
                                  ----------------------------------------------
                                  Robert L. Cohen, Corporate Secretary, Vice
                                  President and Chief Financial Officer


Date: April 5, 2001         By:   /s/ THOMAS F. CARROLL
                                  ----------------------------------------------
                                  Thomas F. Carroll, Director, Vice President
                                  Sales & Marketing


Date: April 5, 2001         By:   /s/ MICHAEL T. MOZER
                                  ----------------------------------------------
                                  Michael T. Mozer, Director


Date: April 5, 2001         By:   /s/ RONALD F. ANDEREGG
                                  ----------------------------------------------
                                  Ronald F. Angeregg, Director


Date: April 5, 2001         By:   /s/ FRANK PIRRI
                                  ----------------------------------------------
                                  Frank Pirri, Director


Date: April 5, 2001         By:   /s/ GEORGE E. SATTLER
                                  ----------------------------------------------
                                  George E. Sattler, Director

<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.

                          INDEX TO FINANCIAL STATEMENTS



   AUDITED FINANCIAL  STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND
   2000 AND FOR THE PERIOD FROM DECEMBER 30, 1992  (INCEPTION)  THROUGH DECEMBER
   31, 2000:

   Report of Independent Certified Public Accountants                       F-2

   Balance Sheet as of December 31, 1999 and 2000                           F-3

   Statement of Operations for Years Ended December 31, 1998,
   1999 and 2000, and for the Period from  December 30, 1992
   (Inception)  Through  December  31, 2000                                 F-5

   Statement of Changes in  Stockholders'  Equity  (Deficit)
   For the Period from December 30, 1992 (Inception) Through
   December 31, 2000                                                        F-6

   Statement of Cash Flows For Years Ended December 31, 1998,
   1999 and 2000, and for the Period from December  30, 1992
   (Inception)  Through  December  31,  2000                                F-11

   Notes to Financial Statements                                            F-13


                                       F-1


<PAGE>






               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




   The Board of Directors and Stockholders
   In Store Media Systems, Inc.


   We have audited the  accompanying  balance  sheet of In Store Media  Systems,
   Inc. (a development  stage company) as of December 31, 1999 and 2000, and the
   related statements of operations,  changes in stockholders'  equity (deficit)
   and cash flows for each of the three years in the period  ended  December 31,
   2000, and for the period from December 30, 1992 (inception)  through December
   31, 2000. 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  generally  accepted  auditing
   standards.  Those  standards  require  that we plan and perform the audits 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 In Store Media Systems, Inc.
   as of December  31, 1999 and 2000 and the results of its  operations  and its
   cash flows for each of the three years in the period ended December 31, 2000,
   and for the period from December 30, 1992  (inception)  through  December 31,
   2000, in conformity with generally accepted accounting principles.

   The accompanying  financial  statements have been prepared  assuming that the
   Company  will  continue as a going  concern.  As  discussed  in Note 1 to the
   financial  statements,  the Company is in the development  stage and has been
   primarily  involved in research  and  development  activities,  resulting  in
   significant  losses and a  stockholders'  deficit  at  December  31,  2000 of
   $3,045,914.  These  conditions raise  substantial  doubt about its ability to
   continue as a going concern.  Management's plans regarding those matters also
   are  described  in  Note 1.  The  financial  statements  do not  include  any
   adjustments that might result from the outcome of this uncertainty.



   Denver, Colorado
   February 16, 2001, except for
     Note 10 as to which date                     CAUSEY DEMGEN & MOORE INC.
     is February 23, 2001

                                       F-2






<PAGE>


                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                           December 31, 1999 and 2000

                                     ASSETS


                                                          1999         2000
                                                          ----         ----
Current assets:
   Cash and cash equivalents                           $ 248,325    $ 191,039
   Note receivable - related party (Notes 2 and 9)        63,860            -
   Inventory                                             117,295        5,925
   Other current assets                                    1,559       44,270
                                                       ---------    ---------

   Total current assets                                  431,039      241,234

Property and equipment, at cost:
   Manufacturing equipment (Note 9)                      341,277       79,076
   Office furniture and equipment                        123,016      128,614
   Leasehold improvements                                 55,228       55,228
                                                       ---------    ---------
                                                         519,521      262,918

   Less accumulated depreciation and amortization       (206,304)    (150,853)
                                                       ---------    ---------

   Net property and equipment                            313,217      112,065

Other assets:
   Advances and note receivable - related parties
   (Note 2)                                               45,085       46,658
   Debt issuance costs                                         -       10,000
   Deposits (Note 7)                                      29,159            -
   Patent costs, net of accumulated amortization of
   $18,089 (1999) and $23,926 (2000)                      58,035       86,754
                                                       ---------    ---------

   Net other assets                                      132,279      143,412
                                                       ---------    ---------

                                                       $ 876,535    $ 496,711
                                                       =========    =========

                             See accompanying notes.
                                       F-3







<PAGE>


                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                           December 31, 1999 and 2000

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


                                                         1999         2000
                                                         ----         ----
Current liabilities:
   Accounts payable (Note 7)                         $   587,674  $   597,330
   Accrued expenses                                            -       48,665
   Interest payable                                      599,284      610,780
   Notes payable (Note 3)                              2,140,087    1,679,976
   Notes payable-shareholder (Note 3)                     90,000      251,000
   Short-term notes payable (Note 3)                           -      354,874
   Obligations under capital leases (Note 7)               3,238            -
                                                     -----------  -----------

   Total current liabilities                           3,420,283    3,542,625

Long-term liabilities:
   Debenture payable - related party (Note 7)            247,880            -
                                                     -----------  -----------

   Total long-term liabilities                           247,880            -

Commitments and contingencies (Notes 5 and 7)

Stockholders'  equity  (deficit) (Notes 3 and 5):

 Preferred stock, no par value; 50,000,000 shares
  authorized, 3 shares issued and outstanding
  liquidation preference $750,000                              -      750,000
   Common stock, $.001 par value; 150,000,000 shares
   authorized, 63,828,527 (1999) and 67,631,621
   (2000) shares issued                                   63,829       67,631
   Additional paid-in capital                         10,816,909   13,076,110
   Treasury stock, at cost; 9,374,742 shares            (563,750)    (563,750)
   Deficit accumulated during the development
    stage                                            (13,108,616) (16,375,905)
                                                     -----------  -----------
   Total stockholders' equity (deficit)               (2,791,628)  (3,045,914)
                                                     -----------  -----------

                                                     $   876,535  $   496,711
                                                     ===========  ===========

                             See accompanying notes.
                                       F-4



<PAGE>


                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF OPERATIONS

              For the Years Ended December 31, 1998, 1999 and 2000
and for the Period from December 30, 1992 (inception) through December 31, 2000

                                                                    Cumulative
                                                                   amounts from
                                    1998         1999       2000     inception
                                    ----         ----       ----     ---------

Costs and expenses:
   Research and development      $ 194,897   $ 250,873    $ 50,350  $ 3,275,352
   General and administrative      866,858   1,549,301   1,704,721    6,490,384
   Depreciation and amortization    61,777      66,229      68,940      293,332
                                 ---------   ----------  ---------  -----------

    Operating loss              (1,123,532) (1,866,403) (1,824,011) (10,059,068)

Other income (expense):
   Interest income                  28,147      30,422       7,561       89,960
   Litigation settlement (Note 7)        -           -           -     (156,250)
   Restructuring charges (Note 9)        -           -    (196,511)    (196,511)
   Debt conversion costs (Note 3)  (20,000)   (107,250)  ( 291,686)    (676,830)
   Interest expense               (775,591) (1,242,471)   (208,039)  (4,622,603)
                                 ---------- ---------- -----------  -----------

    Total other income (expense)  (767,444) (1,319,299)   (688,675)  (5,562,234)
                                 ---------- ---------- -----------  -----------
Net loss (Note 4)              $(1,890,976)$(3,185,702)$(2,512,686)$(15,621,302)
                               =========== =========== =========== ============

Basic and diluted net loss per
   common share (Note 6)            $ (.04)     $ (.06)     $ (.05)      $ (.35)
                                    ======      ======      ======       ======

Weighted average common shares
   outstanding (Note 6)          49,000,000 57,900,000  51,600,000   44,300,000
                                 ========== ==========  ==========   ==========



                             See accompanying notes.
                                       F-5



<PAGE>
<TABLE>


                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

  For the Period from December 30, 1992 (inception) through December 31, 2000
<CAPTION>

                                                                                                            Deficit
                                                                                                          accumulated
                                                                          Additional                       during the
                                      Preferred stock   Common stock       paid-in      Stock    Treasury  development
                                      Shares   Amount Shares     Amount    capital  subscriptions  stock     stage          Total
                                      ------   ------ ------     ------    -------  -------------  -----     -----          -----
<S>                                   <C>    <C>      <C>        <C>      <C>       <C>          <C>      <C>           <C>
Balance at December 30, 1992 (inception)   - $      -          - $     - $         -   $     -   $      - $          -  $         -

  Issuance of common stock in exchange
   for assignment of patent and serv-
   ices in 1993 ($.001 per share)(Note 5)  -        - 30,462,375  30,462      (7,367)        -          -            -       23,095

  Sale of common stock for cash
   in 1993 ($.07 per share)(Note 5)        -        -  2,812,496   2,813     187,187         -          -            -      190,000

  Sale of common stock for hardware,
   software and lab time in 1993 ($.07
   per share)(Note 5)                      -        -  1,125,000   1,125      77,625         -          -            -      78,750

  Sale of common stock for cash
   in 1993 ($.21 per share)(Note 5)        -        -     94,125      94      19,806         -          -            -      19,900

  Sale of common stock for cash
   in 1994 ($.08 per share)(Note 5)        -        -  5,861,005   5,861     479,139         -          -            -     485,000

  Sale of common stock for cash
   in 1995 ($.40 per share)(Note 5)        -        -    750,000     750     299,250        -           -            -     300,000

  Exercise of warrants in 1995
   ($.26 per share)                        -        -     19,320      19       5,038        -           -            -       5,057

  Issuance of common stock for serv-
  ices in 1995,  less shares returned
  ($.24 per share based on original
  shares issued)(Note 5)                   -        -     75,000      75      42,321        -           -            -      42,396

  Sale of common stock for cash
   in 1995 ($.01 per share)(Note 5)        -        -    297,000     297       2,673        -           -            -       2,970

  Exercise of warrants in 1996
   ($.20 per share)                        -        -     22,680      23       5,987        -           -            -       6,010

  Issuance of warrants in connection
  with debt offering in 1996 (Note 3)      -        -          -       -   1,140,915        -           -            -   1,140,915
</TABLE>


                          (Continued on following page)
                             See accompanying notes.
                                       F-6




<PAGE>
<TABLE>


                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

  For the Period from December 30, 1992 (inception) through December 31, 2000

                        (Continued from preceding page)
<CAPTION>
                                                                                                           Deficit
                                                                                                          accumulated
                                                                          Additional                       during the
                                      Preferred stock   Common stock       paid-in      Stock    Treasury  development
                                      shares   Amount Shares     Amount    capital  subscriptions  stock     stage          Total
                                      ------   ------ ------     ------    -------  -------------  -----     -----          -----
<S>                                   <C>    <C>      <C>        <C>      <C>       <C>          <C>      <C>           <C>
 Settlement reached to repurchase
  2,687,500 shares of common stock of
  the Company in 1996 ($.02 per share)
  (Note 5)                                 -        -          -       -           -         -    (43,750)           -      (43,750)

  Sale of common stock for cash and
   settlement of accounts payable in
   1997 ($.05 per share)                   -        -    585,000     585      30,206         -          -            -       30,791

  Issuance of warrants in connection
   with debt offering in 1997 (Note 3)     -        -          -       -     361,201         -          -            -      361,201

  Purchase of common stock by conversion
   of note principal in 1997 ($.27
   per share)(Note 3)                      -        -  1,416,146   1,416     621,500         -          -            -      622,916

  Purchase of common stock by conversion
   of note interest in 1997 ($.27 per
   share)(Note 3)                          -        -    108,241     108      28,756         -          -            -       28,864

  Additional purchases of common stock
   for cash in connection with note con-
   versions in 1997 ($.27 per share)
   (Note 3)                                -        -  1,765,278   1,765     468,976         -          -            -      470,741

  Net loss for the period from inception
   through December 31, 1997               -        -          -       -           -         -          -   (8,031,938)  (8,031,938)
                                          -- -------- ---------- ------- -----------   -------   -------- ------------  -----------

Balance, December 31, 1997                 -        - 45,393,666  45,393   3,763,213         -    (43,750)  (8,031,938)  (4,267,082)

  Issuance of warrants in connection with
   debt offering (Note 3)                  -        -          -       -     157,996         -          -            -      157,996

  Issuance of common stock in exchange for
   services ($.17 per share)               -        -    937,500     938     159,062         -          -            -      160,000

  Sale of common stock for cash
   in 1998 ($.13 per share)                -        -  2,250,000   2,250     297,750         -          -            -      300,000
</TABLE>

                          (Continued on following page)
                            See accompanying notes.
                                       F-7


<PAGE>
<TABLE>


                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

  For the Period from December 30, 1992 (inception) through December 31, 2000

                        (Continued from preceding page)
<CAPTION>
                                                                                                           Deficit
                                                                                                          accumulated
                                                                          Additional                       during the
                                      Preferred stock   Common stock       paid-in      Stock    Treasury  development
                                      Shares   Amount Shares     Amount    capital  subscriptions  stock     stage          Total
                                      ------   ------ ------     ------    -------  -------------  -----     -----          -----
<S>                                   <C>    <C>      <C>        <C>      <C>       <C>          <C>      <C>           <C>
  Exercise of warrants by conversion of
   note interest ($.14 per share)(Note 3)  -        -     56,250      56       3,694         -          -            -       3,750

  Additional purchases of common stock
   for cash in connection with note con-
   versions ($.27 per share)(Note 3)       -        -    427,500     428     113,572         -          -            -      114,000

  Purchase of common stock by conversion
   of note principal and interest ($.52
   per share)(Note 3)                      -        -  3,266,250   3,266   1,709,903         -          -            -    1,713,169

  Exercise of warrants by conversion of
   note principal and interest ($.52 per
   share)(Note 3)                          -        -    736,543     737     376,240         -          -            -      376,977

  Cash received in connection with sub-
   sequent conversion of note and inter-
   est to stock                            -        -          -       -           -    75,000          -            -       75,000

  Issuance of common stock pursuant
   to recapitalization (Note 5)            -        -  6,000,000   6,000      (6,000)        -          -            -            -

  Settlement of accounts payable by the
   issuance of common stock ($1.08 per
   share)                                  -        -     26,977      27      29,218         -          -            -       29,245

  Net loss for the year ended December
   31, 1998                                -        -          -       -           -         -          -   (1,890,976)  (1,890,976)
                                          -- -------- ---------- ------- -----------   -------   -------- ------------  -----------

Balance, December 31, 1998                 -        - 59,094,686  59,095   6,604,648    75,000    (43,750)  (9,922,914)  (3,227,921)

  Purchase of common stock by conversion
   of note principal and interest ($.73
   per share)(Note 3)                      -        -    543,750     544     398,445         -          -             -     398,989

  Exercise of warrants by conversion of
   note principal and interest ($.53 per
    share)(Note 3)                         -        -    541,121     541     288,508   (75,000)         -             -     214,049

</TABLE>

                          (Continued on following page)
                             See accompanying notes.
                                       F-8


<PAGE>
<TABLE>


                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

  For the Period from December 30, 1992 (inception) through December 31, 2000

                        (Continued from preceding page)
<CAPTION>
                                                                                                           Deficit
                                                                                                          accumulated
                                                                          Additional                       during the
                                      Preferred stock   Common stock       paid-in      Stock    Treasury  development
                                      Shares   Amount Shares     Amount    capital  subscriptions  stock     stage          Total
                                      ------   ------ ------     ------    -------  -------------  -----     -----          -----
<S>                                   <C>    <C>      <C>        <C>      <C>       <C>          <C>      <C>           <C>
  Sale of common stock for cash and in
   exchange for stock offering services
   ($1.00 per share) (Note 5)              -        -  3,456,360   3,427   2,475,245         -          -            -    2,478,702

  Exercise of warrants                     -        -    116,250     116      18,884         -          -            -       19,000

  Issuance of common stock for employee
   compensation ($.90 per share)           -        -     50,000      50      44,950         -          -            -       45,000

  Purchase of 6,687,242 treasury shares
   ($.08 per share) (Note 7)               -        -          -       -           -         -   (520,000)           -     (520,000)

  Issuance of common stock in settlement
   of account payable ($1.00 per share)    -       -      26,360      26      26,334         -          -            -       26,360

  Extension of exercise period of war-
   rants issued in connection with debt
   offerings                               -       -           -      -      959,895         -          -            -      959,895

  Net loss for the year ended December
   31, 1999                                -       -           -       -           -         -          -   (3,185,702)  (3,185,702)
                                          -- -------  ---------- ------- -----------   -------   -------- ------------  -----------

Balance, December 31, 1999                 -        - 63,828,527  63,829  10,816,909         -   (563,750) (13,108,616   (2,791,628)

  Sale of common stock for cash
   ($1.00 per share) (Note 5)              -        -     50,000      50      49,950         -          -            -       50,000

  Exercise of warrants  (Note 5)           -        -    249,892     249      16,394         -          -            -       16,643

  Issuance of common stock for employee
   compensation ($.90 per share) (Note 5)  -        -    105,000     105      94,395         -          -            -       94,500

  Warrants exercised on a cashless basis
   in consideration for stock offering
   services ($.90 per share)(Note 5)       -        -  2,009,202  2,009       (2,009)        -          -            -            -
</TABLE>

                          (Continued on following page)
                             See accompanying notes.
                                       F-9


<PAGE>
<TABLE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

  For the Period from December 30, 1992 (inception) through December 31, 2000

                        (Continued from preceding page)
<CAPTION>
                                                                                              Deficit
                                                                                                           Deficit
                                                                                                          accumulated
                                                                          Additional                       during the
                                      Preferred stock   Common stock       paid-in      Stock    Treasury  development
                                      Shares   Amount Shares     Amount    capital  subscriptions  stock     stage          Total
                                      ------   ------ ------     ------    -------  -------------  -----     -----          -----
<S>                                   <C>    <C>      <C>        <C>      <C>       <C>          <C>      <C>           <C>
  Extension of exercise period of
   warrants issued in connection
   with debt offerings (Note 5)            -        -          -       -     (95,901)       -          -             -      (95,901)

  Sale of preferred stock for cash
  (Note 5)                                 3  750,000          -       -     750,000        -          -      (750,000)     750,000

  Preferred stock dividends                -        -          -       -           -        -          -        (4,603)      (4,603)

  Intrinsic value of stock options
   granted to officers of the Company
   (Note 5)                                -        -          -       -     324,527        -          -             -      324,527

  Conversion of notes payable into
   common stock (Note 3)                   -           1,389,000   1,389     895,675        -          -             -      897,064

  Settlement of debenture payable
   (Note 7)                                -        -          -        -    226,170        -          -             -      226,170

  Net loss for the year ended
   December 31, 2000                       -        -          -       -           -        -          -    (2,512,686)  (2,512,686)
                                          -- -------- ---------- ------- ----------- --------  ---------  ------------  -----------

Balance, December 31, 2000                 3 $750,000 67,631,621 $67,631 $13,076,110 $     -   $(563,750) $(16,375,905) $(3,045,914)
                                          == ======== ========== ======= =========== =======   =========  ============  ===========
</TABLE>

                             See accompanying notes.
                                      F-10



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF CASH FLOWS

              For the Years Ended December 31, 1998, 1999 and 2000
and for the Period from December 30, 1992 (inception) through December 31, 2000

                                                                    Cumulative
                                                                     amounts
                                                                       from
                                    1998       1999       2000      inception
                                    ----       ----       ----      ---------
Cash flows from operating
 activities:
  Net loss                  $(1,890,976) $(3,185,702) $(2,512,686) $(15,621,302)
  Adjustments to reconcile net
   loss to net cash used in
   operating activities:
    Depreciation and amortiza-
     tion                        61,777       66,229       68,940       293,332
    Restructuring charges             -            -      196,511       196,511
    Common stock issued for ser-
     vices, patents, payables and
     extension of warrants      367,241    1,138,505      614,812     2,189,019
    Amortization of debt issu-
     ance costs                 133,124       72,568            -     1,560,512
    Reduction in note receivable
     - related party charged to
     research and development         -      244,311            -       244,311
    Changes in assets and
     liabilities:
      Accounts receivable and
       notes receivable          (4,838)      94,728            -       (63,860)
     Inventory                   30,079        3,780        6,990      (110,305)
     Other assets                  (430)        (100)     (42,711)      (44,270)
     Accounts payable          (299,818)    (355,363)       9,656       597,330
     Interest payable           280,822      105,805      299,828       925,991
     Other liabilities                -            -       48,665        48,665
                             ----------   ----------   ----------    ----------
    Total adjustments           567,957    1,370,463    1,202,691     5,837,236
                             ----------   ----------   ----------    ----------
    Net cash used in
     operations              (1,323,019)  (1,815,239)  (1,309,995)   (9,784,066)

Cash flows from investing
 activities:
  Purchase of property and
   equipment                     (3,084)     (41,665)      (9,474)     (267,028)
  Proceeds from sale of
   property and equipment             -            -      125,000       125,000
  Increase in advances -
   related parties              (21,242)      (9,052)      (1,573)     (290,969)
  Patent costs                   (5,220)     (19,300)     (34,556)     (110,679)
  Lease deposits                      -        1,811        1,279       (27,880)
  Debt issuance costs                 -            -      (10,000)      (10,000)
                              ---------    ---------    ---------    ----------
    Net cash provided by
     (used in) investing
     activities                 (29,546)     (68,206)      70,676      (581,556)

Cash flows from financing
 activities:
  Proceeds from sale of
   common stock               1,126,069    2,397,751       50,000     5,360,647
  Purchase of treasury stock          -     (520,000)           -      (520,000)
  Proceeds from preferred stock       -            -      750,000       750,000
  Preferred stock dividends           -            -       (4,603)       (4,603)
  Proceeds from (repayments
   of) stockholder loans         11,000      (23,500)     161,000       251,000
  Repayments of capital leases  (13,283)      (6,926)      (3,238)      (14,087)
  Proceeds from notes payable   597,500            -      354,874     5,044,874
  Repayments of notes payable   (54,003)     (31,999)    (126,000)     (311,170)
                              ---------   ----------   ----------    ----------
    Net cash provided by
     financing activities     1,667,283    1,815,326    1,182,033    10,556,661
                              ---------   ----------   ----------    ----------
Net increase (decrease) in
 cash                           314,718      (68,119)     (57,286)      191,039

Cash and cash equivalents at
 beginning of period              1,726      316,444      248,325             -
                             ----------   ----------   ----------    ----------
Cash and cash equivalents at
 end of period               $  316,444   $  248,325    $ 191,039    $  191,039
                             ==========   ==========    =========    ==========


                          (Continued on following page)
                             See accompanying notes.
                                      F-11


<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF CASH FLOWS

              For the Years Ended December 31, 1998, 1999 and 2000
and for the Period from December 30, 1992 (inception) through December 31, 2000

                         (Continued from preceding page)

Supplemental disclosure of cash flow information:

                                                                      Cumulative
                                                                       amounts
                                                                        from
                                       1998       1999      2000      inception
                                       ----       ----      ----     ----------
Cash paid during period for
  interest                         $ 430,491    $ 87,484    $  -    $ 1,187,946

Supplemental disclosure of non-cash financing activities:

                                                                      Cumulative
                                                                       amounts
                                                                        from
                                     1998       1999        2000      inception
                                     ----       ----        ----     ----------
Common stock issued for:
  Services, patents and payables   $ 189,245    $ 71,360   $ 94,500   $ 423,566
  Conversion of notes payable      1,376,750     368,750    460,111   2,583,250
  Conversion of interest              80,077      44,239    145,267     299,396
  Cancellation of notes payable            -     300,000          -     300,000
  Debt conversion costs               20,000     107,250    291,686     418,936
                                  ----------   ---------   --------  ----------
                                  $1,666,072   $ 891,599   $991,564  $4,025,148
                                  ==========   =========   ========  ==========

Warrants issued in debt offer:
  Additional paid-in capital       $ 157,996   $ 959,895   $(95,901) $2,524,106
  Expensed as interest              (157,996)   (959,895)    95,901  (2,524,106)

Capital leases recorded:
  Purchase of fixed assets               $ -         $ -        $ -   $ 261,967
  Obligations under capital lease          -           -          -    (261,967)

Compensation recorded upon
  grant of stock options                 $ -         $ -   $324,527   $ 324,527


                             See accompanying notes.
                                      F-12


<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


1. Organization and summary of significant accounting policies

   Organization:

   In Store Media Systems, Inc., a Nevada corporation, was organized on December
   30, 1992 to develop and market an electronic  coupon  clearing system for use
   in grocery  retailers.  The Company is considered  to be a development  stage
   enterprise  as  more  fully  defined  in  Statement  No.  7 of the  Financial
   Accounting  Standards Board.  Activities from inception  include research and
   development activities, seeking patents, as well as fund raising.

   On October 8, 1998,  the Company  consummated an agreement and plan of merger
   with Crescent Gold (Crescent),  in which Crescent  acquired all of the issued
   and  outstanding  common  shares of the Company (see Note 5). The Company was
   merged  into  Crescent,  and  Crescent  changed  its name to In  Store  Media
   Systems, Inc. For accounting purposes,  the acquisition has been treated as a
   recapitalization  of the  Company,  based  upon  historical  cost,  a reverse
   acquisition  with the Company as the acquirer.  The Company owns 100% of Data
   Driven Marketing, Inc. which has had no activity through December 31, 2000.

   Basis of presentation and management's plans:

   The Company's  financial  statements  have been  presented on a going concern
   basis which  contemplates  the realization of assets and the  satisfaction of
   liabilities  in  the  normal  course  of  business.  The  Company  is in  the
   development stage and has been primarily involved in research and development
   activities.  This has  resulted  in  significant  losses  ($15,621,302  since
   inception)  and a  stockholders'  deficit at December 31, 2000 of $3,045,914.
   The Company's  continued  existence is dependent on its ability to obtain the
   additional  funding necessary to complete  development of the coupon clearing
   system and  successfully  market the  product.  As  described  in Note 5, the
   Company raised  approximately  $800,000 in additional  equity funding in 2000
   which provided  additional  liquidity for the Company for current operations.
   In January 2001, the Company  completed a private  equity  funding  agreement
   that provided the Company with $2,052,000 of equity,  enabling the Company to
   begin  the  commercial  introduction  of its  proprietary  electronic  coupon
   clearing  system.  In  connection  with this funding  agreement,  the Company
   received   initial  proceeds  of  $1,000,000  in  equity  and  an  additional
   $1,052,000  of equity is being held in escrow  pending the Company  attaining
   certain milestones.

   The  financial  statements  do not  include  any  adjustment  relating to the
   recoverability and classification of recorded asset amounts or the amount and
   classification  of liabilities or other  adjustments  that might be necessary
   should the Company be unable to  continue  as a going  concern in its present
   form.

                                      F-13



<PAGE>
                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


1. Organization and 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 disclosure of
   contingent assets and liabilities at the date of the financial statements and
   the reported  amounts of revenues and expenses  during the reporting  period.
   Actual results could differ from those estimates.

   Income taxes:

   The Company provides for income taxes utilizing the liability  approach under
   which  deferred  income  taxes are  provided  based upon enacted tax laws and
   rates applicable to the periods in which the taxes become payable.

   Inventory:

   Inventory  consists of electronics and computer  components to be used in the
   Company's product. Inventory is stated at lower of cost or market, determined
   by the first in-first out method.

   Property and equipment:

   Property and equipment is recorded at cost.  Depreciation  commences as items
   are placed in service and is computed  using  straight-line  and  accelerated
   methods over their estimated  useful lives of five to seven years or the term
   of the lease for leasehold improvements. Maintenance and repairs are expensed
   as incurred, and improvements and major renewals are capitalized.

   Patent costs:

   Patents are stated at cost less accumulated  amortization which is calculated
   on a  straight-line  basis over the useful lives of the assets,  estimated by
   management to average 16 years.  Research and development costs and any costs
   associated  with  internally  developed  patents (with the exception of legal
   costs  which  are   capitalized)   and  costs   incurred  to  establish   the
   technological  feasibility  of  computer  software  are  expensed in the year
   incurred.

   Impairment of long-lived assets:

   The Company  evaluates  the  potential  impairment  of  long-lived  assets in
   accordance  with  Statement  of  Financial   Accounting  Standards  No.  121,
   Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets
   to be  Disposed  of. The  Company  annually  reviews  the amount of  recorded
   long-lived assets for impairment.  If the sum of the expected cash flows from
   these assets is less than the carrying amount,  the Company will recognize an
   impairment loss in such period.

                                      F-14



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


1. Organization and summary of significant accounting policies (continued)

   Stock options:

   The Company  has  adopted the  disclosure-only  provisions  of  Statement  of
   Financial   Accounting   Standards  No.  123   Accounting   for   Stock-Based
   Compensation.  Accordingly,  compensation  is  recorded  only when the quoted
   market price of the  Company's  stock at the date of grant exceeds the amount
   an employee must pay to acquire the stock.

   Advertising costs:

   The  Company  expenses  the costs of  advertising  as  incurred.  Advertising
   expense was $13,843,  $136,371  and $71,291 for the years ended  December 31,
   1998, 1999 and 2000, respectively.

   Cash equivalents:

   For the purposes of the  statement of cash flows,  the Company  considers all
   highly liquid debt  instruments  purchased with a maturity of three months or
   less to be cash equivalents.

   Concentrations of credit risk:

   Financial instruments which potentially subject the Company to concentrations
   of  credit  risk  consist  principally  of cash  and  cash  equivalents.  The
   Company's  excess  cash is  deposited  in liquid  low-risk  interest  bearing
   accounts within high quality national financial institutions. At December 31,
   2000 and at times during the years, the balance at one financial  institution
   exceeded FDIC limits.

   Reclassifications:

   Certain  reclassifications  have  been  made to the 1998  and 1999  financial
   statements to conform to the 2000 financial statement presentation.

2. Notes receivable

   The  Company's  former  president  received  no salary  until  May 15,  1996.
   However,  the Company  made a loan to the former  president  and paid certain
   storage  and other  expenses on his behalf.  The  effective  date of the loan
   agreement and promissory  note was January 3, 1994. The loan is unsecured and
   interest began to accrue on the outstanding balance as of September 30, 1996.
   Through  December 31, 1998,  the former  president  drew  $232,201 and repaid
   $37,200  leaving a balance of  $236,892  (including  accrued  interest at the
   prime rate plus 2% of  $41,891).  The Company  acquired  certain  proprietary
   technology  owned by the former  president  which the Company  believes  will
   compliment the Coupon  Exchange  Center System and add  substantially  to the
   Company's  future  revenues.  During  1999,  the Company  forgave the loan in
   exchange  for  a  patent.  The  balance  of  the  loan  and  accrued

                                      F-15



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


2. Notes receivable (continued)

   interest of $244,311 has been recorded as research and  development  expense.
   Through  December  31, 2000,  the Company has  advanced  $46,658 to a company
   owned by the former president. The advance is due on demand.

   The Company  advanced  to a director of the Company and two of his  relatives
   $50,000 to be  applied  toward the  purchase  of the assets of a  partnership
   owned  by  these  individuals  which  is  secured  with a note  and  personal
   guarantees.  The note was due on June 15, 1997  including  interest at 9% per
   annum.  On December 15, 2000,  the Company  forgave this note and all related
   accrued  interest in lieu of completing the asset purchase  agreement and for
   services rendered by the partnership on behalf of the Company (see Note 9).

3. Notes payable

   Effective  February 14, 1996, the Company  initiated a private offering of 16
   (the  minimum)  to  200  units  each  consisting  of a  $25,000  convertible,
   Promissory  Note  ("Notes")  and  warrants to purchase  56,250  shares of the
   Company's  common stock.  During the years ended December  31,1996,  1997 and
   1998,  the Company sold an aggregate of 170 units and issued notes payable of
   $3,040,000,  $962,500 and $247,500,  respectively.  The term of the Notes was
   one year  from date of issue  and they  bore  interest  at the rate of 9% per
   annum payable  quarterly.  The warrants consisted of 18,750 "A", "B", and "C"
   warrants to purchase  shares of the Company's  stock at an exercise  price of
   $.07; $.67; and $1.33 per share,  respectively.  In addition, the Company has
   granted to a  broker/dealer  "A",  "B", and "C" warrants  equal to 10% of the
   warrants  included  in the  units at the same  price and also  granted  to an
   attorney  402,968  warrants  to  purchase  common  stock  at $.67  per  share
   exercisable for a period of five years from December 4, 1995. The Company has
   also paid the broker/dealer a 10% selling commission and a 3% non-accountable
   expense allowance on each unit sold in conjunction with the offering, and has
   issued  warrants to purchase  1,875,000  shares of the  Company's  stock to a
   consultant  who  facilitated  the  offering.  The  exercise  price  for these
   warrants is approximately  $.05 per share and they shall be exercisable for a
   period of five years  from date of the close of the  offering.  The  warrants
   issued to the note holders were valued at $1,069,996  and have been reflected
   as additional  paid-in capital and a discount,  proportionate to the issuance
   of the notes  which is being  amortized  over the one year term of the notes.
   The  warrants  issued  to the  consultant  and the  attorney  were  valued at
   $397,500  and have been  reflected  as  additional  paid-in  capital and debt
   issuance costs,  proportionate  to the issuance of the notes,  which is being
   amortized to interest expense over the one-year term of the notes.

   In April of 1997,  the Company  requested note holders to extend the due date
   of the Notes.  Note holders  representing  62 Notes agreed to  extensions  of
   between 120 and 180 days.  As of September  30, 1997,  the Company had repaid
   $5,000 toward Notes which matured and were not extended.  In consideration of
   a selling agent's assistance in getting note holder  extensions,  the Company
   agreed  to  pay a 5%  cash  commission  and  5% of  the  warrants  issued  in
   connection  with the Notes which were extended.  The selling agent was issued
   380,881 "A", "B", and "C" warrants.  The warrants were valued at $127,500 and
   were treated as additional  paid-in capital and debt issuance costs which are
   amortized to interest expense during 1997, 1998 and 1999.

                                      F-16



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


3. Notes payable (continued)

   In a letter to the 1996 note  holders in July 1997,  the Company  offered the
   note holders the  opportunity  to purchase the  Company's  restricted  common
   stock at $0.27 per share  with the  principal  of their  notes,  the  accrued
   interest and/or additional cash. In 1997, $377,639 of the principal purchased
   1,416,146 shares of common stock,  $28,864 of the accrued interest  purchased
   108,241  shares of  common  stock  and  $470,741  of  additional  cash  sales
   purchased 1,765,278 shares of common stock. The additional shares received as
   compared to the conversion provisions in the note have been reflected as debt
   conversion costs amounting to $257,894.  In January and February of 1998, the
   short-term note holders  purchased  427,500 of the Company's shares of common
   stock with $114,000 of cash, or $0.27 per share.

   During 1998 and 1999, the Company offered its note holders the opportunity to
   convert their note  principal,  accrued  interest and warrants into shares of
   common stock.  The note holders  purchased  3,266,250  and 543,750  shares of
   common stock in consideration  for $1,006,250 and $141,250 in note principal,
   $116,062  and $22,989 of accrued  interest  and cash of $735,750 and $148,750
   less offering costs of $144,893 and $0, respectively.  In connection with the
   revised  terms of the note  conversion  offer,  the Company  recognized  debt
   conversion  costs of $0 and $86,000 for the years ended December 31, 1998 and
   1999, respectively.

   During 1998 and 1999, the Company offered its note holders the opportunity to
   exercise their  warrants using note principal and interest.  The note holders
   purchased  736,543 and 541,121  shares of common stock in  consideration  for
   $370,500  and  $227,500  in note  principal,  $59,827  and $40,299 of accrued
   interest less offering costs of $53,350 and $0,  respectively.  In connection
   with the warrant exercise offer in 1998 and 1999, the Company issued a net of
   41,983 and 48,207 new warrants  valued at $20,000 and $21,250,  respectively,
   and reflected as debt conversion costs.

   During 2000 and 2001 the Company is offering  its note  holders the option to
   extend their notes and accrued  interest until October 31, 2001 or to convert
   their notes and  exercise  their  warrants by using the balance of their note
   principal and accrued interest.  During 2000, note holders converted $460,111
   of note  principal  and  $145,267 of interest  into  1,389,000  shares of the
   Company's  common  stock.  In  connection  with the revised terms of the note
   conversion  offer,  the Company  recognized  conversion  costs of $291,686 in
   2000.

   During  1998,  the  Company  initiated  a private  offering  of a maximum  of
   $800,000 of Promissory  Notes bearing  interest at 10% per annum and warrants
   to purchase 320,000 shares of common stock exercisable at $1.00 per share for
   one year.  As of  December  31,  1998,  $350,000  had been raised and 140,000
   warrants  were issued.  The  warrants  issued were valued at $65,116 and have
   been reflected as additional  paid-in  capital and a discount on the issuance
   of the notes  which is being  amortized  over the one year term of the notes.
   During  1999,  $300,000 in  principal  of these notes were used to purchase 3
   units of the November 1998 private placement of common stock. (See Note 5).

                                      F-17



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


3. Notes payable (continued)

   Notes payable at December 31, 1999 and 2000 consisted of the following:

                                                        1999              2000
                                                        ----              ----
    9% Notes payable, interest payable quarterly,
     principal past due, unsecured, in default at
     December 31, 1999 and 2000 (See Note 10)         $2,090,087    $1,629,976

    10% Notes payable, interest payable quarterly,
     principal past due, unsecured                        50,000        50,000
                                                      ----------    ----------
                                                      $2,140,087    $1,679,976
                                                      ==========    ==========

   Notes payable - shareholder at December 31, 1999 and 2000 consisted of the
    following:
                                                        1999              2000
                                                        ----              ----
    6% Notes payable to a shareholder  related to
     the  Company's  former  president, interest
     accrued monthly,  principal  due at various
     dates during 1998, in  default, unsecured,
     default interest rate set at 18% (see Note
     10)                                                $ 90,000      $ 91,000

    9.5% Note payable to the Company's president,
     payable at maturity on March 1, 2001, unsecured
     (see Note 10)                                             -        30,000

    9.5% Note  payable to a  partnership  in which
     the Company's president is the general partner,
     payable at maturity on March 1, 2001, unsecured
     (see Note 10)                                             -       130,000
                                                        --------      --------
                                                        $ 90,000      $251,000
                                                        ========      ========


   Short-term notes payable at December 31, 1999 and 2000 consisted of the
    following:
     9.5% Note payable to an unrelated Company, payable
     at maturity upon consumation of private equity
     funding, unsecured (see Note 10)                   $     -       $160,000

     9.5% Note payable to an unrelated individual,
      payable at maturity upon consumation of private
      equity funding, unsecured (see Note 10)                 -        160,000

     9.75% Note payable to an insurance finance company,
      payable in monthly installments of $5,145 including
      interest through August 10, 2001                        -         34,874
                                                         ------       --------
                                                         $    -       $354,874
                                                         ======       ========

                                      F-18


<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


4. Income taxes

   At December 31, 2000,  the Company has a net operating tax loss  carryforward
   of approximately $7,929,000, future tax deductions of $4,205,000 which may be
   used to offset future taxable income, and unused tax credits of $255,000. The
   future tax deductions result from capitalizing pre-operating costs for income
   tax  reporting  purposes and expensing  these costs for  financial  statement
   purposes.   Differences   between  the  book  and  tax  net  operating   loss
   carryforward  consists  primarily of the above plus valuation of warrants and
   stock  issued in  connection  with notes  payable and for  services.  The net
   operating tax loss carryforward expires as follows:

                      2010                     $ 339,700
                      2011                     1,110,000
                      2012                     2,054,000
                      2013                       520,000
                      2014                     2,059,300
                      2015                     1,846,000
                                               ---------

                                              $7,929,000
                                              ==========

   At  December  31,  1999 and 2000,  total  deferred  tax assets and  valuation
   allowance are as follows:

                                                          1999      2000
                                                          ----      ----
      Deferred tax assets resulting from:
        Net operating loss carryforwards              $2,269,000  $2,958,000
        Capitalized pre-operating costs                1,361,000   1,568,000
        Research and development tax credits             220,000     255,000
                                                      ----------  ----------
        Total                                          3,850,000   4,781,000
        Less valuation allowance                      (3,850,000) (4,781,000)
                                                      ----------  ----------
                                                      $        - $         -
                                                      ========== ===========

   A 100%  valuation  allowance  has been  established  against the deferred tax
   assets,  as utilization of the loss  carryforwards  and  realization of other
   deferred tax assets cannot be reasonable assured.

5. Stockholders' equity

   Recapitalization:

   On October 8, 1998, the Company  entered into an agreement and plan of merger
   with Crescent to exchange all of the issued and outstanding  common shares of
   the Company,  in exchange for  approximately  44,000,000 shares of Crescent's
   $.01 par value common stock, in a reverse acquisition.

                                      F-19



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


5. Stockholders' equity (continued)

   Pursuant to the agreement,  Crescent agreed to have no unpaid  liabilities at
   the  effective  date of the  transaction.  The  exchange was  consummated  on
   October  8,  1998,   and  is  presented  on  the   statement  of  changes  in
   stockholders'  equity  (deficit) as an issuance of 6,000,000 shares of common
   stock for cash proceeds of $0 pursuant to recapitalization. The net effect of
   this  transaction  was to record an  increase  in  common  stock and  related
   decrease to additional paid-in capital of $60,000.

   Following the exchange, the Company's shareholders owned approximately 88% of
   the outstanding  common stock of Crescent.  The reverse  acquisition has been
   accounted  for as a  recapitalization  of the Company  based upon  historical
   cost.  Accordingly,  the number of authorized and issued common  shares,  par
   value of common stock and  additional  paid-in  capital have been restated on
   the  balance  sheet  and  the  statement  of  stockholders'  equity  to  give
   retroactive effect to the recapitalization.

   Capital contributions:

   During the year ended December 31, 1993,  30,462,375  shares of the Company's
   common  stock was issued in exchange for  assignment  of patents and services
   valued at $23,095,  2,812,496 shares were issued to Peter Indovina, et al for
   $190,000  cash,  94,125 shares were issued for $19,900 in cash, and 1,125,000
   shares were issued to two vendors  who  provided an  aggregate  of $78,750 of
   hardware, software, laboratory time, and man hours for the development of the
   coupon  exchange  prototype  which is included in  research  and  development
   expense on the statement of operations. Additionally, the Company included in
   "units"  sold in  conjunction  with a  private  offering  memorandum,  30,900
   warrants  to  purchase  one share  each of common  stock for  $.0267.  In the
   aggregate,  19,320 of these  warrants  were  exercised  and the balance  have
   expired.

   During 1994, the Company sold 2,437,500 shares of common stock to HealthStar,
   Inc.  for $250,000 in cash,  3,374,755  shares to Peter  Indovina,  et al for
   $225,000 in cash, and 48,750 shares to others for $10,000 in cash.

   During the year ended December 31, 1995, 250,000 and 500,000 shares were sold
   to HealthStar,  Inc. and Peter  Indovina,  et al,  respectively,  at $.40 per
   share and in  addition,  1,500,000  warrants to purchase  one share of common
   stock  at $.67 per  share  were  issued  for a total of  $300,000  cash.  The
   warrants expired in 1997.

   During  1995,  187,500  shares  were issued to an employee of the Company for
   services performed valued at $42,396. In November 1996, the Company recovered
   the unvested  portion of the shares which  amounted to 112,500 of the 187,500
   shares issued.

   During  1995,  the Company  issued  297,000  shares of its common  stock upon
   conversion of warrants issued in consideration for a bridge loan.

                                      F-20



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


5. Stockholders' equity (continued)

   As settlement of the Company's  lawsuit against  HealthStar,  Inc. and Thomas
   Stateman  (HealthStar/Stateman  (see Note 7)), in 1996 the Company recovered:
   2,687,500  shares of its common stock;  warrants to purchase  666,666 shares;
   and, all royalty rights by issuing a note payable to HealthStar for $700,000.
   This note also replaced a previous note of $656,250  resulting in an increase
   of $43,750 which amount has been reflected as treasury stock. The Company and
   HealthStar then jointly sued Continium Technology Corporation (Continium) and
   further modifications of the note were made (see Note 7).

   In  1997  and  1998,  the  Company  issued  3,289,665  and  4,580,293  shares
   respectively, under the offering of convertible debt outlined in Note 3.

   During  1998,  the  Company  issued  937,500  shares of its  common  stock in
   exchange for services  valued at $.17 per share.  This issuance  includes the
   750,000  shares  issued to the attorney in the  Continuum/HealthStar  lawsuit
   (see Note 7). During November 1998, the Company commenced a private placement
   of common stock and  warrants.  The Company  proposed to sell a minimum of 18
   units and a maximum of 68 units at a price of  $100,000  per unit which would
   have  resulted in gross  proceeds to the  Company of between  $1,800,000  and
   $6,800,000 before deducting offering expenses. Each unit consisted of 100,000
   shares of common  stock and  warrants  to purchase  100,000  shares of common
   stock  exercisable  at $1.25 per  share and  expire
   between June 30, 2001 and January 31, 2002.

   Through  December 31, 1999, 29.36 units were sold resulting in gross proceeds
   of $2,936,360 (including conversion of note principal of $300,000,  reduction
   of accounts  payable of $100,000 and cash of  $2,500,000).  Offering costs of
   $457,658 were incurred for the 29.36 units.  In addition,  520,000  shares of
   common stock and 520,000 warrants were issued as commissions.

   During  2000,  the Company  issued  249,892  shares of common  stock upon the
   exercise of warrants resulting in proceeds of $16,643.  Warrants representing
   2,009,202  shares of common stock were exercised on a cashless basis pursuant
   to a settlement  with a selling agent in an offering of common  stock.  These
   warrants were issued in connection with the sale of common stock in a private
   placement.

   During  January  2000,  the  Company  sold  .5 unit  in a  private  placement
   resulting  in proceeds to the Company of $50,000.  The .5 unit  consisted  of
   50,000  shares of common  stock and  warrants  to purchase  50,000  shares of
   common  stock  exercisable  at $1.25  per share  until  January  2002.  As of
   December 31, 2000, the Company concluded this offering.

                                      F-21



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


5. Stockholders' equity (continued)

   On March 29,  2000,  the board of directors  authorized  the sale of up to 14
   shares of its Series A cumulative preferred stock for $250,000 per share that
   would  generate  maximum  proceeds of  $3,500,000  if all shares are sold. At
   December 31, 2000,  three shares have been sold for  $750,000.  The board has
   designated  the Series A cumulative  preferred  stock as having a liquidation
   preference  of $250,000  per share  accruing  dividends at the rate of 8% per
   annum.  The Series A cumulative  preferred  stock is convertible  into common
   stock at the rate of $.385 per common  share.  At the date of  issuance,  the
   rate at which the  preferred  stock could be converted  into common stock was
   below the trading market price of the common stock. For accounting  purposes,
   this   difference   has  been   recorded  as  an   increase   in   additional
   paid-in-capital  and a  corresponding  increase  in the  deficit  accumulated
   during the development stage.

   In 2000,  the  Company  issued  1,389,000  shares of its  common  stock  upon
   conversion of notes payable outlined in Note 3.

   During  2000,  the  Company  issued  105,000  shares of its  common  stock to
   employees for compensation valued at $94,500.

   At the Company's  stockholder meeting on September 29, 2000, the stockholders
   approved an amendment to the Company's  Articles of Incorporation to increase
   the  number  of  shares  of  $.001  par  value  common  stock  authorized  to
   150,000,000  shares  and  increase  the number of shares of  preferred  stock
   authorized to 50,000,000 shares.

   Stock warrants:

   The following is a summary of stock warrant activity:

                                              Exercise         Number of
                                                price            shares

     Balance at December 31, 1998                              9,739,412
     Issued in 1999                 $1.00, $1.25 and $1.33     3,612,961
     Exchanged in 1999              $.067, $.667 and $1.33    (1,135,313)
     Exercised in 1999                 $.067and $.667           (105,000)
                                                              ----------
     Balance at December 31, 1999                             12,112,060

     Issued in 2000                 $1.00, $1.25 and $1.33        66,692
     Exchanged in 2000              $.067, $.667 and $1.33    (1,021,000)
     Exercised in 2000                 $.067and $.667         (2,271,996)
                                                             -----------
     Balance at December 31, 2000                              8,885,756
                                                             ===========

                                      F-22



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


5. Stockholders' equity (continued)

   During  1999 and  2000,  the  Company  extended  the  exercise  period of the
   remaining A, B and C warrants  issued in 1996 in connection  with the private
   placement  of  promissory  notes  for  an  additional  90 to  120  days.  For
   accounting  purposes the  extension is treated as an issuance of warrants and
   therefore  were valued at $959,895  for 1999 and were  treated as  additional
   paid-in  capital and interest  expense.  During 2000,  although more warrants
   were extended,  the market price of the Company's stock declined resulting in
   the reduction of interest expense and additional paid-in capital of $95,901.

   In March 2000,  the Company  signed an agreement  with a financial firm whose
   principal officer is a director of the Company.  This agreement  provides for
   the firm to assist the Company in obtaining the necessary equipment financing
   and revolving credit facility required to implement and rollout the Company's
   proprietary  electronic  coupon clearing system in multiple retail locations.
   In  association  with this  agreement,  the Company  agreed to issue the firm
   warrants to purchase  3,150,000  shares of the  Company's  restricted  common
   stock at a price of $2.00 per share.  These warrants may not be exercised for
   two years following the date of issue and expire five years after the date of
   issue. Additionally, the Company may call the warrants any time after two and
   one-half  years  from the date of issue  and  before  the  expiration  of the
   warrants at a price of $4.00 per share.  As of  December  31,  2000,  no such
   warrants have been issued.

   Stock options:

   During 1998,  the board of  directors  granted to two  employees,  options to
   purchase  up to  2,000,000  shares  of  the  Company's  common  stock  in the
   aggregate  in exchange for services  the Company  received  during 1998.  The
   options are  exercisable  at $1.00 per share and vest upon the  attainment of
   certain goals.  During 1999,  the board of directors  granted one employee an
   option to purchase  up to  1,000,000  shares of the  Company's  common  stock
   exercisable  at $1.00 per share.  This option was to vest upon the attainment
   of certain goals. No compensation was recorded under these awards.

   During 2000, the board of directors  granted to two employees and a director,
   also  serving as a  consultant,  options to  purchase  524,375  shares of the
   Company's  common  stock at a strike  price of $.25 per  share.  The board of
   directors also granted options, to these same three individuals,  to purchase
   775,000 shares of the Company's common stock at the lesser of $1.00 or 85% of
   the average price of the Company's  common stock for the 15 days prior to the
   date of exercise.  These  options vest over time and upon the  attainment  of
   certain  milestones.  During 2000, the Company issued options to a consultant
   to purchase in the aggregate  400,000  shares of the  Company's  common stock
   exercisable  at $1.00 to $3.00 per share for two  years.  For the year  ended
   December  31, 2000,  the Company  realized  compensation  expense of $324,527
   resulting from the difference between the exercise price and the market price
   of the Company's common stock at the time the options were granted.

                                      F-23



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


5. Stockholders' equity (continued)

   The following is a summary of stock option activity:

                                                  Weighted
                                                  average
                                 Option price     exercise       Number of
                                  per share        price           shares
                                 ------------     --------       ---------'

       Balance December 31, 1998  $ 1.00             $1.00        2,000,000
       Granted                    $ 1.00             $1.00        1,000,000
       Exercised                  $    -             $   -                -
                                  ---------------    -----        ---------

       Balance December 31, 1999  $ 1.00             $1.00        3,000,000
       Granted                    $0. 25 to $3.00    $0.70        1,699,375
       Exercised                  $    -             $   -                -
       Forfeited                  $ 1.00             $1.00       (1,900,000)
                                  ---------------    -----       ----------

       Balance December 31, 2000  $0.25 to $3.00     $0.82        2,799,375
                                                                  =========

       Options exercisable at
        December 31, 2000         $0.25 to $3.00     $0.86        1,086,875
                                                                  =========

   The  following is  additional  information  with respect to those options and
   warrants outstanding at December 31, 2000:

                                             Weighted
                                             average        Weighted
                                             remaining      average
                                       contractual live in  exercise  Number of
                    Price per share            years          price     shares
                    ---------------            -----          -----     ------
 Options                 $0.25                 1.67          $0.25       524,375
           lesser of $1.00 or 85% of market    1.47          $0.55       775,000
                         $1.00                 2.41          $1.00     1,200,000
                    $1.25 to $1.50             1.42          $1.33       150,000
                         $2.00                 1.42          $2.00        50,000
                         $2.50                 1.42          $2.50        50,000
                         $3.00                 1.42          $3.00        50,000

 Warrants            $.067 - $1.33             0.25          $0.85     8,885,756

                                      F-24



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


5. Stockholders' equity (continued)

   The Company  has  adopted the  disclosure-only  provisions  of  Statement  of
   Financial   Accounting   Standards  No.  123,   Accounting  for   Stock-Based
   Compensation.  Accordingly,  no compensation cost has been recognized for the
   stock option plans unless the grant date fair value of the underlying  common
   stock exceeded the exercise price of the option.  Had compensation  costs for
   the Company's stock option plans been  determined  based on the fair value at
   the grant date for awards  during the years ended  December 31, 1999 and 2000
   in accordance with the provisions of SFAS No. 123, the Company's net loss and
   loss per share  would have been  reduced to the pro forma  amounts  indicated
   below:

                                                 1999         2000
        Net loss - as reported                $(3,185,702) $(2,406,347)
        Net loss - pro forma                   (3,185,702)  (2,555,805)
        Loss per share - as reported                (0.06)       (0.05)
        Loss per share - pro forma                  (0.06)       (0.05)

   The fair value of each option  grant is  estimated on the date of grant using
   the Black-Scholes  option-pricing  model with the following  weighted-average
   assumptions  used  for  grants  in  2000,  dividend  yield  of  0%;  expected
   volatility of 100%,  risk-free interest rate of 5.35% to 6.54%; and expected
   life of 1.5 to 2 years.

6. Basic and diluted warrants net loss per share

   Basic net loss per share is based on the  weighted  average  number of shares
   outstanding during the periods.  Shares issued for nominal  consideration are
   considered  outstanding since inception.  Diluted loss per share has not been
   presented as exercise of the  outstanding  stock  options and warrants  would
   have an anti-dilutive effect.

7. Commitments and contingencies

   Unisys:

   In 1997, the Company entered into a long-term, limited joint venture contract
   with Unisys  Corporation  (Unisys) in which  Unisys will provide at its cost,
   most of the hardware,  middleware,  software and depot level  maintenance for
   the Company's  Coupon  Exchange  Center (CEC) system.  Unisys will  initially
   provide  these  services  and  build  seven  Coupon   Exchange   Centers  for
   $1,901,000.  Unisys  will  manufacture  CEC's  thereafter  for a price  to be
   determined by volume along with certain  minimum  annual fees to be paid by a
   royalty on each CEC In$taCa$h  coupon  redeemed.  The Company has paid Unisys
   $943,716  and has  recorded a payable of $490,688  at  December  31, 1999 and
   2000. The Company will owe an estimated  $1,100,000 upon delivery of product.
   Certain of the  amounts in excess of agreed  upon  expenditure  ceilings  are
   subject to negotiation and may affect the future amounts owed.

                                      F-25



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


7. Commitments and contingencies (continued)

   Continuum/HealthStar:

   The  Company and  HealthStar/Stateman  accepted a  settlement  of their joint
   lawsuit against Continuum Technology  Corporation in 1997. The litigation was
   initiated to recover $656,250 paid by the Company and HealthStar to Continuum
   that was to produce 25 CEC's to be owned by HealthStar/Stateman  and operated
   by In Store Media  Systems,  Inc. The  agreement  required  Continuum to make
   payments  totaling  $200,000  to  HealthStar/Stateman  and  $100,000  to  the
   Company.  As part of the joint  settlement  with  Continium  and  HealthStar,
   HealthStar agreed to reduce its note obligation from $700,000 to $500,000 for
   the  Company's   agreement  to  have  Continium  make  payments  directly  to
   HealthStar.  A loss on  litigation  of  $156,250  has  been  recorded  in the
   accompanying  financial  statements in 1997. In the event Continuum defaulted
   on its payments before  HealthStar/Stateman  had received a total of $500,000
   from  the  Company  and  Continuum,  the  Company  was  obligated  to make up
   Continuum's payments. After  HealthStar/Stateman was paid a total of $500,000
   by the Company and Continuum, the Company acquired sole right to the $656,250
   stipulated  judgment  against  Continuum,  which it may exercise if Continuum
   defaults on any of its  payments to the Company.  Through  December 31, 1997,
   the  Company  paid  $190,000,  leaving a balance of  $310,000.  In 1998,  the
   Company  made a total of eleven  monthly  payments of $10,000.  The  $200,000
   balance due  HealthStar/Stateman was paid during 1998 by Continuum Technology
   Corporation.  During 1999,  Continuum made five payments of $20,000 per month
   to the Company.  In connection with the litigation  against  HealthStar,  the
   Company  entered into a  contingency  fee  agreement  with an attorney  which
   entitled  the  attorney to receive  750,000  shares of the  Company's  common
   stock.

   The Company also accepted an offer of settlement of its lawsuit against Peter
   Indovina,  et al.  The  settlement  gave the  Company  the  right to  recover
   6,687,242 shares of the Company's  stock,  warrants to purchase the Company's
   stock and certain royalties payable by the Company. The Company exercised its
   right during 1999 by the payment of $520,000 in cash which included extension
   payments of $20,000.

   Operating lease commitments:

   The Company leases office space under an operating lease on a  month-to-month
   basis.  Additionally,  the Company  leases  certain  office  equipment  under
   operating lease  agreements.  Total rent expense for the years ended December
   31, 1998, 1999 and 2000 was $37,560, $37,860 and $38,703, respectively.

   Capital lease commitments:

   The Company leases certain equipment under capital leases. On March 18, 1998,
   a major shareholder of the Company assumed the $247,880  remaining balance on
   certain capital leases and the deposit  received of $27,880 by issuing to the
   lessor 929,552 shares of the Company's  restricted  common stock owned by the
   shareholder.

                                      F-26



<PAGE>

                          IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


7. Commitments and contingencies (continued)

   On November 24, 1999, an agreement was formalized  whereby the Company issued
   a convertible  debenture in settlement of the capital lease obligation to the
   major  shareholder.  The  debenture  is payable on March 13,  2003  including
   interest at 16% per annum.  At maturity,  the shareholder can request payment
   in cash or 1,000,000  shares of the Company's  common stock in payment of the
   principal of the debenture  and can convert the interest  accrued into common
   stock at the rate of $1.00 per share.

   During  2000,  the Company  settled its  obligation  under the  debenture  of
   $380,050  (principal and accrual interest) by the payment of $126,000 in cash
   and  applying  the  deposit  held of  $27,880  resulting  in a benefit to the
   company of $226,170 which is reflected as contributed capital.

8. Financial instruments

   The  carrying  values  of cash,  advances  and  note  receivable-shareholder,
   accounts payable and notes payable  (excluding the convertible  notes payable
   and related accrued  interest)  approximated fair value due to the short-term
   maturities of these  instruments.  The fair value of the $2,185,274  carrying
   value of convertible notes payable and accrued interest is $2,903,639,  based
   on the common  stock price at December 31, 2000 and the  conversion  offer in
   effect allowing the note holders to convert their notes into common stock.

9. Restructuring charges

   In December of 2000, the board of directors changed the focus of the business
   from constructing their own equipment for coupon clearing to contracting this
   out to third parties. The Company sold manufacturing  equipment with the book
   value of $155,703  for $125,000  resulting in a loss of $30,703.  The Company
   also wrote down its  inventories  of parts by $96,200  and wrote off the note
   receivable  from a director of the Company and two of his relatives (See Note
   2) as consideration  for abandoning the asset purchase  agreement.  The above
   changes have been  reflected on the statement of operations as  restructuring
   charges of $196,511.

10.Subsequent events

   Financing agreement:

   In February  2001, the Company  completed a private equity funding  agreement
   that provided the Company with $2,052,000 of equity,  enabling the Company to
   begin  the  commercial  introduction  of its  proprietary  electronic  coupon
   clearing  system.  In  connection  with this funding  agreement,  the Company
   received  initial  proceeds of $1,000,000 in equity in exchange for 3,703,705
   shares of common stock and an additional  $1,052,000 of equity,  representing
   an  additional  2,896,295  shares  of  common  stock is being  held in escrow
   pending the Company attaining certain milestones.

                                      F-27





<PAGE>

                         IN STORE MEDIA SYSTEMS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1999 and 2000


10.Subsequent events (continued)

   Notes payable - shareholder:

   On February 16, 2001, the Company repaid the outstanding balance of all notes
   and related accrued  interest  payable to the Company's  president and to the
   partnership in which the Company's president is the general partner, totaling
   $164,912.

   On February 23, 2001, the Company repaid the outstanding balance of all notes
   and  related  accrued  interest  payable  to a  shareholder  related  to  the
   Company's former president, totaling $130,180.

   Short term notes payable:

   On February 14, 2001,  the Company repaid the  outstanding  balance of a note
   and all related accrued  interest  payable to an individual  unrelated to the
   Company, totaling $162,332.

   On February 15, 2001,  the Company repaid the  outstanding  balance of a note
   and all related accrued  interest payable to an unrelated  company,  totaling
   $163,623.

   Notes payable:

   As  described  in Note 3, the Company is offering its note holders the option
   of  extending  their notes and  accrued  interest  until  October 31, 2001 or
   converting  their notes and accrued  interest and  exercising  their  related
   warrants.  From January 1, 2001 through  February  23, 2001,  notes  totaling
   $262,500 have been extended.  Notes and accrued  interest  totaling  $878,946
   have been  converted and which  amounts were applied  towards the exercise of
   warrants  resulting  in the  issuance of  2,040,000  shares of the  Company's
   restricted common stock.

   Stock options and awards:

   In January 2001,  the Company's  Board of Directors  approved the issuance of
   options to the Company's  president and chief  executive  officer to purchase
   700,000  shares of the Company's  restricted  common stock at a price of $.30
   per share. The Company realized  compensation  expense of $249,340  resulting
   from the  difference  between the exercise  price and the market price of the
   Company's common stock at the time the options were granted.

   In January 2001, the Company's Board of Directors approved the sale of 25,000
   shares of the Company's  restricted common stock to each outside director for
   each year of service  provided  to the  Company at a price of $.25 per share.
   The cost of the  shares  will be paid by a note  from  each  director  and be
   collateralized  by the stock. This resolution is subject to final approval of
   the  Company's  shareholders  and  will  be  voted  upon at the  2001  Annual
   Shareholders' Meeting.

                                      F-28