SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

|X|   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 for the fiscal year ended December 31, 2003 or

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

Commission file number 000-28515

                              AFG ENTERPRISES, INC.
                     (formerly 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.)

73-595 El Paseo, Suite 2204, Palm Desert, California             92260
----------------------------------------------------             -----
     (Address of principal executive offices)                 (Zip Code)

                 (760) 674-9696
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001 per share

Check 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 |_| NO |X|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K 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 III of this Form 10-KSB, or any amendment to
this Form 10-KSB. |_|

Registrant had no revenue for the fiscal year ended December 31, 2003.


<PAGE>

On December 31, 2003, the Registrant had 70,484,485 shares of common voting
stock held by non-affiliates. The aggregate market value of shares of Common
Stock held by non-affiliates was approximately $1,057,267 on this date. This
valuation is based upon the most recent sales price of Common Stock on the
Electronic Bulletin Board of the NASDAQ Over-the-Counter market. The Common
Stock was not listed on any exchange or market as of December 31, 2003.

Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court.

Yes      No  X
    ----    ----

On December 31, 2003, the issuer had 78,751,406 shares of its Common Stock, par
value $.001 per share outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:  Yes      No  X
                                                    ---     ---


<PAGE>


                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

Forward Looking Statements

      This Annual Report on Form 10-KSB for the Company for the fiscal year
ended December 31, 2003 (the "Annual Report") includes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "1995 Act"). The 1995 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 are forward looking. The Company uses 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.

General

      In Store Media Systems, Inc., a Nevada corporation (the "Company"), is the
successor corporation to In Store Media Systems, Inc., a Colorado corporation
(the "Predecessor"). In December 1992, 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.

      In October 1998, the Predecessor merged with and into Crescent Gold
Corporation, a Nevada corporation. Crescent Gold Corporation was the surviving
corporation in the merger and had no operations or assets at the time of the
merger. However, the Common Stock of Crescent Gold Corporation 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.


                                       1
<PAGE>

      The Company is a development stage enterprise that was organized to
develop a system for distributing and electronically clearing coupons. The
Company has developed and patented the Coupon Exchange Center(TM) and has a
patent pending on the Coupon Bank(TM) System and the In$taClearing(TM) System,
which are hardware-based electronic coupon clearing systems. In November 2001,
the Company acquired the rights to market and sell to certain specified
retailers, the patented and proprietary coupon-merchandising program of Let's Go
Shopping, Inc., which has been incorporated into the Company's Budget Saver(TM)
program. When used at participating retailers, these electronic coupon clearing
and merchandising systems are designed to validate each coupon to the product
purchased, provide daily reimbursement to the retailer for discounts given
consumers and to relieve retailers of the responsibility of handling and
shipping coupons. These coupon 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.

      To date, the Company has been primarily engaged in developing its
technology, securing patent protection, formulating its business strategy,
raising capital and developing necessary relationships with third parties, such
as supermarkets, packaged goods manufacturers and others in connection with the
manufacture and marketing of the systems incorporated into the Company's product
line.

      For the twelve months ended December 31, 2003, the Company generated no
operating revenue. Since inception of the Company through December 31, 2003, the
Company has incurred accumulated losses of $22,792,624.

Dispute with Let's Go Shopping, Inc.

      Effective as of November 29, 2001, the Company signed a Patent and
Software License agreement with Let's Go Shopping, Inc. ("LGS"), a private
company located in Cos Cob, Connecticut. Under the terms of the agreement, LGS
grants the Company an exclusive license to market its patented LGS Retail Coupon
Merchandising Program to 27 retail grocery chains in the United States. In
October 2002, certain disputes arose between the parties, and LGS filed a civil
complaint in the United States District Court for the Southern District of
Georgia alleging that the Company breached certain provision of the agreement
(the "Georgia Lawsuit"). On November 12, 2002, the Company filed a voluntary
petition for reorganization (see "Bankruptcy Proceedings" below) that stayed the
Georgia Lawsuit. The Company then filed an Adversary Proceeding against LGS (the
"LGS Adversary Proceeding") in the United States Bankruptcy Court alleging that
LGS misappropriated Company trade secrets, including the Company's proprietary
software commonly referred to as the "back end financial system."

      On March 29, 2004, the Company and LGS (and certain affiliated parties)
(the "LGS Parties") entered into a settlement agreement (the "LGS Settlement
Agreement"), which was approved by the Court on April 29, 2004. Under the terms
of the LGS Settlement Agreement, LGS paid to the Company a total of $60,000 in
cash, all adversary proceedings (including the LGS Adversary Proceeding and the
Georgia Lawsuit) were dismissed, all claims held by the LGS Parties were
assigned to the Company and the Company and the LGS Parties entered in mutual
releases. The LGS Settlement Agreement also provided that the Company retained
access to and ownership of the "back end financial system."


                                       2
<PAGE>

Bankruptcy Proceedings

      Filing. On November 12, 2002, the Company filed a voluntary petition for
reorganization, case no. 02-28289 (the "Restructuring Proceedings") under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Colorado.

      DIP Credit Facility. On July 15, 2003, in connection with the
Restructuring Proceedings, the Court approved the Company entering into a
debtor-in-possession credit facility (the "DIP Facility") with Acclaim Financial
Group Ventures II, LLC ("AFGVII") to supplement liquidity and fund operations
during the Restructuring Proceedings, and potentially beyond such period. Under
the DIP Facility, one creditor, Melissa McBride, was required to subordinate its
claims to any claims of AFGVII arising under the DIP Facility. NMPP subsequently
purchased the claim of Melissa McBride. Among other terms, the DIP Facility
contemplated: (i) AFGVII receiving a priority security interest in all the
assets of the Company (subject to minimal exceptions for professional and
trustee fees incurred by the Company and approved by the Court); (ii) initial
borrowings of up to $200,000, with a maximum borrowing of up to $3.0 million
upon Court approval of a plan of reorganization acceptable to AFGVII; (iii) an
interest rate of 2% per month on all obligations deemed outstanding under the
DIP Facility; (iv) AFGVII being reimbursed (or such amounts being added to
amounts deemed outstanding) for all expenses incurred in connection with the DIP
Facility; (v) maturity of the DIP Facility on the earlier to occur of certain
specified events or December 31, 2003; (vi) AFGVII being granted an option to
acquire 20% of the fully diluted equity of the Company at various prices; and
(vii) the Company's compliance with various affirmative and negative covenants
that restrict the operations and ability of the Company to engage in various
transactions.

      On December 31, 2003, AFGVII agreed to waive an event of default under the
DIP Facility (related to the Debtor's failure to pay amounts due under the DIP
Facility by such date and the Debtor's failure to have an acceptable plan of
reorganization approved by the Court), for a period of time to be solely
determined by AFGVII, with AFGVII reserving the right to declare an event of
default upon one business day notice to the Debtor. Upon the effective date of a
final and non-appealable plan of reorganization acceptable to AFGVII (an
"Approved Plan"), the Company and AFGVII have agreed to amend the DIP Facility
such that, among other things, (i) AFGVII will have a continuing first priority
security interest in all of the assets of the Company and (ii) the interest rate
on all new borrowings will be 7% per annum.

      Plan of Reorganization. On November 12, 2004, a Plan of Reorganization
(the "Plan") for the Company was filed with the Bankruptcy Court. The Plan was
jointly proposed by the Company and AFGVII (collectively referred to as the
"Plan Proponents"). Also on November 16, 2004, a Disclosure Statement to be used
in soliciting votes to accept or reject the Plan (the "Disclosure Statement")
was approved by the Bankruptcy Court.


                                       3
<PAGE>

      Under the Plan, various claim holders and interest holders will be
entitled to receive various consideration in respect of their claims and
interests. The Plan classifies the claim and interest holders into various
groups that have been approved by the Court as follows:

      Unclassified --Administrative Claims: These claims in an amount of
      approximately $292,000 constituted claims allowed under ss.11 U.S.C.
      ss.503(b) of the Code and constitute primarily claims of counsel to the
      Company for fees and expenses incurred post-petition on behalf of the
      Company. Such claims will be paid in full in cash or pursuant to other
      arrangement acceptable to such claim holders (such amounts to be provided
      by AFGVII under the DIP Facility).

      Class 1--Secured Claim of NMPP: This claim of $100,000 plus accrued
      interest constituted the sole claim held by NMPP, Inc. (an affiliate of
      AFGVII) representing secured indebtedness incurred by the Company prior to
      the Petition Date. This claim was converted with the Class 2 claim into a
      pro rata share of 3,000,000 shares of the Common Stock in the reorganized
      Company to be issued under the Plan (the "Replacement Common Stock").

      Class 2--Secured Claim of AFGVII: This claim of $250,000 plus accrued
      interest constituted the sole claim held by AFGVII representing secured
      indebtedness incurred by the Company under the DIP Facility prior to the
      effective date of the Plan. Such claim was converted with the Class 1
      claim into a pro rata share of 3,000,000 shares of the Replacement Common
      Stock.

      Class 3--Allowed Unsecured Claims in Excess of $1,000: These claims
      constitute allowed unsecured claims held by various claimants prior to the
      Petition Date who have not elected to be treated as Class 4 Claims. These
      claims equaled approximately $1,900,000. Such claims were converted into
      their pro rata share of 1,500,000 shares of the Replacement Common Stock.

      Class 4--Allowed Unsecured Claims of $1,000 or less: These claims in an
      amount of approximately $10,000 will be paid in full in cash or pursuant
      to other arrangement acceptable to such claim holders (such amounts to be
      provided by AFGVII under the DIP Facility).

      Class 5--Allowed Administrative Convenience Claims: These claims
      constitute claims allowed under ss.11 U.S.C. ss.503(b) of the Code, the
      holder of which elect to receive an amount not in excess of $1,000 in cash
      in respect of their claims. No claims elected to be treated as a Class 5
      claim.


                                       4
<PAGE>

      Class 6--Interests: These constitute any equity interest in the Company
      including Common Stock, preferred stock, options, warrants, convertible
      instruments and other equity equivalents but excluding the options granted
      to AFGVII in connection with the DIP Facility. There are currently
      78,751,406 shares (net of 9,374,742 treasury shares) of Common Stock
      outstanding, 2 shares of Preferred Stock outstanding (convertible into
      1,890,598 shares of Common Stock) and 19,282,809 options and other equity
      equivalents outstanding. All shares of Common Stock and preferred stock
      will be reverse split into 500,000 shares of the Replacement Common Stock.
      The number of shares subject to AFGVII's option to purchase Common Stock
      will be adjusted to reflect the stock split. The exercise price per share
      is not subject to adjustment and will remain at various prices ranging
      from $0.001 to $0.03.

      Confirmation of Plan. On January 20, 2005, the Bankruptcy Court confirmed
and approved the Plan. On January 31, 2005 all appeal periods expired with
respect to the Bankruptcy Court confirmation and approval of the Plan.

      Effects of Plan. As a result of the confirmation and implementation of the
Plan, the following have occurred

            Transfer of Assets. All assets of the Company owned pre-petition or
      acquired during the Restructuring Proceedings are transferred to the
      reorganized Company free and clear of all liens, claims and interests of
      all creditors and interested parties. The reorganized Company is not
      liable for repayment of any claims except as set forth in the Plan. All
      other debts and liabilities are discharged.

            Name Change. The reorganized Company has changed its name from "In
      Store Media Systems, Inc." to "AFG Enterprises, Inc."

            Change in Capital Structure. All of the outstanding shares of
      capital stock were reverse split into an aggregate of 500,000 shares of
      Common Stock of the reorganized Company. Upon implementation of the Plan,
      the Company will have 5,000,000 shares of Common Stock, and no shares of
      preferred stock issued and outstanding. No options, warrants or other
      rights to acquire capital stock remain outstanding, other than the options
      to purchase 1,077,531 shares of Common Stock held by AFGVII at various
      prices, ranging from $0.001 to $0.03.

            As a result of direct ownership or indirectly through affiliated
      companies, AFGVII controls approximately 63.7% of the stock in the
      reorganized Company.


                                       5
<PAGE>

            Executory Contracts Rejected. All executory contracts, including all
      pre-petition royalty agreements, have been rejected. The Company has
      assumed and continued certain agreements with vendors or suppliers.

            Changes in Management. Upon confirmation of the Plan, the Board of
      Directors of the Company comprised five persons: John B. Burns III,
      Douglas B. Croxall, Erich Spangenberg, David Pridham and Stephen Peary.

Plan of Operation

      General. After the confirmation of the Plan, the Company's anticipated
business strategy will include (i) an effort to pursue opportunities to monetize
the ISM Intellectual Property (as defined below), including the licensing and
joint venturing of such rights and the possible acquisition or licensing of
other intellectual property rights that the Company believes complement the ISM
Intellectual Property or complement the overall business strategy pursued by the
Company and (ii) an effort to pursue, evaluate and joint venture or acquire
businesses that the Company believes compliment its business strategy, including
businesses operating in the marketing services sector (collectively, and as
modified from time to time by the Company, the "Business Plan").

      The Company intends to seek to license the ISM Intellectual Property to
enable all types of retailers and goods manufacturers to realize benefits
provided by the ISM Intellectual Property. Specifically, the Company believes
that the ISM Intellectual Property has the potential to benefit the
manufacturers that utilize coupons to promote their products, the retail
industry and entities involved in coupon issuance and redemption. The Company
will seek to negotiate for license fees, as well as ongoing royalties based on
worldwide sales by licensees of products incorporating the ISM Intellectual
Property.

      The Company also intends to seek to pursue joint ventures with entities
that may seek to further develop and implement the benefits provided by the ISM
Intellectual Property. The Company intends to pursue such joint ventures as a
way to reduce the capital and other resources required to effectively exploit
the potential benefits of the ISM Intellectual Property. In addition, the
Company also intends to seek to acquire or license other intellectual property
rights that the Company believes will complement the ISM Intellectual Property
or complement the overall business strategy pursued by the Company.

      In addition to seeking to monetize the ISM Intellectual Property, the the
Company intends to pursue, evaluate and joint venture or acquire businesses that
the Company believes complement its business strategy, including business that
operate in the marketing services sector. Any such joint venture or acquisition
could substantially change the Business Plan and prospects of the Company. While
the Company has not identified any specific acquisitions or joint ventures and
no negotiations are occurring, it is anticipated that after the Confirmation
Date, the Company will devote a substantial amount of its management and other
resources to this aspect of its Business Plan. While the initial focus is
intended to be on companies that operate in the marketing services sector, this
is not the only sector that the Company will evaluate in seeking acquisitions or
joint ventures. Accordingly, the Company's future operations, financial
condition and prospects will be significantly impacted if the Company is
successful in consummating any such joint ventures or acquisitions.


                                       6
<PAGE>

         As of the date hereof, no specific opportunities to monetize the ISM
Intellectual Property have been identified and no negotiations are occurring
with respect thereto and no specific joint venture or acquisition opportunities
have been identified and no negotiations are occurring with respect thereto.
There can be no assurance that the Company will be successful in implementing
the Business Plan or that the Business Plan will not change significantly from
that which the Company presently intends to pursue. (See "Business Risks"
below.)

      Summary of Current ISM Intellectual Property. As of the date hereof, the
ISM Intellectual Property consists of the following patents and pending patents:

            Issued Patents. The Company holds title to the following issued
                  patents:

                  Patent No. 6,233,564 "Merchandising Using Consumer Information
                  from Surveys", (The InStaData(TM) System) issued May 15, 2001
                  with 12 allowed claims. This patent covers a methods and
                  system of conducting consumer surveys, using an identification
                  card in an interactive apparatus to provide targeted consumer
                  incentives.

                  Patent No. 5,483,049 "The Coupon Exchange and Check Writing
                  System", (The Coupon Exchange Center(TM)) issued January 9,
                  1996 with 37 allowed claims. This patent covers a method of
                  issuing proprietary coupons in exchange for unwanted coupons,
                  redeeming the newly issued coupons, and paying the redeeming
                  consumer an immediate cash rebate paid in the form of a check
                  at store checkout.

                  Patent No. 5,111,927 "Automated Recycling Machine", (The
                  CanPactor(TM)) issued May 12, 1992 with nine allowed claims.
                  This patent covers an apparatus located outside supermarkets
                  which accepts, crushes and stores aluminum cans, then prints
                  coupons for supermarket products and dispenses a penny for
                  each can recycled as a reward to the recycling consumer.

                  Patent No. 6,497,360 "Prompt Coupon Reimbursement After Coupon
                  Redemption", (The Coupon Bank(TM) System) issued December 24,
                  2002 with 32 allowed claims. The Coupon Bank(TM) System, is a
                  specific method of validating redeemed coupons with products
                  purchased, provides for the almost immediate reimbursement of
                  the retailer and rapid transmission of redemption data to
                  coupon issuing manufacturers.

      The Company is not aware of any relevant facts that would negatively
affect the validity of these patents or their claims.


                                       7
<PAGE>

      Patent Pending. The Company has filed an application with the United
States Patent Office and is pursuing issuance of the following patent
application:

                  "Coupon Redemption System". The In$taClearing(TM) System,
                  which covers a specific method of electronically validating
                  coupons with purchased products at checkout wherein coupons
                  that are validated are electronically processed, recorded and
                  destroyed right at checkout.

There can be no assurance that the pending patent application will be issued.

Business Risks

      The Company's future results may be affected by certain risks and
uncertainties including, but not limited to, the following:

      Need For Additional Capital. The Company may require additional funds to
continue marketing its systems and implement its plan of operation for the next
12 months. 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 the Company's 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 or, if available,
that such financing will be 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 Coupon Usage. The success of the Company will depend in part
upon the continued use of coupons 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, the lack of demand by any
one of these would effect the Company's overall market acceptance.

      Reliance on Patents, Trademarks and Tradenames. The Company owns or has
exclusive rights to use the ISM Intellectual Property listed above. These
patents involve hardware and software for both stand-alone and in-lane coupon
clearing. The Company has spent considerable capital and effort in developing
such patents and the expertise associated therewith. Management believes that
such patents may be useful for future products.

      Although the Company believes that these 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.


                                       8
<PAGE>

      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.

      Competition. 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.

      Many coupon formats exist in the in-store coupon market. 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's primary
competitors in this industry segment are Catalina Marketing Corp., and News
America Marketing, Inc., a division of News Corp. Catalina Marketing has
installed its couponing systems in many stores in the United States. News
America also has a substantial installed base of 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 to 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 such system or add its
electronic coupon clearing systems. Further, the retailer may be contractually
bound to maintain the existing system for several years.

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.


                                       9
<PAGE>

Employees

      As of December 31, 2003, the Company had no employees. All activities of
the Company related to the Bankruptcy Proceedings and were conducted by
independent advisors. As of March 15, 2005, the Company has employment
agreements with two officers, Erich Spangenberg, President, and William P.
Stelt, Chief Financial Officer. See Part III, Item 10 "EXECUTIVE COMPENSATION -
Employment Agreements."


ITEM 2 - DESCRIPTION OF PROPERTIES

      Until August 2003, the Company's principal executive offices and
manufacturing facility were located at 15423 East Batavia Drive, Aurora,
Colorado 80011. The Company leased these premises (consisting of approximately
6,260 square feet) on a month-to-month basis at a rate of $2,305 per month.
Commencing in August 2003, the Company did not maintain any office space. The
Company currently has its corporate headquarters at the offices of AFGVII at
73-595 El Paseo, Suite 2204, Palm Desert, California 92260. The Company does not
pay any rent for the use of such premises.


ITEM 3 - LEGAL PROCEEDINGS

      During the fiscal year ended December 31, 2003 the Company faced several
legal proceedings. For a description of the civil proceedings in the matter
Let's Go Shopping, Inc. v. In Store Media Systems, see Part 1, Item 1. "BUSINESS
--Dispute with Let's Go Shopping, Inc." above. The Company was also involved in
a dispute with James Babo, a former employee of the Company in connection with
the termination of Mr. Babo's employment. Both such matters were settled by the
LGS Settlement Agreement.

      On November 12, 2002, the Company filed for reorganization under the
United States Bankruptcy Code. See Part 1, Item 1 "Business--Bankruptcy
Proceedings" above.

      The Company also was threatened with legal proceedings by Derrick Bushman,
ISC, Sun Capital, LLC and Meridian Capital, LLC (the "Bushman Group") in
connection with the Agreement for the Purchase and Sale of Stock between the
Company and the Bushman Group dated December 1, 2001. All claims between the
Company and the Bushman Group (except claims for which a Proof of Claim had been
filed in the Bankruptcy Proceedings) were resolved without litigation pursuant
to a Settlement Agreement and Release dated September 25, 2003.

      The Company was threatened with legal proceedings by Computer Task Group
for unpaid consulting fees. The claims of Computer Task Group were included in
Class 3 and they will receive a pro rata share of 1,500,000 shares of Company
Common Stock.


                                       10
<PAGE>

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

      The Company did not hold any shareholder meetings in fiscal year 2003.


                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

      Until November 29, 2002, the Common Stock of the Company was listed on the
"Electronic Bulletin Board" of the National Association of Securities Dealers,
Inc. ("NASD") under the symbol "ISMS." Upon notice of the filing of the petition
for reorganization under the United States Bankruptcy Code, the symbol became
"ISMSQ."

      In May 1, 2003, the Common Stock of the Company was delisted from the
Electronic Bulletin Board and has not since been traded on any exchange or
over-the-counter market.

      The following table shows the range of high and low bid quotations for the
Company's Common Stock for the period from January 1, 2003 until May 1, 2003 and
for the fiscal year ended December 31, 2002, as reported by the OTC Bulletin
Board. From May 1, 2003 until December 31, 2003, there was no reported bid or
ask price, only actual sales on the Pink Sheets. Prices reflect inter-dealer
prices, and do not necessarily reflect actual transactions, retail mark-up,
mark-down, or commission.

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

          Period                                          Closing     Sales
           Ended              High Bid       Low Bid       High        Low

       2003
       ----
       December 31, 2003             --          --        .015       .0001
       September 30, 2003            --          --         .02       .0001
       June 30, 2003                 --          --         .03       .0001
       May 1, 2003                 0.01        0.01          --          --
       March 30, 2003              0.02        0.01          --          --

       2002
       ----
       December 31, 2002         $ 0.11      $ 0.006         --          --
       September 30, 2002          0.36        0.07          --          --
       June 30, 2002               0.53        0.20          --          --
       March 30, 2002              0.59        0.37          --          --

      At December 31, 2003, the number of record holders of the Company's Common
Stock was approximately 487 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.


                                       11
<PAGE>

Recent Sales of Unregistered Securities

      2003. In 2003, the Company issued 373,334 shares of restricted Common
Stock to one consultant in exchange for services having a value of $3,733. The
Company also issued 200,000 shares of restricted Common Stock to two former
employees for services rendered and recorded a compensation expense of $2,000 in
connection therewith.

      2002. In January 2002, the Company raised $150,000 of additional equity
from In Store Capital, LLC ("ISC") and other parties related to or affiliated
with Derrick Bushman, a Director of the Company, enabling the Company to
continue the marketing of its Budget Saver(TM) program. Under the terms of the
agreement, ISC was to receive 347,222 shares of the Company's common stock.
Additionally, ISC was to receive a royalty equal to one half of one cent ($.005)
for each coupon processed by the Company through the Budget Saver(TM) program.
The $150,000 proceeds have been treated as stock subscriptions received. The
royalty agreements and certain claims of the were rejected under the Plan of
Reorganization (see Part 1, Item 1 "BUSINESS-Bankruptcy Proceedings" above) and
all other claims were resolved by a Settlement Agreement and Release between the
Company and the investors (see Item 3 "LEGAL PROCEEDINGS" above).

      In September 2002, the Company sold 424,000 shares of common stock to
individuals for proceeds of $34,105 (net of offering costs of $3,789).

      In August 2002, an officer of the Company subscribed for and was issued
2,000,000 shares of common stock generating proceeds of $100,000 to the Company
previously recorded as stock subscriptions receivable.

      The Company also sold 1,451,146 shares of common stock to an individual
and two directors of the Company for proceeds of $235,000 (including 200,459
shares issued to an officer/director in exchange for the cancellation of a note
payable - see Note 2 to the Financial Statements attached as under Item 7). The
directors received options to purchase 501,146 shares of common stock
exercisable at $.35 per share until November 15, 2002 and a future royalty of
$.00175 per coupon issued under the Let's Go Shopping coupon booklet program
until the amount paid for the stock is repaid. All such options have expired and
the royalty agreement was rejected under the Plan of Reorganization.

      In 2002, the Company sold 2,146,221 of its 2002 Units generating total
proceeds of $782,186 (net of offering costs of $40,665) including $175,000
reflected as stock subscriptions received. Each "2002 Unit" is comprised of (i)
one share of the Company's common stock at a price equal to 90% of the average
closing price over the five trading days immediately preceding the purchase of
the Unit, (ii) an option to purchase an additional share of the Company's common
stock at an exercise price of $.50 per share for a period of five months
following the date of the purchase of the Unit, and (iii) a pro-rata royalty
payment equal to a maximum of one half of one cent ($.005) per redeemed coupon
under the Let's Go Shopping coupon booklet program payable until such time as
the initial investment has been fully realized by the investor. Additionally, in
connection with this offering, the Company issued, to a selling agent, 115,495
shares of the Company's common stock (issued in July 2002) and options to
purchase 115,495 shares of the Company's common stock at an exercise price of
$.50 per share. All purchasers of 2002 Units were accredited investors and the
offering was exempt from registration pursuant to Regulation D, Rule 506.


                                       12
<PAGE>

ITEM 6 -  MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      The following should be read in conjunction with the attached audited
consolidated financial statements and the notes attached thereto for the two
years ended December 31, 2003.

      Overview

      The Company has identified the accounting policies described below as
critical to its business operations and the understanding of the Company's
results of operations. The impact and any associated risks related to these
policies on the Company's business operations is discussed throughout this
section where such policies affect the Company's reported and expected financial
results. For a detailed discussion on the application of these and other
accounting policies, see Note 1 to the Notes to the Financial Statements in Item
7 of this Annual Report, beginning on page F-15.

      The preparation of this Annual Report requires the Company to make
estimates and assumptions that affect the reported amount of assets and
liabilities of the Company, revenues and expenses of the Company during the
reporting period and contingent assets and liabilities as of the date of the
Company's financial statements. There can be no assurance that the actual
results will not differ from those estimates.

      The Company has relied upon the issuance of shares of its common stock,
options to purchase its common stock and warrants to purchase its common stock
to fund much of the Company's operations. The following describes the methods
used to record various stock related transactions.

      Stock issued for services is valued at the market price of the Company's
stock at the date of grant.

      Compensation related to the issuance of stock options to employees and
directors is recorded at the intrinsic value of the options, which is the market
price of the Company's common stock less the exercise price of the option at the
grant date. Compensation related to the issuance of options to purchase the
Company's common stock to consultants is recorded at the market price of the
Company's common stock at the measurement date. The measurement date is
generally the date the options are fully vested.


                                       13
<PAGE>

      Warrants issued to warrantholders with respect to convertible notes and
warrants issued in 1996, 1997 and 1998 were initially valued and recorded as
debt issuance costs which were subsequently amortized to interest expense over
the initial term of the convertible notes. When the warrants expired, the
Company recorded the initial 120 day extension of the warrants at the fair value
of the warrants using the Black-Scholes option-pricing model. As the warrants
were extended for additional 30 day periods, the Company treated the warrants as
stock appreciation rights and adjusted the value of the warrants quarterly based
on the increase or decrease in the market price of the Company's stock. Upon
conversion of these convertible notes into shares of the Company's common stock,
the Company valued any additional shares of its common stock issued and recorded
any decrease in the warrant exercise price, compared to the original terms of
the conversion option, as debt conversion costs.

      The Company is a development stage company engaged in the marketing of its
system for distributing and electronically clearing coupons, certain components
of which are patented.

      The Company has generated revenues from operations of $19,664 and has
incurred losses of $22,792,624 since inception through December 31, 2003.

      At December 31, 2003, the Company had a stockholders' deficit of
$1,891,686, which reflects $21,741,596 of paid in capital (net of amount
attributable to treasury stock) less accumulated deficit of $23,633,282. 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 the Predecessor in private transactions from 1996 through
2003, research and development, and general and administrative expenses incurred
since inception. At December 31, 2003, the Company had a working capital deficit
of $528,613, excluding $1,451,264 pre-petition liabilities subject to compromise
(net of debt issuance costs).

      In 2003, the Company issued 200,000 shares to two former employees and
373,334 shares to one consultant and recorded expenses of $2,000 and $3,733,
respectively in connection therewith.

      Financial Condition

      At December 31, 2003 the Company had $94,880 in total assets and $535,302
in total current liabilities (net of $1,451,264 of pre-petition liabilities
subject to compromise) compared to $324,194 in total assets and $201,485 in
total current liabilities (net of $1,861,086 of pre-petition liabilities subject
to compromise) at December 31, 2002. Accounts payable, accrued expenses and
interest payable at the end of fiscal year 2003 were $362,202 (net of
pre-petition liabilities subject to compromise) compared to $47,085 at December
31, 2002. The Company had a working capital deficit of $528,613 at December 31,
2003 compared to a working capital deficit of $117,810 at December 31, 2002. The
difference from 2003 to 2002 is primarily attributed to the increase in accrued
expenses and accounts payable attributable to the costs of the Bankruptcy
Proceedings and prosecuting the LGS Adversary Proceeding (see Part I, Item 3,
"LEGAL PROCEEDINGS").


                                       14
<PAGE>

      Results of Operations

      Until November 2002, 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. Commencing in November 2002
through December 31, 2003, the Company's costs have increased or decreased
depending upon the costs of the Bankruptcy Proceedings and the lawsuits with
LGS.

      The Company has incurred operating expenses of $15,547,049 from inception
through December 31, 2003. These expenses include $3,320,137 in research and
development expenses and $11,813,147 in general and administrative expenses. As
a result of the Bankruptcy Proceedings and a cessation of all operations except
the prosecution of the Bankruptcy Proceedings and the LGS Adversary Proceeding,
the general and administrative expenses of the Company were substantially
reduced.

      Year Ended December 31, 2003 Compared to Year Ended December 31, 2002. For
the year ended December 31, 2003, the Company sustained net losses of $196,542
as compared to net losses of $2,321,512 for the year ended December 31, 2002.
The decrease in net losses primarily was due to a decrease in general and
administrative expenses.

      The Company's operating expenses for the year ended December 31, 2002,
decreased by $1,789,535 or approximately 88% to as compared to operating
expenses of $2,027,070, for the same period last year. The decrease in operating
expenses in 2003 was due to a decrease in general and administrative expenses.
General and administrative expenses decreased by $1,775,893 or approximately 90%
to $205,037 for the 2003 year, as compared to general and administrative
expenses of $1,980,930 for the same period in 2002. The decrease in general and
administrative expenses primarily was due to a reduction in cash and stock based
compensation to employees and consultants, and a reduction of expenses incurred
with management consultants.

      The Company's net non-operating expense (including non-operating interest
income and interest expense) increased to $343,345 for the year ended December
31, 2003, as compared to non-operating expenses of $279,522 for the year ended
December 31, 2002. The increase was primarily due to a loss of $119,830 on the
sale of certain assets and an increase of $75,145 or approximately 51% in
interest expense. Interest expense for the year ended December 31, 2003 was
$223,515 compared to $148,370 for the prior year. Debt conversion costs
decreased from $128,856 to $0 in 2003. However, the decreases in debt conversion
costs and increases in losses from the sale of assets and interest expense were
offset by the recognition of $562,321 in debt forgiveness income. As a result,
for the fiscal year ended 2003, the Company had total other income of $218,976
compared to total losses of $279,522 for the fiscal year ended December 31,
2002.

      Year Ended December 31, 2002 Compared to Year Ended December 31, 2001. For
the year ended December 31, 2002, the Company sustained net losses of $2,321,512
as compared to net losses of $4,653,268 for the year ended December 31, 2001.
The decrease in net losses primarily was due to a decrease in general and
administrative expenses.


                                       15
<PAGE>

      The Company's operating expenses for the year ended December 31, 2002,
decreased by approximately 37% to $2,027,070, as compared to operating expenses
of $3,223,396 for the same period last year. The decrease in operating expenses
in 2001 was due to a decrease in general and administrative expenses. General
and administrative expenses decreased by $1,155,866 or approximately 37% to
$1,980,930 for the 2002 year, as compared to general and administrative expenses
of $3,136,796 for the same period last year. The decrease in general and
administrative expenses primarily was due to a reduction in stock based
compensation to employees and consultants, and a reduction of expenses incurred
with management consultants.

      The Company's net non-operating expense (including non-operating interest
income and interest expense) decreased to $279,522 for the year ended December
31, 2002, as compared to non-operating expenses of $1,448,398 for the year ended
December 31, 2001. The decrease was primarily due to a decrease of approximately
82% in interest expense and a decrease of approximately 80% in debt conversion
costs for the year ended December 31, 2002. Interest expense for the year ended
December 31, 2002 was $148,370 compared to $806,657 for the prior year. For the
year ended December 31, 2002, debt conversion costs equaled $128,856 compared to
$631,512 for the prior year due to the decrease in the number of notes converted
to the Company's common stock during 2002 as compared to 2001.

      Liquidity and Capital Resources

      From inception until November 2002, 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. From November
2002 until December 31, 2003, the primary capital requirements of the Company
have been to finance the costs of the Bankruptcy Proceedings and the lawsuits
with LGS. 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. In July 2003, the Company entered into a Debtor in Possession Credit
Agreement (the "DIP Facility") with Acclaim Financial Group Ventures II, LLC
("AFGVII"). Since such date the Company has relied primarily on the DIP Facility
to provide all required capital.

      At December 31, 2003, the Company had $535,302 in current liabilities, of
which $284,134 was from accrued expenses, primarily professional fees relating
to the Bankruptcy Proceeding and the LGS lawsuits.


                                       16
<PAGE>

      The remaining portion of the Company's current liabilities is primarily
comprised of short-term note obligations totaling $173,100 (including $67,100
due to a related party) at December 31, 2003. The Company relied primarily on
the DIP Facility to finance operations during the fiscal year ended December 31,
2003. 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 at all, or if 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 2002 through December 31, 2003, the Company's
cash position has increased but not substantially. At December 31, 2003, the
Company had available cash of $6,109, as compared to available cash of $4,688 at
December 31, 2002.


ITEM 7 - FINANCIAL STATEMENTS

      The financial statements listed in the accompanying index to financial
statements required to be filed are attached to this Annual Report. Reference is
made to page F-1 of this Annual Report.

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

      None.


ITEM 8A. CONTROLS AND PROCEDURES

      Evaluation of Disclosure Controls and Procedures. As of March 15, 2005, we
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 Rules
13a-15(e) and 15d-15(e)). That evaluation was performed under the supervision
and with the participation of its management, including its Chief Executive
Officer and its Chief Financial Officer. Based on that evaluation, our Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information relating
to the Company required to be included in its periodic SEC filings.

      Changes in Internal Control over Financial Reporting The Company has made
no significant change in its internal control over financial reporting as of
March 15, 2005 that has materially affected, or is reasonably likely to
materially affect, its internal control over financial reporting.


                                       17
<PAGE>

                                    PART III

ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

      As of December 31, 2003, the Company's executive officers and directors
and their ages were as follows:

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

Erich Spangenberg     43   Chief Executive Officer, Treasurer and Secretary and
                           Chairman of the Board

Donald P. Uhl         70   President and Director

Douglas B. Croxall    35   Director

Ronald F. Anderegg    51   Director


      The following discussion includes biographical information regarding the
Company's officer, directors and significant employees. All officers are
appointed by and serve at the discretion of the board of directors of the
Company. Directors serve for one-year terms or until their successor is duly
elected and qualified. There are no family relationships between any director,
executive officer or person nominated or chosen by the Company to become a
director or executive officer.

      ERICH SPANGENBERG, Chief Executive Officer, Treasurer, Secretary and
Chairman of the Board of Directors. Mr. Spangenberg is and has been since 1998
an officer of Acclaim Financial Group Venture II, LLC and various of its
affiliates, all of which are engaged in merchant banking, investment and
advisory services. From April 1996 through January 1998, Mr. Spangenberg held
various executive positions with Smartalk Teleservices, Inc., a
telecommunications company. From December 1994 through April 1996, Mr.
Spangenberg was a Senior Vice President with the investment banking group of
Donaldson, Lufkin & Jenerette. From 1985 until 1994, Mr. Spangenberg was an
associate and a partner with Jones, Day, Reavis & Pogue. Mr. Spangenberg holds a
BA from Skidmore College, a M.Sc. from The London School of Economics and a JD
from Case Western Reserve University.

      DONALD P. UHL, former President and Chairman, is a co-founder of the
Company. Since the inception of the Predecessor in December 1992 until March
2000, Mr. Uhl served as the Executive Vice President and a director of the
Company or the Predecessor. Mr. Uhl was elected President and Chairman by the
board of directors of the Company 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.


                                       18
<PAGE>

      RONALD F. ANDEREGG, 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 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
U.S. 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.

      DOUGLAS B. CROXALL, Director, was elected to fill a vacancy on the Board
of July 14, 2003. Mr. Croxall is the Chief Executive Officer of Firepond, Inc.,
a software company that provides configuration, pricing, and quotation software,
as well as interactive selling software solutions that help companies more
profitably acquire and retain customers. Mr. Croxall is the managing member of
Jaguar Technology Holdings, LLC. Since December 2001, Mr. Croxall has served as
the managing member of Riverland Enterprises LLC, a privately-held company which
holds investments and provides strategic advisory services. Since August 2001,
Mr. Croxall has served as an officer of Acclaim Financial Group Venture III,
LLC, which provides strategic advisory services. From September 1999 until
August 2001, Mr. Croxall served as the Chief Financial Officer of Load Media
Network, Inc., an Internet and software company based in Hollywood, California.
From August 1995 until September 1999, Mr. Croxall served as a Senior Manager
for KPMG in the Strategic Transaction Services Group. Mr. Croxall has served as
a Director for Debtor since August 2003. Mr. Croxall received his Bachelor of
Arts degree in Political Science and Economics from Purdue University as well as
his Master Degree in Finance from Pepperdine University.

      Compensation Committee Interlocks and Insider Participation. As of
December 31, 2003, Erich Spangenberg, the Chairman of the Board of Directors,
also served as a Manager or Director of AFGVII and its affiliates. AFGVII is a
creditor of the Company pursuant to the DIP Facility.

      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
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 of the Company with the Commission. Based upon a
review of such reports, the Company has determined that during the fiscal year
ended December 31, 2003 two Form 3s were not timely filed by Erich Spangenberg
and Douglas B. Croxall, and two form 4s were not timely filed by Erich
Spangenberg and Douglas B. Croxall.


                                       19
<PAGE>

ITEM 10 - EXECUTIVE COMPENSATION

Remuneration of Executive Officers

      The following table sets forth information concerning the compensation
received for the fiscal years ended December 31, 2003, 2002 and 2001 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 2003 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 12 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


<TABLE>
<CAPTION>
                                                                                  Long Term Compensation
--------------------------------------------------------------------------------------------------------------------------
                                      Annual Compensation (1)                  Awards               Payouts
--------------------------------------------------------------------------------------------------------------------------
                                                                                    Securities
                                                                     Restricted     Underlying                  All other
   Name and Principal             Salary     Bonus                     Stock       Options/SARs                  Compen-
       Position            Year   ($)(1)      ($)      Other ($)     Awards ($)        (#)         LTIP ($)     sation (2)
--------------------------------------------------------------------------------------------------------------------------
<S>                        <C>    <C>          <C>        <C>           <C>           <C>             <C>          <C>
Erich Spangenberg, CEO     2003     -0-        -0-        -0-           -0-           -0- (2)         -0-          -0-

                           2002     -0-        -0-        -0-           -0-             -0-           -0-          -0-

                           2001     -0-        -0-        -0-           -0-             -0-           -0-          -0-

Donald P. Uhl, President   2003    53,328      -0-        -0-           -0-             -0-           -0-          -0-

                           2002    29,999      -0-        -0-           -0-             -0-           -0-          -0-

                           2001   129,990      -0-        -0-           -0-           700,000         -0-          -0-

Michael T. Mozer (former   2003   130,000      -0-        -0-           -0-             -0-           -0-          -0-
CEO)

                           2002     -0-        -0-        -0-           -0-           200,000         -0-          -0-

                           2001     -0-        -0-        -0-           -0-           25,000          -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) Does not include indirect ownership of options to purchase 19,282,809 shares
of the Company Common Stock granted to AFGVII (of which Mr. Spangenberg is
principal) in connection with the DIP Facility.

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 of the Company, but are reimbursed for their reasonable
expenses incurred in connections with attending meetings of the board of
directors or management committees of the Company.


                                       20
<PAGE>

Employment Agreements

At December 31, 2003, the Company had employment agreements with each of Erich
Spangenberg, Chief Executive Officer, Treasurer and Secretary, and Donald P.
Uhl, President.

Individual Option Grants

      During the fiscal years ended December 31, 2002, 200,000 shares of the
Company's Common Stock were granted to one consultant and two former employees.
No options to purchase shares of Common Stock were granted during the fiscal
year ended December 31, 2003.

Option Exercises

      During the fiscal year ended December 31, 2003 no employees exercised any
outstanding options. The following table sets forth the number of options held
by each of the named principal executive officers and the value thereof.


<TABLE>
<CAPTION>
                                                       Number of
                                                      Securities          Value of
                                                      Underlying         Unexercised
                                                      Unexercised        In-the-Money
                                                    Options/SARs at    Options/SARs at
                                                    Fiscal Year End    Fiscal Year End
                                                          (1)                (2)
                      Sahres
                    Acquired on                      Exercisable/        Exercisable/
     Name             Exercise    Value Realized    Unexercisable       Unexercisable
--------------------------------------------------------------------------------------
<S>                      <C>           <C>             <C>                 <C>
Erich Spangenberg        -0-           -0-              -0- (3)            -0-/-0-

Michael T. Mozer         -0-           -0-             200,000/0           -0-/-0-

Donald P. Uhl            -0-           -0-             700,000/0           -0-/-0-
</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, 2003 ($0.01 per share) minus the exercise price.

(3) Excludes options to purchase 20% of the outstanding shares of Common Stock
of the Company granted to AFGVII in connection with the DIP Facility. Mr.
Spangenberg is a principal of AFGVII.


                                       21
<PAGE>

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

      Except as otherwise indicated, the following table sets forth certain
information regarding the beneficial ownership of the Company's Common Stock at
December 31, 2003, 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 Common Stock or Preferred Stock, and (iii) all directors and officers
of the Company as a group. Unless otherwise indicated, all addresses are care of
the Company at its executive offices.


<TABLE>
<CAPTION>
                                                     Amount and Nature
   Name and Address of                             of Beneficial Owner   Percent of
    Beneficial Owner           Class of Security           (1)              Class
   -------------------         -----------------   -------------------   ----------
<S>                              <C>                  <C>                   <C>
Erich Spangenberg                Common Stock         19,282,809 (2)        19.67%

Douglas B. Croxall               Common Stock         19,282,809 (2)        19.67%

Ronald F. Anderegg               Common Stock          4,911,921 (3)         6.24%
1600 South Beacon Boulevard
Grand Haven, MI 49417

Melissa Schulze                  Common Stock          4,700,000 (4)         5.89%
6756 South Holland Way
Littleton, CO 80128

Donald P. Uhl                    Common Stock          4,080,000 (5)         5.14%

Dale Davis                       Preferred Stock               1            50.00%

CHKM LLC                         Preferred Stock               1            50.00%

All Officer and Directors as a   Common Stock         28,274,730            28.63%
group (four persons)
</TABLE>


      (1) Beneficial ownership is determined in accordance with the applicable
rules under the Exchange Act. In computing the number of shares beneficially
owned by an executive officer or a director and the percentage ownership of that
person, shares of the Company's Common Stock subject to options held by that
person that are currently exercisable, or become exercisable within 60 days from
December 31, 2003, are deemed outstanding. However, such shares are not deemed
outstanding for purposes of computing the percentage ownership of any other
person. For purposes of determining the individual beneficial ownership
percentage, each percentage was calculated based on the Company's Common Stock
outstanding at December 31, 2003 (78,751,406 shares) adjusted in the case of
each executive officer and director by the of stock options held by that
individual and which are exercisable within 60 days of December 31, 2003.

      (2) Includes options to purchase 19,282,809 shares of Common Stock granted
to AFGVII, of which Mr. Spangenberg and Mr. Croxall are principals and owners.
Mr. Spangenberg and Mr, Croxall each disclaim beneficial ownership of such
shares.


                                       22
<PAGE>

      (3) Includes 4,886,921 shares of the Company's Common Stock held in Mr.
Anderegg's name and options to purchase 25,000 shares of the Company's Common
Stock at an exercise price of $.25 per share.

      (4) Includes options to purchase 1,000,000 shares of Common Stock at an
exercise price of $0.12 per share.

      (5) Includes 1,000,000 shares of the Company's Common Stock held in Mr.
Uhl's name and options to purchase 700,000 shares of the Company's Common Stock
at an exercise price of $.30 per share. Includes 2,380,000 shares of the
Company's Common Stock 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.


ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loans To and From Affiliates

      In October 2002, the Company borrowed $100,000 from Melissa McBride
(Schulze), a shareholder of the Company. The Note bears interest at 18% with an
option to convert the interest to 1,000,000 shares of Common Stock. The Company
also borrowed $39,647 from directors and former directors. The Company believes
that such loans were made on terms no less favorable to the Company than those
available from third parties in an arm's-length transaction.

      In 2003, the Company borrowed an aggregate of $17,100 from various
officers and directors. The Company believes that such loans were on terms no
less favorable to the Company than those available from third parties in an
arms-length transaction.

Sale of Common Stock to Directors

      In June 2002, the Company sold 343,643 shares of Common Stock to Michael
T. Mozer for a purchase price of $120,000 and granted options to purchase an
additional 343,643 shares at an exercise price of 90% of the market price (as
defined in the agreement). Such options expired in November 2002.

      In August 2002, the Company sold 2,000,000 shares of Common Stock to
Michael T. Mozer, Chairman and CEO, for $100,000. In connection with Mr. Mozer's
employment, the Company issued to Mr. Mozer options to purchase 200,000 shares
of Common Stock as at exercise price of approximately $0.36 per share.


                                       23
<PAGE>

Certain Business Relationships

      Erich Spangenberg CEO, Treasurer and Secretary and Chairman of the Board,
and Douglas B. Croxall, Director, are principals of AFGVII. In July 2003, the
Company and AFGVII entered into the DIP Facility. See Item I, Part 1
"BUSINESS--Bankruptcy Proceedings" above.


Other Matters

      On December 31, 2001, Donald P. Uhl resigned as Chairman, President, and
Chief Executive Officer of the Company. Mr. Uhl was succeeded by Michael T.
Mozer, the Company's Vice Chairman, on January 1, 2002. In February 2002 and in
conjunction with the hiring of Mr. Mozer, the Company's board of directors
approved the issuance of options to Mr. Mozer to purchase 200,000 shares of the
Company's Common Stock exercisable at $.36 per share. These options were granted
pursuant to the Company's 2000 Omnibus Equity Incentive Plan.

      In January 2002, the Company raised $150,000 of additional equity from ISC
enabling the Company to continue the marketing of its Budget Saver(TM) program.
Under the term of the agreement, ISC received 347,222 shares of the Company's
Common Stock. Additionally, ISC shall receive a royalty equal to one half of one
cent ($.005) for each coupon processed by the Company through the Budget
Saver(TM) program. This royalty payment shall continue until that time when ISC
shall have received royalty payments totaling $300,000. In January 2001, the
Company granted to Mr. Donald P. Uhl, Chief Executive Officer, options to
purchase 700,000 shares of the Company's Common Stock at an exercise price of
$.30 per share. The options are immediately exercisable and will expire in
January 2006.


ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K

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


Exhibit
Number        Description

2.1         Agreement and Plan of Merger dated March 30, 2001, by and among the
            Company, In Store Acquisition Corp., E. Schulze Corporation and the
            stockholders of The E. Schulze Corporation dated March 30, 2000 (1)

3.1         Articles of Incorporation (2)

3.1.2       Certificate of Amendment filed with the Nevada Secretary of State as
            of October 7, 1998 (3)

3.1.3       Articles and Agreement of Merger filed with the Nevada Secretary of
            State as of October 8, 1998 (3)



                                       24
<PAGE>

3.1.4       Certificate of Amendment filed with the Nevada Secretary of State as
            of April 21, 2000 (3)

3.1.5       Certificate of Amendment filed with the Nevada Secretary of State as
            of November 14, 2000 (3)

3.2         Bylaws of the Company (as amended) (2)

4.1         Specimen of Common Stock of the Company (2)

4.2         Warrant issued to Michael T. Mozer (3)

4.3         Warrant issued to Frederick L. Morris (3)

4.4         Stock Option Agreement dated August 20, 2001, among the Company,
            Michael T. Mozer and Frederick L. Morris (3)

4.5         Form of Stock Option Agreement dated August 20, 2001 between the
            Company and various investors listed on a schedule thereto (3)

4.6         Form of Stock Option Agreement between the Company and various
            investors (3)

10.1        Memorandum of Understanding dated January 13, 1997, with Unisys
            Corporation (2) (4)

10.1.2      Memorandum of Understanding dated February 25, 1997, with Unisys
            Corporation (2) (4)

10.1.3      Memorandum of Understanding dated March 19, 1997, with Unisys
            Corporation (2) (4)

10.1.4      Memorandum of Understanding dated April 4, 1997, with Unisys
            Corporation (2) (4)

10.2        Patent and Software License Agreement dated November 29, 2001
            between Lets Go Shopping, Inc. and the Company (5)

10.3        Asset Purchase Agreement by and between the Company and Partnership
            for Shared Marketing, Inc., and amendments thereto (2)

10.4        Form of Agreement for the Purchase and Sale of Stock to be dated as
            of December 1, 2001 between the Company and Derrick Bushman (3)


                                       25
<PAGE>

10.5        Form of Agreement for the Purchase and Sale of Stock dated January
            23, 2002, between the Company and In Store Capital, LLC (3)

10.6        Common Stock Purchase Agreement dated January 19, 2001, among the
            Company, Derrick Bushman and various other investors listed on a
            schedule thereto (3)

10.6.1      Escrow Agreement dated January 19, 2001, among the Company, Derrick
            Bushman, as the Purchaser representative and City National Bank, as
            Escrow Agent (3)

10.6.2      Agreement to Provide Financing dated January 19, 2001, between the
            Company and ISC. (3)

10.7        Form of Purchase Agreement between the Company and various investors
            (3)

10.8        Stock Purchase Agreement between the Company and Michael T. Mozer
            dated August 29, 2002. (6)

10.9        Promissory Note in favor of Melissa McBride (Schulze) dated October
            21, 2002. (6)

10.10       Employment Agreement with Michael T. Mozer dated December 31, 2001.
            (6)

10.11       Credit Agreement between the Company and Acclaim Financial Group
            Ventures II, LLC dated July 15, 2003. (6)

10.12       Settlement Agreement dated March 25, 2004 between the Company and
            Let's Go Shopping, Inc., James McCreary and James B. Babo. (6)

10.13       Settlement Agreement dated March 25, 2004 between the Company and
            Let's Go Shopping, Inc., James McCreary and James B. Babo. (6)

10.14       Employment Agreement with Erich Spangenberg. *

10.15       Employment Agreement with William P. Stelt dated February 1, 2005. *

21.1        List of Subsidiaries *

31.1        Certification of Principal Executive Officer Pursuant to Rule
            13a-14(a)/15d-14(a) *

31.2        Certification of Principal Accounting Officer Pursuant to Rule
            13a-14(a)/15d-14(a) *


                                       26
<PAGE>

32.1        Section 1350 Certification *

----------
*     Filed herewith.

(1) Previously filed with the Commission and incorporated by reference from the
Company's Current Report on Form 8-K filed April 16, 2001.

(2) Previously filed with the Commission and incorporated by reference from the
Company's Registration Statement on Form 10 filed December 15, 1999, as amended.

(3) Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 filed on April 1, 2002.

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

(5) Previously filed with the Commission and incorporated by reference from the
Company's Current Report on Form 8-K filed January 1, 2002.

(6) Filed with the Commission and incorporate by reference from the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 and
filed on April 19, 2005.


(b)   REPORTS ON FORM 8-K.

      Current Report on Form 8-K filed on July 7, 2003.

      Current Report on Form 8-K filed on July 25, 2003.

      Current Report on Form 8-K filed on October 6, 2003.

      Current Report on Form 8-K filed on December 1, 2003.

      Current Report on Form 8-K filed on December 31, 2003.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Audit Fees

      The aggregate fees billed for professional services rendered by the
Company's principal accountant for the audit of its annual financial statements,
review of its financial statements included in its quarterly reports and other
fees that are normally provided by the Company's accountant in connection with
its audits during the fiscal years ended December 31, 2003 and 2002 were $0 and
$24,785, respectively.


                                       27
<PAGE>

      Audit Related Fees


      The Company paid fees of $0 and $760 for assurance and related services by
the Company's principal accountant for the fiscal years ended December 31, 2003
and 2002, respectively.

      Tax Fees

      The Company paid its principal accountant $0 and $1,400 for professional
services related to tax compliance, tax advice and tax planning for the fiscal
years ended December 31, 2003 and 2002.

      All Other Fees

      During the fiscal year ended December 31, 2003, and 2002, the Company's
principal accountant did not provide any other services and accordingly did not
bill the Company any other fees for the fiscal years ended December 31, 2003 and
2002, except as provided above.

      Audit Committee

      The Company's directors serve as its audit committee and, other than the
tax related fees, have approved all of the above amounts billed to the Company
prior to incurring the expenses associated therewith.


                                       28
<PAGE>

                              AFG ENTERPRISES, INC.

                     (FORMERLY IN STORE MEDIA SYSTEMS, INC.)

                              FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2002 and 2003
               AND THE PERIOD FROM INCEPTION TO DECEMBER 31, 2003

                                      WITH
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



<PAGE>

                              AFG ENTERPRISES, INC.
                     (FORMERLY IN STORE MEDIA SYSTEMS, INC.)

                          INDEX TO FINANCIAL STATEMENTS



AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2003 AND
FOR THE PERIOD FROM DECEMBER 30, 1992 (INCEPTION) THROUGH DECEMBER 31, 2003:

Report of Independent Registered Public Accounting Firm                     F-2

Balance Sheet as of December 31, 2002 and 2003                              F-3

Statement of Operations for Years Ended December 31, 2002 and 2003,
and for the Period from December 30, 1992 (Inception) Through
December 31, 2003                                                           F-5

Statement of Changes in Stockholders' Equity (Deficit) For the
Period from December 30, 1992 (Inception) Through December 31, 2003         F-6

Statement of Cash Flows For Years Ended December 31, 2002 and 2003,
and for the Period from December 30, 1992 (Inception) Through
December 31, 2003                                                           F-13

Notes to Financial Statements                                               F-15


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
AFG Enterprises, Inc. (Formerly In Store Media Systems, Inc.)


We  have  audited  the  accompanying  balance  sheet  of AFG  Enterprises,  Inc.
(formerly In Store Media Systems,  Inc. -  debtor-in-possession  - a development
stage company) as of December 31, 2002 and 2003,  and the related  statements of
operations,  changes in  stockholders'  equity  (deficit) and cash flows for the
years then ended and for the period from December 30, 1992  (inception)  through
December 31, 2003.  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  standards  of The Public  Company
Accounting Oversight Board (United States). 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 AFG Enterprises,  Inc. as of
December 31, 2002 and 2003 and the results of its  operations and its cash flows
for the years then ended and for the period from  December 30, 1992  (inception)
through  December 31, 2003, in conformity with accounting  principles  generally
accepted in the United States of America.

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,  2003  of
$1,891,686.  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 3, 2005                                 CAUSEY DEMGEN & MOORE INC.


                                      F-2
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                                  BALANCE SHEET
                           December 31, 2002 and 2003


                                     ASSETS

                                                            2002          2003
                                                          ---------    ---------
Current assets:
   Cash and cash equivalents                              $   4,688    $   6,109
   Inventory                                                  5,454         --
   Other current assets                                      73,533          580
                                                          ---------    ---------

    Total current assets                                     83,675        6,689

Property and equipment, at cost:
   Office furniture and equipment (Notes 7 and 10)          256,972         --
   Leasehold improvements                                    55,228         --
                                                          ---------    ---------

                                                            312,200         --

   Less accumulated depreciation and amortization          (168,370)        --
                                                          ---------    ---------

    Net property and equipment                              143,830         --

Other assets:
   Patent costs, net of accumulated amortization of
    $39,862 (2002) and $48,360 (2003)                        96,689       88,191
                                                          ---------    ---------

    Net other assets                                         96,689       88,191
                                                          ---------    ---------

                                                          $ 324,194    $  94,880
                                                          =========    =========


                            See accompanying notes.

                                      F-3
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                           December 31, 2002 and 2003

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

<TABLE>
<CAPTION>
                                                                  2002            2003
                                                              ------------    ------------
<S>                                                           <C>             <C>
Liabilities Not Subject to Compromise:
Current liabilities:
   Accounts payable                                           $        532    $     49,572
   Interest payable                                                  2,498          28,496
   Accrued expenses                                                 44,055         284,134
   Notes payable - related parties (Note 2)                           --            67,100
   Short-term notes payable (Note 2)                               154,400         106,000
                                                              ------------    ------------

    Total current liabilities                                      201,485         535,302

Liabilities Subject to Compromise:
   Pre-Petition Liabilities net of debt issuance costs of
    $239,166 (2002) and $86,667 (2003)                           1,861,086       1,451,264

Commitments and contingencies (Notes 5 and 7)

Stockholders' equity (deficit) (Notes 2, 4, 5, 6, 7 and 8):
   Preferred stock, no par value; 50,000,000 shares
    authorized, 2 shares issued and outstanding
    liquidation preference $520,000                                500,000         500,000
   Common stock, $.001 par value; 150,000,000 shares
    authorized, 87,552,814 (2002) and 88,126,148
    (2003) shares issued                                            87,553          88,126
   Additional paid-in capital                                   21,349,560      21,567,220
   Stock subscriptions received                                    325,000         150,000
   Treasury stock, at cost; 9,374,742 shares                      (563,750)       (563,750)
   Deficit accumulated during the development stage            (23,436,740)    (23,633,282)
                                                              ------------    ------------

    Total stockholders' equity (deficit)                        (1,738,377)     (1,891,686)
                                                              ------------    ------------

                                                              $    324,194    $     94,880
                                                              ============    ============
</TABLE>


                            See accompanying notes.

                                      F-4
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF OPERATIONS

                 For the Years Ended December 31, 2002 and 2003
 and for the Period from December 30, 1992 (inception) through December 31, 2003


<TABLE>
<CAPTION>
                                                                         Cumulative
                                                                        amounts from
                                            2002            2003          inception
                                        ------------    ------------    ------------
<S>                                     <C>             <C>               <C>
Revenues:
   Coupon handling fees and other       $      1,158    $       --        $ 19,664 -

Costs and expenses:
   Research and development                    1,714            --         3,320,137
   General and administrative              1,980,930         205,037      11,813,147
   Depreciation and amortization              44,426          32,498         413,765
                                        ------------    ------------    ------------

     Total costs and expenses              2,027,070         237,535      15,547,049
                                        ------------    ------------    ------------

     Operating loss                       (2,025,912)       (237,535)    (15,527,385)

Other income (expense):
   Interest income                                20            --           105,872
   Litigation settlement (Note 5)               --              --          (156,250)
   Restructuring costs (Note 9)                 --              --          (222,632)
   Debt conversion costs (Note 2)           (128,856)           --        (1,437,198)
   Debt forgiveness                             --           562,321         562,321
   Gain/(loss) on sale of assets              (2,316)       (119,830)       (122,146)
   Interest expense                         (148,370)       (223,515)     (5,801,145)
                                        ------------    ------------    ------------

     Total other income (expense)           (279,522)        218,976      (7,071,178)
                                        ------------    ------------    ------------

     Loss before reorganization items     (2,305,434)        (18,559)    (22,598,563)

   Reorganization expense (Note 10)          (16,078)       (177,983)       (194,061)
                                        ------------    ------------    ------------

Net loss (Note 4)                         (2,321,512)       (196,542)    (22,792,624)

Preferred stock dividends                     30,000            --            90,658
                                        ------------    ------------    ------------

Net loss applicable to common
   stockholders                         $ (2,351,512)   $   (196,542)   $(22,883,282)
                                        ============    ============    ============

Basic and diluted net loss per common
   share (Note 4)                       $       (.03)              *    $       (.43)
                                        ============    ============    ============

Weighted average common shares
   outstanding (Note 6)                   73,900,000      78,700,000      53,500,000
                                        ============    ============    ============
</TABLE>

* Less than ($0.01) per share


                            See accompanying notes.

                                      F-5
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
   For the Period from December 30, 1992 (inception) through December 31, 2003

<TABLE>
<CAPTION>


                                                                                                    Additional
                                                 Preferred stock             Common stock            paid-in            Stock
                                                Shares     Amount        Shares        Amount        capital        subscriptions
                                                -------   --------     ----------   ------------   ------------    ---------------
<S>                                             <C>       <C>          <C>          <C>            <C>             <C>
Balance at December 30, 1992 (inception)           --     $   --             --     $       --     $       --      $          --

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

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

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

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

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

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

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

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

   Exercise of warrants for cash
     in 1995 ($.01 per share)(Note 5)              --         --          297,000            297          2,673               --

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

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

<CAPTION>
                                                                Deficit
                                                              accumulated
                                                               during the
                                                 Treasury     development
                                                  stock          stage          Total
                                                ----------   -------------   -----------
<S>                                             <C>          <C>             <C>
Balance at December 30, 1992 (inception)        $     --     $        --     $      --

   Issuance of common stock in exchange for
     assignment of patent and services in
     1993 ($.001 per share)(Note 5)                   --              --          23,095

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

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

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

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

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

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

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

   Exercise of warrants for cash
     in 1995 ($.01 per share)(Note 5)                 --              --           2,970

   Exercise of warrants in 1996
     ($.20 per share)                                 --              --           6,010

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


                         (Continued on following page)
                            See accompanying notes.

                                      F-6
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
   For the Period from December 30, 1992 (inception) through December 31, 2003

                         (Continued from preceding page)

<TABLE>
<CAPTION>
                                                                                                          Additional
                                                       Preferred stock             Common stock            paid-in
                                                      Shares     Amount        Shares        Amount        capital
                                                      -------   --------     -----------  ------------   ------------
<S>                                                   <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)                      --         --             --             --             --

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

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

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

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

   Net loss for the period from inception through
    December 31, 1997                                     --         --             --             --             --
                                                      -------   --------     -----------  ------------   ------------

Balance, December 31, 1997                                --         --       45,393,666         45,393      3,763,213

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

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

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

<CAPTION>
                                                                                         Deficit
                                                                                       accumulated
                                                                                        during the
                                                           Stock         Treasury      development
                                                       subscriptions      stock           stage          Total
                                                      ---------------   ----------    -------------   -----------
<S>                                                   <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)                                             --           --               --          30,791

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

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

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

   Additional purchases of common stock for
    cash in connection with note conversions
    in 1997 ($.27 per share)(Note 3)                             --           --               --         470,741

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

Balance, December 31, 1997                                       --        (43,750)      (8,031,938)   (4,267,082)

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

   Issuance of common stock in exchange for
    services ($.17 per share)                                    --           --               --         160,000

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


                         (Continued on following page)
                            See accompanying notes.

                                      F-7
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
   For the Period from December 30, 1992 (inception) through December 31, 2003

                         (Continued from preceding page)

<TABLE>
<CAPTION>


                                                                                                          Additional
                                                       Preferred stock             Common stock            paid-in
                                                      Shares     Amount        Shares        Amount        capital
                                                      -------   --------     -----------  ------------   ------------
<S>                                                   <C>       <C>          <C>          <C>            <C>
   Exercise of warrants by conversion of
     note interest ($.14 per share)(Note 3)             --         --           56,250             56           3,694

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

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

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

   Cash received in connection with subsequent
     conversion of note and interest to stock           --         --             --             --              --

   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

   Net loss for the year ended December
     31, 1998                                           --         --             --             --              --
                                                    --------   --------   ------------   ------------    ------------

Balance, December 31, 1998                              --         --       59,094,686         59,095       6,604,648

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

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

<CAPTION>
                                                                                         Deficit
                                                                                       accumulated
                                                                                        during the
                                                           Stock         Treasury      development
                                                       subscriptions      stock           stage           Total
                                                      ---------------   ----------    -------------   -------------
<S>                                                   <C>               <C>           <C>             <C>
   Exercise of warrants by conversion of
     note interest ($.14 per share)(Note 3)                      --            --               --            3,750

   Additional purchases of common stock for
     cash in connection with note conversions
     ($.27 per share)(Note 3)                                    --            --               --          114,000

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

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

   Cash received in connection with subsequent
     conversion of note and interest to stock                  75,000          --               --           75,000

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

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

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

Balance, December 31, 1998                                     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)                                                    --            --               --          398,989

   Exercise of warrants by conversion of
     note principal and interest ($.53 per share)
     (Note 3)                                                 (75,000)         --               --          214,049
</TABLE>


                         (Continued on following page)
                            See accompanying notes.

                                      F-8
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
   For the Period from December 30, 1992 (inception) through December 31, 2003

                         (Continued from preceding page)

<TABLE>
<CAPTION>


                                                                                                      Additional
                                                  Preferred stock             Common stock              paid-in          Stock
                                                 Shares     Amount       Shares         Amount          capital      subscriptions
                                                --------   --------   ------------   ------------    ------------   ---------------
<S>                                             <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          3,457       2,475,245              --

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

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

   Purchase of 6,687,242 treasury shares
     ($.08 per share) (Note 5)                      --         --             --             --              --                --

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

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

   Net loss for the year ended December
     31, 1999                                       --         --             --             --              --                --
                                                --------   --------   ------------   ------------    ------------   ---------------

Balance, December 31, 1999                          --         --       63,828,527         63,829      10,816,909              --

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

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

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

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

<CAPTION>
                                                                  Deficit
                                                               accumulated
                                                               during the
                                                 Treasury      development
                                                  stock           stage           Total
                                                ----------    -------------    -----------
<S>                                             <C>           <C>              <C>
   Sale of common stock for cash and in
     exchange for stock offering services
     ($1.00 per share) (Note 5)                       --               --        2,478,702

   Exercise of warrants                               --               --           19,000

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

   Purchase of 6,687,242 treasury shares
     ($.08 per share) (Note 5)                    (520,000)            --         (520,000)

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

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

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

Balance, December 31, 1999                        (563,750)     (13,108,616)    (2,791,628)

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

   Exercise of warrants  (Note 5)                     --               --           16,643

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

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


                         (Continued on following page)
                            See accompanying notes.

                                      F-9

<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
   For the Period from December 30, 1992 (inception) through December 31, 2003

                         (Continued from preceding page)

<TABLE>
<CAPTION>


                                                                                                                 Additional
                                                              Preferred stock            Common stock              paid-in
                                                            Shares      Amount      Shares         Amount          capital
                                                           ---------  ---------- ------------   ------------    ------------
<S>                                                        <C>        <C>        <C>            <C>             <C>
   Extension of exercise period of warrants issued
     in connection with debt offerings (Note 5)                --           --           --             --           (95,901)

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

   Preferred stock dividends                                   --           --           --             --              --

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

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

   Settlement of debenture payable (Note 5)                    --           --           --             --           226,170

   Net loss for the year ended
     December 31, 2000                                         --           --           --             --              --
                                                           ---------  ---------- ------------   ------------    ------------

Balance, December 31, 2000                                         3     750,000   67,631,621         67,631      13,076,110

   Sale of common stock for cash ($.27 to $.36 per
     share) (Note 5)                                           --           --      6,600,000          6,600       2,045,400

   Preferred stock dividends                                   --           --           --             --              --

   Intrinsic value of stock options granted to employees
     and fair value of stock options granted to
     consultants (Note 6)                                      --           --           --             --           430,374

   Conversion of notes payable into common
     stock (Note 3)                                            --           --      2,715,000          2,715       1,866,040

   Conversion of short-term note payable into common
     stock (Note 3)                                            --           --        310,155            310         251,241

   Extension of exercise period of warrants issued
     in connection with debt offering (Note 5)                 --           --           --             --           474,175

<CAPTION>
                                                                                              Deficit
                                                                                           accumulated
                                                                                           during the
                                                                Stock        Treasury      development
                                                            subscriptions     stock           stage           Total
                                                           ---------------  ----------    -------------    -----------
<S>                                                        <C>              <C>           <C>              <C>
   Extension of exercise period of warrants issued
     in connection with debt offerings (Note 5)                       --          --               --          (95,901)

   Sale of preferred stock for cash (Note 5)                          --          --               --             --

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

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

   Conversion of notes payable into common stock
     (Note 3)                                                         --          --               --          897,064

   Settlement of debenture payable (Note 5)                           --          --               --          226,170

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

Balance, December 31, 2000                                            --      (563,750)     (16,375,905)    (3,045,914)

   Sale of common stock for cash ($.27 to $.36 per
     share) (Note 5)                                                  --          --               --        2,052,000

   Preferred stock dividends                                          --          --            (56,055)       (56,055)

   Intrinsic value of stock options granted to employees
     and fair value of stock options granted to
     consultants (Note 6)                                             --          --               --          430,374

   Conversion of notes payable into common
     stock (Note 3)                                                   --          --               --        1,868,755

   Conversion of short-term note payable into common
     stock (Note 3)                                                   --          --               --          251,551

   Extension of exercise period of warrants issued
     in connection with debt offering (Note 5)                        --          --               --          474,175
</TABLE>


                         (Continued on following page)
                            See accompanying notes.

                                      F-10

<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
   For the Period from December 30, 1992 (inception) through December 31, 2003

                         (Continued from preceding page)

<TABLE>
<CAPTION>


                                                                                                             Additional
                                                         Preferred stock             Common stock              paid-in
                                                        Shares     Amount        Shares         Amount         capital
                                                       --------   --------   --------------  ------------    ------------
<S>                                                    <C>        <C>        <C>             <C>             <C>
   Sales of common stock for cash ($.75 per share)
    (Note 5)                                               --          --         2,292,000          --              --

   Net retirement of stock and cash paid upon merger
    with E. Schulze Corp. (Note 5)                         --          --        (2,292,000)         --              --

   Stock issued to consultants for services (Note 5)       --          --           542,500           543         573,882

   Sales of common stock for cash ($.75 per  share)
    (Note 5)                                               --          --           403,999           404         302,596

   Exercise of warrants (Note 5)                           --          --           513,039           513          82,084

   Conversion of preferred stock into common stock
    (Note 5)                                                 (1)   (250,000)        661,926           662         249,338

   Issuance of common stock for debt issuance
    costs ($.39 per share) (Note 5)                        --          --         1,000,000         1,000         389,000

   Stock subscription received for the purchase
    of 810,186 shares of common stock (Note 5)             --          --              --            --              --

   Net loss for the year ended
    December 31, 2001                                      --          --              --            --              --
                                                       --------   --------   --------------  ------------    ------------

Balance, December 31, 2001                                    2     500,000      80,378,240        80,378      19,740,240

   Sale of common stock for cash ($.36 per share),
    net of offering costs of $40,665 (Note 5)              --          --         2,261,716         2,262         779,924

   Preferred stock dividends                               --          --              --            --              --

   Intrinsic value of stock options granted to
    officers of the Company (Note 5)                       --          --              --            --            12,600

   Value of stock options granted to
    consultants (Note 5)                                   --          --              --            --            45,180

<CAPTION>
                                                                                          Deficit
                                                                                        accumulated
                                                                                        during the
                                                           Stock          Treasury      development
                                                       subscriptions       stock           stage           Total
                                                       ---------------  ------------    -------------    -----------
<S>                                                    <C>              <C>             <C>              <C>
   Sales of common stock for cash ($.75 per share)
    (Note 5)                                                      --       1,719,000             --        1,719,000

   Net retirement of stock and cash paid upon merger
    with E. Schulze Corp. (Note 5)                                --      (1,719,000)            --       (1,719,000)

   Stock issued to consultants for services (Note 5)              --            --               --          574,425

   Sales of common stock for cash ($.75 per  share)
    (Note 5)                                                      --            --               --          303,000

   Exercise of warrants (Note 5)                                  --            --               --           82,597

   Conversion of preferred stock into common stock
    (Note 5)                                                      --            --               --             --

   Issuance of common stock for debt issuance
    costs ($.39 per share) (Note 5)                               --            --               --          390,000

   Stock subscription received for the purchase
    of 810,186 shares of common stock (Note 5)                 350,000          --               --          350,000

   Net loss for the year ended
    December 31, 2001                                             --            --         (4,653,268)    (4,653,268)
                                                       ---------------  ------------    -------------    -----------

Balance, December 31, 2001                                     350,000      (563,750)     (21,085,228)      (978,360)

   Sale of common stock for cash ($.36 per share),
    net of offering costs of $40,665 (Note 5)                 (175,000)         --               --          607,186

   Preferred stock dividends                                      --            --            (30,000)       (30,000)

   Intrinsic value of stock options granted to
    officers of the Company (Note 5)                              --            --               --           12,600

   Value of stock options granted to
    consultants (Note 5)                                          --            --               --           45,180
</TABLE>


                         (Continued on following page)
                            See accompanying notes.

                                      F-11
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
   For the Period from December 30, 1992 (inception) through December 31, 2003

                         (Continued from preceding page)

<TABLE>
<CAPTION>
                                                                                                                   Additional
                                                                Preferred stock           Common stock               paid-in
                                                              Shares     Amount       Shares         Amount          capital
                                                             --------  ---------   ------------   ------------    ------------
<S>                                                          <C>       <C>         <C>            <C>             <C>
   Cancellation of common stock issued to consultants          --           --        (100,000)           (100)            100

   Conversion of notes payable into common
    stock (Note 2)                                             --           --         837,712             838         438,694

   Extension of exercise period of warrants issued
    in connection with debt offering (Note 2)                  --           --            --              --           (74,108)

   Stock subscription received for the purchase
    of 2,752,315 shares of common stock (Notes 4 and 5)        --           --            --              --              --

   Sale of common stock to three individuals (Note 5)          --           --       1,451,146           1,451         233,549

   Sale of common stock to individuals net of offering
    costs of $3,789 (Note 5)                                   --           --         424,000             424          33,681

   Issuance of common stock previously purchased and
    recorded as stock subscription receivable                  --           --       2,000,000           2,000          98,000

   Common stock issued to consultants                          --           --         300,000             300          11,700

   Value of stock options granted to
    lender                                                     --           --            --              --            30,000

   Net loss for the twelve months ended
    December 31, 2002                                          --           --            --              --              --
                                                             --------  ---------   ------------   ------------    ------------

Balance, December 31, 2002                                          2    500,000    87,552,814          87,553      21,349,560

   Common stock issued in exchange for services
    (Note 5)                                                   --           --         573,334             573           5,160

   Issuance of options in connection with debt financing
    (Note 5)                                                                                                            37,500

   Record Bushman Group settlement                                                                                     175,000

   Net loss for the year ended
    December 31, 2003                                          --           --            --              --              --
                                                             --------  ---------   ------------   ------------    ------------

Balance, December 31, 2003                                          2  $ 500,000    88,126,148    $     88,126    $ 21,567,220
                                                             ========  =========   ============   ============    ============

<CAPTION>
                                                                                                Deficit
                                                                                             accumulated
                                                                                             during the
                                                                  Stock        Treasury      development
                                                              subscriptions     stock           stage            Total
                                                             ---------------  ----------    -------------    ------------
<S>                                                          <C>              <C>           <C>              <C>
   Cancel(100,00(100)m-on stock issued to consultants                    --         --               --              --

   Conversion of notes payable into common
    stock (Note 2)                                                       --         --               --           439,532

   Extension of exercise period of warrants issued
    in connection with debt offering (Note 2)                            --         --               --           (74,108)

   Stock subscription received for the purchase
    of 2,752,315 shares--f common stock (Notes 4 and 5)              370,000        --               --           370,000

   Sale of common stock to three individuals (Note 5)               (120,000)       --               --           115,000

   Sale of common stock to individuals net of offering
    costs of $3,789 (Note 5)                                             --         --               --            34,105

   Issuance of common stock previously purchased and
    recorded as stock subscription receivable                       (100,000)       --               --              --

   Common stock issued to consultants                                    --         --               --            12,000

   Value of stock options granted to
    lender                                                               --         --               --            30,000

   Net loss for the twelve months ended
    December 31, 2002                                                    --         --         (2,321,512)     (2,321,512)
                                                             ---------------  ----------    -------------    ------------

Balance, December 31, 2002                                           325,000    (563,750)     (23,436,740)     (1,738,377)

   Common stock issued in exchange for services
    (Note 5)                                                             --         --               --             5,733

   Issuance of options in connection with debt financing
    (Note 5)                                                             --         --               --           37,500

   Record Bushman Group settlement                                  (175,000)       --               --              --

   Net loss for the year ended
    December 31, 2003                                                    --         --           (196,542)       (196,542)
                                                             ---------------  ----------    -------------    ------------

Balance, December 31, 2003                                   $       150,000  $ (563,750)   $ (23,633,282)   $ (1,891,686)
                                                             ===============  ==========    =============    ============
</TABLE>


                         (Continued on following page)
                            See accompanying notes.

                                      F-12
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF CASH FLOWS

                 For the Years Ended December 31, 2002 and 2003
 and for the Period from December 30, 1992 (inception) through December 31, 2003

<TABLE>
<CAPTION>
                                                                                       Cumulative
                                                                                        amounts
                                                                                         from
                                                          2002            2003         inception
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Cash flows from operating activities:
   Net loss                                           $ (2,321,512)   $   (196,542)   $(22,792,624)
   Adjustments to reconcile net loss to net
    cash used in operating activities:
      Depreciation and amortization                         44,426          32,498         413,765
      Loss on disposal of fixed assets                       2,316         119,830         122,146
      Restructuring charges                                   --              --           222,632
      Common stock issued for services, patents and
       payables                                            124,528           5,733       4,429,766
      Amortization of debt issuance costs                  147,501         152,499       2,029,903
      Reduction in note receivable - related party
       charged to research and development                    --              --           244,311
      Changes in assets and liabilities:
       Accounts receivable and notes receivable              3,224            --           (63,860)
       Inventory                                                71           5,454        (104,380)
       Other assets                                        (13,250)         72,953            (580)
       Accounts payable                                    340,422        (482,700)        681,591
       Interest payable                                     60,169          25,997         977,637
       Other                                               247,266         155,099         501,063
                                                      ------------    ------------    ------------

      Total adjustments                                    956,673          87,363       9,453,994
                                                      ------------    ------------    ------------

      Net cash used in operations                       (1,364,839)       (109,179)    (13,338,630)

Cash flows from investing activities:
   Purchase of property and equipment                       (1,342)           --          (382,780)
   Proceeds from sale of property and equipment               --              --           125,000
   Advances - related party                                   --              --          (244,311)
   Patent costs                                             (6,929)           --          (136,549)
   Lease deposits                                             --              --           (27,880)
   Debt issuance costs                                        --              --           (10,000)
                                                      ------------    ------------    ------------

      Net cash used in investing activities                 (8,271)           --          (676,520)

Cash flows from financing activities:
   Proceeds from sale of common stock and warrants       1,056,290          37,500       9,242,034
   Purchase of treasury stock                                 --              --          (520,000)
   Proceeds from sale of preferred stock                      --              --           750,000
   Preferred stock dividends                               (20,000)           --           (80,658)
   Proceeds from stockholder loans                            --             6,000           6,000
   Repayments of capital leases                               --              --           (14,087)
   Proceeds from notes payable                             320,051          67,100       5,607,918
   Repayments of notes payable                                --              --          (969,948)
                                                      ------------    ------------    ------------

      Net cash provided by financing activities          1,356,341         110,600      14,021,259
                                                      ------------    ------------    ------------

Net increase (decrease) in cash                            (16,769)          1,421           6,109

Cash and cash equivalents at beginning of period            21,457           4,688            --
                                                      ------------    ------------    ------------

Cash and cash equivalents at end of period            $      4,688    $      6,109    $      6,109
                                                      ============    ============    ============
</TABLE>

                         (Continued on following page)
                            See accompanying notes.

                                      F-13
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                             STATEMENT OF CASH FLOWS

                 For the Years Ended December 31, 2002 and 2003
 and for the Period from December 30, 1992 (inception) through December 31, 2003

                         (Continued from preceding page)

Supplemental disclosure of cash flow information:

<TABLE>
<CAPTION>
                                                                                       Cumulative
                                                                                        amounts
                                                                                         from
                                                          2002            2003         inception
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Cash paid during period for
   interest                                           $       --      $       --      $  1,362,414

Supplemental disclosure of non-cash financing activities:
</TABLE>

<TABLE>
<CAPTION>
                                                                                       Cumulative
                                                                                        amounts
                                                                                         from
                                                          2002            2003         inception
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Common stock issued for:
   Services, patents and payables                     $     12,000    $      5,733    $  1,015,724
   Conversion of notes payable                             200,000            --         3,813,719
   Conversion of interest                                  110,667            --           868,388
   Cancellation of notes payable                              --              --           300,000
   Debt issuance costs                                      30,000            --           420,000
   Debt conversion costs                                   128,856            --         1,179,304
                                                      ------------    ------------    ------------

                                                      $    481,523    $      5,733    $  7,597,135
                                                      ============    ============    ============

Warrants issued in debt offer:
   Additional paid-in capital                         $    (74,108)   $    (37,500)   $  2,886,673
   Expensed as interest                                     74,108          37,500      (2,886,673)

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

Compensation recorded upon
   grant of stock options                             $     57,780    $     --        $    812,681
</TABLE>

                            See accompanying notes.

                                      F-14
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


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 a system for distributing and  electronically
      clearing  coupons.  The Company developed and patented the Coupon Exchange
      Center  (TM) and the Coupon  Bank(TM)  System,  which are  hardware  based
      electronic  clearing  systems.  In November 2001, the Company acquired the
      rights   to   market    and   sell   the    patented    and    proprietary
      coupon-merchandising  program  of Let's Go  Shopping,  Inc.,  which it has
      incorporated into the Company's Budget Saver(TM)  program.  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 6). 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, 2003.

      On November 12, 2002 (the "Petition Date"),  the Company filed a voluntary
      petition  for  reorganization  under  Chapter  11  of  the  United  States
      Bankruptcy  Code (the  "Restructuring  Proceedings")  in the United States
      Bankruptcy  Court for the District of Colorado (the  "Bankruptcy  Court"),
      seeking   to   restructure   its   operations   and    obligations    (the
      "Restructuring")  in response to a lawsuit  (the "LGS  Lawsuit")  filed by
      LGS,  whom the  Company  believed  was  obligated  to provide  technology,
      intellectual  property  and  services to the Company  under the terms of a
      license  agreement  entered into by the Company and the third party.  As a
      result of the filing of the  Restructuring  Proceedings,  the  Company was
      entitled  to  protection  from its  creditors.  (See  Note  11-"Subsequent
      Events") As part of the Restructuring Proceedings, the Company has changed
      its name to AFG Enterprises, Inc.

      The accompanying  consolidated  financial statements have been prepared in
      accordance with AICPA Statement of Position 90-7 ("SOP 90-7"),  "Financial
      Reporting by Entities in Reorganization  under the Bankruptcy Code" and on
      a going concern  basis,  which  contemplates  continuity of operations and
      realization  of assets and  liquidation  of  liabilities  in the  ordinary
      course of business. However, as a result of the Restructuring Proceedings,
      such  realization  of  assets  and  liquidation  of  liabilities,  without
      substantial  adjustments and/or changes of ownership, is highly uncertain.
      While operating as a debtor-in-possession  ("DIP") under the protection of
      Chapter  11 of  the  Bankruptcy  Code,  and  subject  to  approval  of the
      Bankruptcy  Court,  or otherwise  as  permitted in the ordinary  course of
      business,  the  Debtor,  may  sell or  otherwise  dispose  of  assets  and
      liquidate or settle  liabilities for amounts other than those reflected in
      the  financial  statements.   Further,  a  plan  of  reorganization  could
      materially  change  the  amounts  and  classifications  in the  historical
      financial  statements.  (See Note 11-"Subsequent  Events")


                                      F-15
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


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

      Basis of presentation and management's plans:

      The Company is operating its business as a DIP (the  "Debtor")  subject to
      the provisions of the Bankruptcy  Code. The  appropriateness  of using the
      going concern basis for the  Company's  financial  statements is dependent
      upon,  among other things:  (i) the  Company's  ability to comply with the
      terms of the DIP credit  facility  which was approved by the Court on July
      15,  2003 (the "DIP  Facility")  and  provided  to the  Company by Acclaim
      Financial Group Venture II, LLC ("AFGVII") and any cash  management  order
      entered  by the  Bankruptcy  Court in  connection  with the  Restructuring
      Proceedings;  (ii) the ability of the Company to maintain adequate cash on
      hand to fund its operations;  (iii) the ability of the Company to generate
      cash from operations or the sale of assets; (iv) confirmation of a plan of
      reorganization under the Bankruptcy Code; and (v) the Company's ability to
      achieve   profitability    following   such   confirmation.    (See   Note
      11-"Subsequent Events")

      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.

      Reorganization Under Chapter 11:

      On  November  12,  2002,  the  Company  filed  a  voluntary  petition  for
      reorganization  under Chapter 11 of the United States  Bankruptcy  Code in
      the Bankruptcy  Court. The  Restructuring was initiated in response to the
      LGS Litigation.  Under the Restructuring Proceedings,  the Company expects
      to develop  and  implement a plan for  resolving  the LGS  Litigation  and
      establishing a plan for its long term viability.

      The Company has minimal  operations,  but all  contractors and vendors are
      being  paid for all  goods  furnished  and  services  provided  after  the
      Petition Date. However, as a consequence of the Restructuring Proceedings,
      pending  litigation  against the Debtor as of the Petition  Date is stayed
      and no party may take any action to pursue or collect  pre-petition claims
      except  pursuant to an order of the Bankruptcy  Court. It is the Company's
      intention to address  pre-petition claims through a plan of reorganization
      under the Bankruptcy Code.

      Pursuant to the Bankruptcy  Code, the Debtor has filed  schedules with the
      Bankruptcy Court setting forth the assets and liabilities of the Debtor as
      of the Petition  Date.  In  connection  with the filing of the  Bankruptcy
      Case, the Company issued proof of claim forms to known creditors,  vendors
      and other parties with whom the Company has previously conducted business.
      To the extent that  recipients  disagree  with the claims as quantified on
      these forms,  the recipient  may file  discrepancies  with the  Bankruptcy
      Court.  Differences  between  amounts  recorded  by the Debtors and claims
      filed  by  creditors  will be  investigated  and  resolved  as part of the
      Restructuring Proceedings.  The Bankruptcy Court ultimately will determine
      liability  amounts that will be allowed for these claims in the Chapter 11
      Cases.  An August  24,  2004 bar date was set for the  filing of proofs of
      claim against the Company. Because the Debtor has not completed evaluation
      of the claims  received in  connection  with this  process,  the  ultimate
      number and allowed  amount of such  claims are not  presently  known.  The
      resolution  of such claims  could result in a material  adjustment  to the
      Company's financial statements.


                                      F-16
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


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

      Approximately 41 proofs of claim totaling approximately $1,937,423 million
      alleging a right to payment from the Company were filed in connection with
      the June 10, 2003 bar date, including unsecured claims totaling $1,795,960
      as well as  potentially  significant  claims  classified  as  "unknown" or
      "unliquidated".  The  resolution of such claims could result in a material
      adjustment to the Company's financial statements.

      Use of estimates:

      The  preparation  of financial  statements in conformity  with  accounting
      principles  generally  accepted in the United  States of America  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.



                                      F-17
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


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

      Impairment of long-lived assets:

      The Company  evaluates  the potential  impairment of long-lived  assets in
      accordance  with  Statement of  Financial  Accounting  Standards  No. 144,
      Accounting  for the  Impairment  or Disposal  of  Long-Lived  Assets.  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.

      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  $110,855  and $0 for the years ended  December  31, 2002 and
      2003, 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 times during the year 2002, the balance at one financial
      institution exceeded the FDIC limits.

      Recent accounting pronouncements:

      In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
      Assets".  SFAS No. 142 requires that goodwill and other intangible  assets
      with  indefinite  lives no longer be  amortized,  but  instead  tested for
      impairment  at least  annually.  In addition,  the standard  addresses how
      intangible assets that are acquired  individually or with a group of other
      assets, other than as part of a business combination,  should be accounted
      for upon their acquisition. The adoption of SFAS No. 142 effective January
      1,  2002  did not have a  material  effect  on the  Company's  results  of
      operations or financial position.



                                      F-18
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


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


      In  August  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
      Impairment or Disposal of Long-Lived  Assets".  This  statement  addresses
      financial  accounting  and  reporting  for the  impairment  or disposal of
      long-lived  assets.  This  statement  supersedes  FASB  Statement No. 121,
      "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
      Assets to be Disposed of", and the accounting and reporting  provisions of
      APB Opinion No. 30,  "Reporting  the Results of Operations - Reporting the
      Effects  of a  Disposal  of a Segment of a  Business,  and  Extraordinary,
      Unusual  and  Infrequently  Occurring  Events and  Transactions",  for the
      disposal  of a  segment  of a  business  (as  previously  defined  in that
      Opinion).  The adoption of SFAS No. 144 effective  January 1, 2002 did not
      have a material effect on the Company's results of operations or financial
      position.

      In  November  2002,  the FASB  issued  Interpretation  No. 45 ("FIN  45"),
      "Guarantor's   Accounting  and  Disclosure  Requirements  for  Guarantees,
      Including Indirect Guarantees of Indebtedness of Others".  FIN 45 requires
      that a  liability  be  recorded  in the  guarantor's  balance  sheet  upon
      issuance of a guarantee.  In addition, FIN 45 requires certain disclosures
      about each of the entity's guarantees. The disclosure provisions of FIN 45
      are effective for annual and interim  periods that end after  December 15,
      2002. The recognition provisions of FIN 45 are applicable prospectively to
      guarantees  entered after  December 31, 2002. The Company does not believe
      that the adoption of FIN 45 will have a material  effect on its results of
      operations or financial position.

      In June 2003,  the FASB  approved  SFAS No. 150,  "Accounting  for Certain
      Financial   Instruments  with  Characteristics  of  both  Liabilities  and
      Equity".  SFAS No. 150 establishes  standards for how an issuer classifies
      and measures certain financial  instruments entered into or modified after
      May 31, 2003,  and  otherwise  is effective at the  beginning of the first
      interim period  beginning after June 15, 2003. The Company does not expect
      adoption of SFAS No. 150 to have any impact on its financial statements.

      In  December  2003,  the FASB  issued a  revised  Interpretation  No.  46,
      "Consolidation  of  Variable  Interest   Entities".   The   interpretation
      clarifies  the  application  of  Accounting   Research  Bulletin  No.  51,
      "Consolidated  Financial Statements" to certain types of variable interest
      entities.  The Company does not expect the adoption of this interpretation
      to have any impact on its financial statements.


                                      F-19
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


2.    Notes payable

      Effective  February 14, 1996, the Company  initiated a private offering of
      16 (the  minimum)  to 200 units  with each  unit  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  575,000 warrants to purchase common
      stock at $.67  per  share  exercisable  for a period  of five  years  from
      December 4, 1995. These warrants have been reclassified in these financial
      statements  as stock options do to the nature of the  transaction  and are
      properly  reflected  as such in the tables in Note 6. 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 are 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  that 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.  All A, B, and C warrants  that were not  exercised  during
      2001 were extended to June 30, 2002. As of June 30, 2002, no such warrants
      had been exercised and the warrants expired.

      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.


                                      F-20
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


2.    Notes payable (continued)

      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  offered 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. Note holders converted $460,111
      and $904,976 of note  principal and $145,267 and $332,267 of interest into
      1,389,000 and 2,715,000  shares of the Company's  common stock during 2000
      and 2001,  respectively.  In connection with the revised terms of the note
      conversion offer, the Company recognized  conversion costs of $291,686 and
      $631,512,  respectively in 2000 and 2001.  Additionally,  during 2001, the
      Company  repaid notes  totaling  $411,922  including  accrued  interest of
      $124,422.

      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  was  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).

      On May 15, 2001, the Company borrowed $125,493 from a shareholder/director
      bearing  interest at 8% per annum,  convertible into 310,155 shares of the
      Company's  common  stock.  Due to  the  beneficial  conversion  privilege,
      $125,493  was  recorded  as debt  issuance  costs.  On June 7,  2001,  the
      shareholder/director  elected  to  convert  the note  and $565 of  accrued
      interest into 310,155 shares of the Company's common stock.


                                      F-21
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


2.    Notes payable (continued)

      In February 2002, the Company borrowed $70,000 from an officer/director of
      the Company bearing  interest at 8% per annum,  convertible into shares of
      the  Company's  common  stock at a price of $.432  per  share.  This  note
      matured on March 16, 2002 and was  subsequently  extended to May 15, 2002.
      In June 2002, this same  individual  surrendered his rights under the note
      agreement  and with the  approval  of the  Company's  board of  directors,
      applied  these  funds  towards  the  purchase  of  200,459  shares  of the
      Company's  common  stock at a price of $.35 per share.  These  shares were
      purchased  under  the  same  terms  and  conditions  as those  within  the
      Company's offering of the 2002 Units discussed previously.

      In March 2002, the Company offered its noteholders the option of extending
      their notes  through  October 31, 2002 or electing to convert  their notes
      and accrued interest into shares of the Company's restricted common stock.
      Under the extension  feature,  each noteholder had the option of extending
      their note and accrued interest to October 31, 2002. In consideration  for
      extending their note, each noteholder  received options to purchase shares
      of the Company's  restricted  common stock  exercisable at $1.00 per share
      for each  dollar owed the  noteholder  as of March 1, 2002  including  all
      accrued interest.  Under the conversion  feature,  each noteholder had the
      option of  converting  their note and accrued  interest into shares of the
      Company's  restricted common stock at $.45 per share. In consideration for
      converting their note, each noteholder received options to purchase shares
      of the  Company's  restricted  common  stock (one option for each share of
      common  stock) at prices  ranging from $.50 - $.75 per share.  All options
      expired on December  31,  2002.  During the year ended  December 31, 2002,
      notes  totaling  $75,000  were  extended  and  notes  totaling   $310,676,
      including  accrued interest of $110,676 were converted into 837,712 shares
      of the Company's common stock. The Company recorded an expense of $128,856
      as debt conversion costs in recognition of the beneficial conversion terms
      offered.

      In October 2002, the Company  borrowed  $100,000 from a shareholder of the
      Company  bearing  interest at 18% per annum with the option of  purchasing
      1,000,000  shares of stock in lieu of receiving  interest  under the note.
      The loan is  collateralized  by a collateral  assignment of all litigation
      claims  against  Let's Go  Shopping,  all  patents  currently  held by the
      Company  and all other  assets of the Company not subject to a prior lien.
      During 2002,  the Company also borrowed  $39,647 from directors and former
      directors of the Company.


                                      F-22
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


2.    Notes payable (continued)

      During 2001, notes of $91,000,  $30,000 and $130,000 plus accrued interest
      payable to the Company's former president,  the Company's  president and a
      partnership  in which the  Company's  president  is the  general  partner,
      respectively,  were paid to note holders or the notes were  converted into
      equity.

      Between  February and June 2003, the Company  received a net of $17,100 in
      short-term  loans from an officer and directors of the Company which funds
      were used to support Company activity.

      On July 15, 2003, in connection with the  Restructuring  Proceedings,  the
      Court  approved  the Company  entering  into  debtor-in-possession  credit
      facility (the "DIP Facility") with AFGVII to supplement liquidity and fund
      operations during the Restructuring  Proceedings,  and potentially  beyond
      such period.  Under the DIP Facility,  a creditor,  Melissa  McBride,  was
      required to  subordinate  its claims to any claims of AFGVII arising under
      the DIP  Facility.  NMPP  subsequently  purchased  the  claim  of  Melissa
      McBride.  Among other  terms,  the DIP Facility  contemplates:  (i) AFGVII
      receiving  a priority  security  interest  in all the assets of the Debtor
      (subject to minimal  exceptions for professional and trustee fees incurred
      by the Debtor and approved by the Court); (ii) initial borrowings of up to
      $200,000,  with a  maximum  borrowing  of up to $3.0  million  upon  Court
      approval  of a plan of  reorganization  acceptable  to  AFGVII;  (iii)  an
      interest rate of 2% per month on all obligations  deemed outstanding under
      the DIP  Facility;  (iv) AFGVII being  reimbursed  (or such amounts  being
      added  to  amounts  deemed  outstanding)  for  all  expenses  incurred  in
      connection with the DIP Facility;  (v) maturity of the DIP Facility on the
      earlier to occur of certain  specified  events or December 31, 2003;  (vi)
      AFGVII being granted an option to acquire 20% of the fully diluted  equity
      of the Debtor at various  prices;  and (vii) the Debtor's  compliance with
      various  affirmative  and negative  covenants that restrict the operations
      and ability of the Debtor to engage in various transactions.

      The Company's  available  borrowings  and use of borrowings  under the DIP
      Facility  are  restricted  in many ways,  including  the Debtor  using any
      borrowings  in a manner  acceptable  to  AFGVII  as set  forth in a budget
      prepared by the Debtor and approved by AFGVII.

      On July 15, 2003, the Company took  appropriate  corporate action to cause
      two  representatives  of AFGVII to be appointed to the Company's  Board of
      Directors   (which  now  consists  of  four  members)  and  an  individual
      designated  by AFGVII  assumed the role of Chairman,  CEO,  Secretary  and
      Treasurer of the Company.

      On December 31, 2003, AFGVII agreed to waive an event of default under the
      DIP Facility (related to the Debtor's failure to pay amounts due under the
      DIP Facility by such date and the Debtor's  failure to have an  acceptable
      plan of reorganization  approved by the Court), for a period of time to be
      solely determined by AFGVII, with AFGVII reserving the right to declare an
      event of default  upon one  business  day notice to the  Debtor.  Upon the
      effective  date  of a final  and  non-appealable  plan  of  reorganization
      acceptable  to AFGVII (an  "Approved  Plan"),  the Company and AFGVII have
      agreed to amend the DIP Facility such that, among other things, (i) AFGVII
      will have a  continuing  first  priority  security  interest in all of the
      assets of the Company  and (ii) the  interest  rate on all new  borrowings
      will be 7% per annum.


                                      F-23
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


2.    Notes payable (continued)

      Short-term  notes  payable  related  party at  December  31, 2002 and 2003
      consisted of the following:

<TABLE>
<CAPTION>
                                                                    2002       2003
                                                                  --------   --------
<S>                                                               <C>        <C>
18% Note payable, secured, to a shareholder related to the
   former president of the Company                                $100,000   $100,000

Non interest bearing loans from shareholders                            --      6,000

6.75% Note payable to an insurance finance company,
   payable in monthly installments of $6,216 including interest
   through July 10, 2003                                            54,400         --
                                                                  --------   --------

(Weighted average interest rate 2002 - 14% and 2003 - 17%)        $154,400   $106,000
                                                                  ========   ========
</TABLE>

3.    Pre-petition liabilities

      As a result of filing for Chapter 11 bankruptcy on November 12, 2002,  the
      Company has segregated its liabilities into two categories: 1) Liabilities
      subject to  compromise  and 2)  Liabilities  not  subject  to  compromise.
      Liabilities subject to compromise are principally pre-petition obligations
      which may be settled at amounts  different  from the  originally  recorded
      amounts  as  part  of  the  plan  of  reorganization.  Such  treatment  is
      consistent with Statement of Position 90-7 Financial Reporting by Entities
      in  Reorganization  Under the  Bankruptcy  Code  issued by the  Accounting
      Standards Executive Committee in November 1990.

      As of December  31,  2002 and 2003,  pre-petition  liabilities  subject to
      compromise consisted of the following:

                                                     2002               2003
                                                 -----------        -----------
Accounts payable                                 $ 1,163,759        $   632,019
Accrued expenses                                     301,910            271,329
Interest payable                                     190,986            190,986
Notes payable                                        443,597            443,597
                                                 -----------        -----------
                                                   2,100,252          1,537,931
Less:
Debt issuance costs                                 (239,166)           (86,667)
                                                 -----------        -----------
Net pre-petition liabilities
 subject to compromise                           $ 1,861,086        $ 1,451,264
                                                 ===========        ===========

4.    Income taxes

      At  December  31,  2003,   the  Company  has  a  net  operating  tax  loss
      carryforward  of  approximately  $15,865,700,  future  tax  deductions  of
      $2,396,700  which may be used to offset future taxable income,  and unused
      tax  credits  of  $274,000.   The  future  tax   deductions   result  from
      capitalizing  pre-operating  costs for income tax  reporting  purposes and
      expensing these costs for financial statement purposes.


                                      F-24
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


4.    Income taxes (continued)

      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 loss
      carryforward  will be reduced in future  periods to the extent of any debt
      discharged  as a result of an  approved  plan of  reorganization.  The net
      operating tax loss carryforward (prior to bankruptcy  adjustments) expires
      as follows:

                                2008                        $   311,700
                                2009                             28,000
                                2011                          1,109,900
                                2012                          2,054,000
                                2018                            520,000
                                2019                          1,624,300
                                2020                            484,200
                                2021                          4,926,400
                                2022                          3,379,100
                                2023                          1,428,100
                                                            -----------
                                                            $15,865,700

      At December 31, 2002 and 2003,  total  deferred  tax assets and  valuation
      allowance are as follows:

                                                       2002             2003
                                                   -----------      -----------
Net operating loss carryforwards                   $ 5,385,000      $ 5,918,000
Capitalized pre-operating costs                      1,341,000          894,000
Research and development tax credits                   274,000          274,000
                                                   -----------      -----------

Total                                                7,000,000        7,086,000
Less valuation allowance                            (7,000,000)      (7,086,000)
                                                   -----------      -----------
                                                   $        --      $        --
                                                   ===========      ===========

     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 reasonably 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-25
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


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 $6,000.

      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 $.267.  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 at $.01
      per share. As settlement of the Company's lawsuit against HealthStar, Inc.
      and Thomas Stateman (HealthStar/Stateman ), 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. A
      loss on  litigation  of $156,250  has been  recorded  in the  accompanying
      financial statements in 1997.


                                      F-26
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003

5.    Stockholders' equity (continued)

      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.

      In 1997 and 1998,  the  Company  issued  3,289,665  and  4,430,293  shares
      respectively, under the offering of convertible debt outlined in Note 2.

      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.
      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 that  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.  During  2001,  the  exercise  period of these
      warrants was extended to June 30, 2002 at which time they expired.

      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 a private  stock
      offering. 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-27
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


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 were
      sold.  During 2000 three  shares were sold  generating  total  proceeds of
      $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, subject to certain dilution  adjustments.  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.  On July 1, 2001,  one  shareholder of the
      series A cumulative  preferred  stock  elected to convert their share into
      common stock. Upon conversion, this shareholder received 661,926 shares of
      the Company's common stock.

      In 2000 and 2001,  the Company  issued  1,389,000  and  3,025,155  shares,
      respectively,  of its  common  stock  upon  conversion  of  notes  payable
      outlined in Note 2.

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

      During  2001,  the Company  issued  542,500  shares of its common stock to
      various management consultants for services rendered valued at $574,425.

      Acquisition of Schulze Corp.:

      In May 2001, the Company acquired the entire outstanding  capital stock of
      The E. Schulze Corporation,  a Colorado corporation (the "Schulze Corp."),
      in exchange for an aggregate of $1,719,000 in cash (the "Cash Amount") and
      17,852,196  shares of the  Company's  common  stock (the  "Company  Common
      Stock").  Under the terms of an  Agreement  and Plan of Merger dated March
      30, 2001,  between the Company,  the Schulze Corp. and the stockholders of
      the Schulze  Corp.,  a newly formed  subsidiary  of the Company was merged
      with and into the Schulze  Corp.  in a tax-free  reorganization  under the
      Internal  Revenue Code. As a result,  at the effective time of the merger,
      the Schulze Corp. became a wholly owned subsidiary of the Company.  At the
      time of the  merger,  the Schulze  Corp.  owned  20,144,196  shares of the
      Company's common stock.

      The Company  generated the cash  necessary to pay the Cash Amount  through
      the sale to certain  investors of 2,292,000  new shares (the "New Shares")
      at a price per share of $.75. The purchasers of the New Shares  included a
      director  of the  Company and certain  principals  and  affiliates  of the
      director.

     In May 2001, the Company sold 403,999 shares of common stock to a related
     party and three other purchasers who qualified as "accredited" investors
     under Rule 501 of Regulation D under the Securities Act of 1933, as amended
     ("Securities Act") for total proceeds of $303,000. These proceeds were then
     used by the Company to reduce notes payable and accrued interest payable to
     selected noteholders of the Company outlined in Note 2.


                                      F-28
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


5.    Stockholders' equity (continued)

      In  December  2001,  the  Company  received  stock  subscriptions  for  an
      additional  $175,000 of equity  from each of two  directors  enabling  the
      Company to begin the marketing of its Budget Saver(TM) program.  Under the
      term of these agreements, each director will receive 405,093 shares of the
      Company's  common  stock.  Additionally,  each  director  shall  receive a
      royalty  equal  to one  quarter  of one  cent  ($.0025)  for  each  coupon
      processed  by the  Company  through  the Budget  Saver(TM)  program.  This
      royalty  payment shall continue until that time when the bid price for the
      Company's  common stock equals or exceeds  $2.00 per share for at least 72
      days  within a 90 day period,  however  regardless  of the bid price,  the
      royalty  shall  remain in place  until at least  November  30,  2002.  The
      directors  also have the first  right of refusal on  providing  additional
      equity to the Company up to an initial $2,250,000 of equity.

      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.

      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 equity proceeds of $1,000,000 in January 2001,  $500,000
      in April 2001,  and the final  $552,000 in August 2001 all in exchange for
      an aggregate of 6,600,000  shares of common stock.  In connection with the
      release of the final $552,000 from escrow,  the Company  issued  7,600,000
      options to purchase  shares of the  Company's  restricted  common stock at
      prices ranging from $.75 per share to $1.50 per share.  Also in connection
      with the release of the final  $552,000  from escrow,  the Company  issued
      660,000  options to purchase  shares of the  Company's  restricted  common
      stock to In Store  Capital,  LLC at prices  ranging from $.75 per share to
      $1.50 per share.

      Additionally,  in August 2001, in accordance with the agreement to provide
      financing  contracted  upon by the Company  and the  investor  group,  the
      Company released from escrow 1,000,000 shares of the Company's  restricted
      common stock in  satisfaction of the agreement to provide the Company with
      accounts  receivable  financing.  In  connection  with the  financing  and
      corresponding  release of the shares,  the Company  recorded debt issuance
      costs of $390,000 that are being amortized over the three-year term of the
      financing agreement.

      Sale of Common Stock:

      In January 2002, the Company raised $150,000 of additional  equity from In
      Store Capital,  LLC ("ISC") enabling the Company to continue the marketing
      of its Budget Saver(TM) program.  Under the term of the agreement,  ISC is
      to receive 347,222 shares of the Company's common stock. Additionally, ISC
      shall  receive a royalty  equal to one half of one cent  ($.005)  for each
      coupon processed by the Company through the Budget Saver(TM) program. This
      royalty  payment  shall  continue  until  that time  when ISC  shall  have
      received royalty payments  totaling  $300,000.  The $150,000 proceeds have
      been treated as stock subscriptions received.

      In September  2002,  the Company  sold  424,000  shares of common stock to
      individuals for proceeds of $34,105 (net of offering costs of $3,789).



                                      F-29
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003

5.    Stockholders' equity (continued)

      In November 2002, an officer of the Company  subscribed for and was issued
      2,000,000  shares of common stock  generating  proceeds of $100,000 to the
      Company previously recorded as stock subscriptions receivable.

      The Company also sold  1,451,146  shares of common stock to an  individual
      and two  directors  of the  Company for  proceeds  of $235,000  (including
      200,459  shares  issued  to  an   officer/director  in  exchange  for  the
      cancellation  of a note  payable  - see Note 2).  The  directors  received
      options to purchase 501,146 shares of common stock exercisable at $.35 per
      share until  November 15, 2002 and a future  royalty of $.00175 per coupon
      issued under the Let's Go Shopping coupon booklet program until the amount
      paid for the stock is repaid.

      Private placement

      In February  2002,  the board of directors of the Company  authorized  the
      offering of up to $700,000 of 2002 Units to  accredited  investors  of the
      Company.  Each "2002 Unit" is comprised of (i) one share of the  Company's
      common stock at a price equal to 90% of the average closing price over the
      five trading days immediately  preceding the purchase of the Unit, (ii) an
      option to purchase an additional share of the Company's common stock at an
      exercise price of $.50 per share for a period of five months following the
      date of the  purchase of the Unit,  and (iii) a pro-rata  royalty  payment
      equal to a maximum of one half of one cent  ($.005)  per  redeemed  coupon
      under the Let's Go Shopping coupon booklet program payable until such time
      as the initial investment has been fully realized by the investor. In June
      2002, the board of directors authorized an increase in this offering of an
      additional $122,850 of the 2002 Units. For the year 2002, the Company sold
      2,146,221 of its 2002 Units  generating total proceeds of $782,186 (net of
      offering  costs  of  $40,665)   including   $175,000  reflected  as  stock
      subscriptions  received.  Additionally,  in connection with this offering,
      the Company  issued,  to a selling agent,  115,495 shares of the Company's
      common stock (issued in July 2002) and options to purchase  115,495 shares
      of the Company's common stock at an exercise price of $.50 per share.

      Common stock issued in exchange for services

      During 2002, the Company issued 300,000 shares of common stock in exchange
      for services rendered from a consultant and recorded an expense of $12,000
      in connection with the transaction.

      During 2003, the Company issued 573,334 shares of restricted  common stock
      for  services  rendered by a  consultant  and two former  employees of the
      Company and recorded an expense of $5,733.

      Stock warrants:


      The following is a summary of stock warrant activity:


                                      F-30
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003

5.    Stockholders' equity (continued)

                                       Exercise                 Number of
                                         price                   shares
                                      ----------               ----------

Balance at December 31, 2001                                     6,393,221

Issued in 2002                                                          --
Exchanged in 2002                                                       --
Exercised in 2002                                                       --
Expired in 2002                       $1.00 to $1.25            (3,243,221)
                                                                ----------
Balance at December 31, 2002                                     3,150,000
                                                                ----------

Issued in 2003                                                          --
Exchanged in 2003                                                       --
Exercised in 2003                                                       --
Expired in 2003                                                         --
                                                                ----------
Balance at December 31, 2003                                     3,150,000
                                                                ==========

Exercisable at December 31, 2003          $2.00                  3,150,000
                                                                ==========

      During 1999,  2000, and 2001 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 Company  treated  these  extensions as stock
      appreciation  rights 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. During 2001, in connection with
      a  further  extension  of these  warrants,  $474,175  was  recorded  as an
      increase in  interest  expense and  additional  paid-in-capital.  All such
      related  warrants  that were not  exercised  during  2001,  expired  as of
      December 31, 2001.  Additionally,  during 2001 the Company  issued 513,039
      shares of common  stock upon the  exercise of certain A, B, and C warrants
      resulting in proceeds of $82,597.  Through June 2002, the Company recorded
      interest expense of $74,108 relating to other warrants at which time these
      warrants expired.

      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. These
      warrants were issued  effective  January 19, 2001 in  connection  with the
      $2,052,000 private equity funding  arrangement  completed in January 2001.


                                      F-31
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


5.    Stockholders' equity (continued)

      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 and all except 100,000 of these options have expired unexercised.

      During  2000,  the  board of  directors  granted  to two  employees  and a
      director, also serving as a consultant, options to purchase 536,875 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  vested 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  years  ended  December  31,  2000 and 2001,  the  Company
      recognized  compensation  expense of $324,527 and  $30,783,  respectively,
      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.
      During 2001, the Company also issued options to purchase 650,000 shares of
      the Company's  common stock to two  consultants and valued these shares at
      $118,065.

      In  January  2001,  the  Company  issued to three  employees,  options  to
      purchase  730,000  shares of the Company's  common stock  exercisable at a
      price  ranging from $.25 to $.30 per share,  for a two-year to a five-year
      period and are fully  vested.  In  connection  with the  issuance of these
      options, the Company has recorded compensation expense of $261,526.

      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  (400,000  options in the  aggregate).  These shares may be
      exercised  by  a  full  recourse  note  payable  by  each  director.  This
      resolution was ratified by the Company's  shareholders  at the 2001 Annual
      Shareholders'   Meeting  held  in  October  2001.  The  Company   recorded
      compensation  expense  of $20,000  in  connection  with the grant of these
      options.

      On December 31, 2001, Donald P. Uhl resigned as Chairman,  President,  and
      Chief Executive  Officer of the Company.  Mr. Uhl was succeeded by Michael
      T. Mozer,  the Company's  Vice  Chairman,  on January 1, 2002. In February
      2002 and in conjunction  with the hiring of Mr. Mozer, the Company's Board
      of  Directors  approved  the  issuance of options to Mr. Mozer to purchase
      200,000  shares of the  Company's  common  stock  exercisable  at $.42 per
      share.  These options were granted  pursuant to the Company's 2000 Omnibus
      Equity Incentive Plan.


                                      F-32
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


5.    Stockholders' equity (continued)

      During 2002, in connection  with a secured  loan,  the Company  recorded a
      debt issuance cost and additional  paid in capital of $30,000 based on the
      Black-Scholes model for options issued in connection with the loan.

      During  2002,  the  Company  issued  options to a  consultant  to purchase
      250,000 shares of the Company's common stock exercisable at prices ranging
      from $.12 to $.41 per share.

      For the year ended December 31, 2002, the Company recognized  compensation
      expense of $12,600 and $45,180 for the options issued to Mr. Mozer and the
      consultant,   respectively.   Compensation   expense   resulted  from  the
      difference  between  the  exercise  price  and  the  market  price  of the
      Company's  common  stock at the time the options were granted to Mr. Mozer
      and  based  on the  Black-Scholes  model  for the  options  issued  to the
      consultant.

      During  2003  and  in  connection  with a  credit  facility  with  Acclaim
      Financial Group Ventures II (AFGVII), the Company issued options to AFGVII
      to purchase up to 20% of the fully  diluted stock of the Company at prices
      ranging from $0.001 to $0.03 per share.  Such options are  exercisable  at
      AFGVII's discretion and have a term of 5 years from July 15, 2003 the date
      of the executed and approved credit facility.

      2000 Omnibus Equity Incentive Plan:

      On October 24, 2001, the Company's  stockholders approved the 2000 Omnibus
      Equity Incentive Plan which reserved for issuance  6,000,000 shares of the
      Company's  common  stock.  The Plan also  contains a provision to increase
      annually  the number of shares  available  for  issuance  by the lesser of
      10,000,000 shares or 10% of the outstanding  shares of common stock of the
      Company.  Under the terms of the Plan,  the  Company  can issue  incentive
      stock options (ISO's) and non-qualified stock options (NSO's).  For ISO's,
      the  purchase  price  of the  shares  granted  will  not be less  than the
      estimated fair market value at the date of grant unless the purchaser owns
      more than 10% of the total  combined  voting power of all classes of stock
      on the date of grant,  in which case the purchase  price shall not be less
      than 110% of the estimated fair market value at the date of grant. Options
      granted  are  exercisable  for five  years  from the date of the grant for
      stockholders  owning more than 10% of the total  combined  voting power of
      the Company's  stock.  Options  granted to other employees are exercisable
      for ten years from the date of grant.  The Plan  contains  provision  that
      permit the granting of stock  appreciation  rights by the  committee  that
      administers  the Plan.  The rights may be  exercised by  surrendering  the
      option and receiving an amount equal to the  difference in the fair market
      value of the shares on the date of surrender  and the option price of such
      shares.

      Registration of company equity incentive plan:

      In February  2002,  the Company  completed  an S-8  Registration  with the
      Securities  and  Exchange  Commission  registering  8,866,875  options  to
      purchase  shares of the Company's  common stock that were authorized to be
      issued under the  Company's  2000 Omnibus  Equity  Incentive  Plan.  As of
      December 31, 2002, options  representing  3,066,875 shares of common stock
      had been  granted to  various  employees  and  directors  of the  Company.
      Additionally, as of December 31, 2003, no such options were exercised.

                                      F-33
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


5.    Stockholders' equity (continued)

      The following is a summary of stock option activity:

<TABLE>
<CAPTION>
                                                                  Weighted
                                            Option price per      average           Number of
                                                 share         exercise price        shares
                                           ----------------- ----------------- ----------------
<S>                                        <C>                      <C>              <C>
Balance December 31, 2001                  $ 0.21 to $3.00         $ 0.93            12,276,875

Granted                                    $  0.01 to $.44         $ 0.26             3,907,769
Exercised                                  $            --         $   --                    --
Forfeited                                  $ 0.25 to $3.00         $ 0.51            (3,919,644)
                                                                                ---------------

Balance December 31, 2002                  $ 0.01 to $1.50         $ 0.86            12,265,000

Granted                                    $0. 001 to $.03         $ 0.02            19,282,809


Exercised                                  $            --         $   --                    --
Forfeited                                  $ 0.01 to $1.00         $ 0.33            (2,455,000)
                                                                                ---------------

Balance December 31, 2003                  $0.001 to $1.50         $ 0.35            29,092,809
                                                                                ===============

Options exercisable at December 31, 2003   $0.001 to $1.50         $ 0.35            29,092,809
                                           ===============                      ===============
</TABLE>

      The following is additional  information with respect to those options and
      warrants outstanding at December 31, 2003:


                                 Weighted
                                 average
                                remaining          Weighted
                             contractual life       average         Number of
           Price per share      in years        exercise price       shares
           ----------------  ----------------   --------------  ---------------
Options          $0.001            4.67               $ 0.001         4,473,840
                 $0.01             4.67               $ 0.010         4,697,532
              $0.02-$0.03          4.67               $ 0.025        10,111,437
             $0.12 to $0.18        1.71               $ 0.120
                                                                         50,000
             $0.21 to $0.31        2.81               $ 0.294
                                                                        800,000
             $0.36 to $0.54        3.29               $ 0.443
                                                                        700,000
            $0.75 to $01.13        1.61               $ 0.875         4,130,000
             $1.25 to $1.50        1.64               $ 1.375         4,130,000
                                                                ---------------
                                                                     29,092,809

Warrants         $2.00              3.0               $  2.00         3,150,000
                                                                ===============



                                      F-34
<PAGE>


                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


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, 2002 and 2003 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:

                                                   2002              2003
                                              -------------      -------------
      Net loss - as reported                  $  (2,321,512)     $    (196,542)
      Net loss - pro forma                       (2,386,321)          (196,542)
      Loss per share - as reported                    (0.03)                 *
      Loss per share - pro forma                      (0.03)                 *

         * Less than ($.01) per share

      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 2002 and 2003,  dividend
      yield of 0%;  expected  volatility  of 100%,  risk-free  interest  rate of
      5.48%; and expected life of 10 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  $498,407  at
      December 31,  2002.  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-35
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


7.    Commitments and contingencies (continued)

      This debt was  discharged as a result of the bankruptcy  proceedings  (See
      Note 11).

      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,  2001  and  2002  was  $38,540  and  $31,813,
      respectively.

      In August 2003 as part of the  Company's  strategy to devote its financial
      resources  primarily to pursuing its  litigation  strategy in an effort to
      maximize recovery,  the Company closed its Aurora,  Colorado location. The
      Company  continues  to be supported  by contract  staff and by  management
      personnel located out of state.

      As part of management's  decision to close the office,  certain accounting
      adjustments were recorded in August 2003 to reflect the disposition of the
      Company's furniture and fixtures along with certain obsolete demonstration
      equipment and other  inventory to the  Company's  landlord in exchange for
      the extinguishment of certain rent obligations which had accrued.

      Capital lease commitments:

      The Company leased 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.

      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.  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 fair value of the  pre-petition  liabilities  is negligible due to the
      pending bankruptcy.

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  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.  During 2001,  the
      Company abandoned additional equipment with a book value of $26,121.


                                      F-36
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2003


10.   Reorganization expense

      The Company has recorded certain legal expenses as reorganization expenses
      under its Chapter 11 bankruptcy filing.  Such treatment is consistent with
      Statement of Position 90-7 as issued by the Accounting Standards Executive
      Committee in November 1990.

11.   Subsequent events

      The LGS Litigation  was initiated in the Bankruptcy  Court after LGS filed
      suit in the United  States  District  Court for the  Southern  District of
      Georgia (the "Georgia  Action") alleging the Company had breached a patent
      software  license  agreement.  As  a  result  of  the  initiation  of  the
      Restructuring   Proceedings,   the  Georgia   Action  was  stayed.   After
      negotiations  among  representatives  of the Debtor and LGS,  on March 29,
      2004,  the  Debtor  and LGS (and  certain  affiliated  parties)  (the "LGS
      Parties")  entered  into  a  settlement  agreement  (the  "LGS  Settlement
      Agreement"),  which was approved by the Court on April 29, 2004. Under the
      terms of the LGS Settlement  Agreement,  LGS paid to the Debtor a total of
      $60,000 in cash, all adversary  proceedings  (including the Georgia Action
      and the LGS Litigation) were dismissed, all claims held by the LGS Parties
      were assigned to the Debtor and the Debtor and the LGS Parties  entered in
      mutual releases.

      On  November  12,  2004,  a Plan of  Reorganization  (the  "Plan") for the
      Company was filed with the Bankruptcy Court. The Plan was jointly proposed
      by  the  Company  and  AFGVII  (collectively  referred  to  as  the  "Plan
      Proponents"). Also on November 16, 2004, a Disclosure Statement to be used
      in  soliciting  votes  to  accept  or  reject  the Plan  (the  "Disclosure
      Statement")  was  approved  by  the  Bankruptcy  Court  and a  hearing  to
      determine whether the Bankruptcy Court should approve the Plan was set for
      January 20, 2005.

      On  December  8,  2004,  solicitation  packages  containing  the  Plan and
      Disclosure  Statement,  various  supporting  documents  and a  ballot,  if
      appropriate,  were mailed to known creditors of the Company and holders of
      common and preferred  stock  interests in the Company.  Unless extended by
      the Plan Proponents or the Bankruptcy Court, all votes to accept or reject
      the Plan must be returned by the close of business on January 20, 2005.

      Under the  Plan,  various  claim  holders  and  interest  holders  will be
      entitled to receive various  consideration  in respect of their claims and
      interests. The Plan classifies the claim and interest holders into various
      groups that have been approved by the Court as follows:


                                      F-37
<PAGE>


11.   Subsequent events (continued)

      Unclassified  --Administrative  Claims:  These  claims  in  an  amount  of
      approximately  $292,000  constituted  claims  allowed  under ss.11  U.S.C.
      ss.503(b) of the Code and  constitute  primarily  claims of counsel to the
      Company  for fees and  expenses  incurred  post-petition  on behalf of the
      Company.  Such  claims  will be paid in full in cash or  pursuant to other
      arrangement  acceptable to such claim holders (such amounts to be provided
      by AFGVII under the DIP Facility).

      Class  1--Secured  Claim of NMPP:  This  claim of  $100,000  plus  accrued
      interest  constituted  the sole claim held by NMPP,  Inc. (an affiliate of
      AFGVII) representing secured indebtedness incurred by the Company prior to
      the Petition Date.  This claim was converted with the Class 2 claim into a
      pro rata share of 3,000,000  shares of the Common Stock in the reorganized
      Company to be issued under the Plan (the "Replacement Common Stock").

      Class  2--Secured  Claim of AFGVII:  This claim of $250,000  plus  accrued
      interest  constituted the sole claim held by AFGVII  representing  secured
      indebtedness  incurred by the Company under the DIP Facility  prior to the
      effective  date of the Plan.  Such  claim was  converted  with the Class 1
      claim into a pro rata share of 3,000,000 shares of the Replacement  Common
      Stock.

      Class  3--Allowed  Unsecured  Claims  in Excess of  $1,000:  These  claims
      constitute allowed unsecured claims held by various claimants with respect
      to period prior to the Petition Date who have not elected to be treated as
      Class 4 Claims. These claims equaled approximately $1,900,000. Such claims
      were  converted  into  their  pro rata  share of  1,500,000  shares of the
      Replacement Common Stock.

      Class  4--Allowed  Unsecured  Claims of $1,000 or less: These claims in an
      amount of  approximately  $10,000 will be paid in full in cash or pursuant
      to other arrangement  acceptable to such claim holders (such amounts to be
      provided by AFGVII under the DIP Facility).

      Class  5--Allowed   Administrative   Convenience   Claims:   These  claims
      constitute  claims  allowed under ss.11 U.S.C.  ss.503(b) of the Code, the
      holder of which elect to receive an amount not in excess of $1,000 in cash
      in respect of their claims.  No creditors elected to be treated as a Class
      5 claim.

      Class  6--Interests:  These  constitute any equity interest in the Company
      including Common Stock,  preferred stock, options,  warrants,  convertible
      instruments and other equity equivalents but excluding the options granted
      to  AFGVII  in  connection  with the DIP  Facility.  There  are  currently
      78,751,406  shares  (net of  9,374,742  treasury  shares) of Common  Stock
      outstanding,  2 shares of Preferred Stock  outstanding  (convertible  into
      1,890,598 shares of Common Stock) and 19,282,809  options and other equity
      equivalents  outstanding.  All shares of Common Stock and preferred  stock
      will be reverse split into 500,000 shares of the Replacement Common Stock.
      The number of shares subject to AFGVII's  option to purchase  Common Stock
      will be adjusted to reflect the stock split.  The exercise price per share
      is not subject to  adjustment  and will remain at various  prices  ranging
      from $0.001 to $0.03.

      The Bankruptcy Court may confirm a plan of reorganization only upon making
      certain  findings  required  by the  Bankruptcy  Code,  and a plan  may be
      confirmed over the dissent of non-accepting  creditors and equity security
      holders  if  certain  requirements  of the  Bankruptcy  Code are met.  The
      payment rights and other entitlements of pre-petition creditors and equity
      security   holders   may  be   substantially   altered   by  any  plan  of
      reorganization confirmed in the Chapter 11 Case.

      On January 20, 2005, the Bankruptcy Court confirmed and approved the Plan.

      On January  31, 2005 all appeal  periods  with  respect to the  Bankruptcy
      Court confirmation and approval of the Plan expired.

      As  a  result  of  direct  ownership  or  indirectly   through  affiliated
      companies,  AFGV II will control  approximately  63.7% of the stock in the
      reorganized debtor.


                                      F-38
<PAGE>

                                   Signatures

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date: April 15, 2005                   AFG ENTERPRISES, INC.
                                       (Registrant)


                                       By:   /s/ Erich Spangenberg
                                           -------------------------------------
                                             Erich Spangenberg, CEO


                                       By:   /s/ William P. Stelt
                                           -------------------------------------
                                             William P. Stelt, CFO


                                       29
<PAGE>


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:

                              AFG ENTERPRISES, INC.


Date:    April 15, 2005                    /s/ John B. Burns III
                                        ------------------------------------
                                               John B. Burns, III, Director


Date:    April 15, 2005                     /s/ Douglas B. Croxall
                                        ------------------------------------
                                                Douglas B. Croxall, Director


Date:    April 15, 2005                     /s/ Erich Spangenberg
                                        ------------------------------------
                                                 Erich Spangenberg, Director


Date:    April 15, 2005                     /s/ David Priham
                                        ------------------------------------
                                                David Pridham, Director


Date:    April 15, 2005                     /s/ Stephen Peary
                                        ------------------------------------
                                                Stephen Peary, Director


                                       30