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, 2002

                                       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's revenues for the fiscal year ended December 31, 2002 were $1,158.
<PAGE>

On December 31, 2002, the Registrant had 63,554,645 shares of common voting
stock held by non-affiliates. The aggregate market value of shares of Common
Stock held by non-affiliates was $953,320 on this date. This valuation is based
upon the average of the closing bid price for shares of common voting stock of
the Registrant on the "Electronic Bulletin Board" of the National Association of
Securities Dealers, Inc. on December 31, 2002.

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, 2002, the issuer had 78,178,072 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, 2002 (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, 2002, the Company essentially
generated no operating revenue. Since inception of the Company through December
31, 2002, the Company has incurred accumulated losses of $22,596,082.

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
acquired the claim of NMPP. 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 secured 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 arising
      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.

                                       4
<PAGE>

      Class 6--Interests: This Class constitutes 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 will be 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.

            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.

                                       5
<PAGE>

            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.

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

                                       7
<PAGE>

            "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, 2002, the Company had two full-time employees. As of
March 15, 2005, the Company had two full time employees, not including Erich
Spangenberg, CEO, who receives no salary or other compensation for his services.
The Company believes that its relations with its employees are excellent. None
of the employees are represented by a labor union or are subject to a collective
bargaining agreement, and the Company has not experienced any work stoppage. As
of December 31, 2002, the Company had one employment agreement with Mr. Moser
which was subsequently terminated. As of March 15, 2005, the Company has
employment agreements with two officers, Erich Spangenberg, President, and
William P. Stelt, Chief Financial Officer.


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, 2002 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 2002.


                                     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."

      The following table shows the range of high and low bid quotations for the
Company's Common Stock for the fiscal years ended December 31, 2001 and 2002, as
reported by the OTC Bulletin Board. Prices reflect inter-dealer prices, and do
not necessarily reflect actual transactions, retail mark-up, mark-down, or
commission.

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

          Fiscal Quarter Ended    High Bid        Low Bid
          --------------------    --------        -------

          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

          2001
          ----
          December 31, 2001        $0.71          $0.22
          September 30, 2001        0.98           0.25
          June 30, 2001             1.39           0.75
          March 30, 2001            1.78           0.44

      At December 31, 2002, 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

      2001. In January 2001, the Company sold 6,600,000 shares of Common Stock
to Mr. Derrick Bushman and 33 other purchasers who qualified as "accredited"
investors under Rule 501 of Regulation D under the Securities Act for an
aggregate purchase price of $2,052,000. 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 at prices ranging from $.75 per share to
$1.50 per share. The shares were sold in reliance on the exemptions from
registration available under Section 4(2) of the Securities Act and Regulation D
promulgated thereunder. No fee was paid in connection with the sale of these
securities. 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 exchange for the satisfaction by the investor group of the agreement to
provide the Company with accounts receivable financing.

      In January 2001, the Company's board of directors approved the grant 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 an exercise price of $.25
per share. The Company granted options to purchase 25,000 shares of its Common
Stock to Mr. Anderegg, Mr. Mozer, Mr. Sattler and Mr. Solomon, options to
purchase 125,000 shares of its Common Stock to Mr. Pirri and options to purchase
175,000 shares of its Common Stock to Mr. Monsky. This resolution was ratified
by the Company's shareholders at the 2001 Annual Shareholders' Meeting held in
October 2001. These grants were subsequently approved by the shareholders and
registered pursuant to the registration statement on Form S-8 filed with the
Commission on February 5, 2002.

      In January 2001, the Company issued 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. Options to
purchase 700,000 shares of the Company's Common Stock were issued to Donald Uhl,
the Company's former Chairman and CEO and are immediately exercisable. The
balance was issued to two employees of the Company. The grant of 730,000 options
to Mr. Uhl and to the employees of the Company were subsequently approved by the
shareholders and registered pursuant to the registration statement on Form S-8
filed with the Commission on February 5, 2002.

      In May 2001, the Company acquired the entire outstanding capital stock of
the E. Schulze Corporation, a Colorado corporation in exchange for $1,719,000 in
cash (the "Cash Amount") and 17,852,196 shares of the Company's Common Stock.
Prior to the acquisition, the E. Schulze Corporation 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 accredited investors of 2,292,000 shares
of its Common Stock at a price per share of $.75. The bulk of the shares were
issued to Melissa Schulze, the wife of the Company's deceased Chairman and CEO,

                                       12
<PAGE>

Everett E. Schulze, and Mr. Schulze's six children. Donald Uhl and Michael Mozer
each received 1,000,000 shares of the Company's Common Stock in the transaction.
The shares issued by the Company were issued in private transactions in reliance
on the exemption from registration available under Section 4(2) of the
Securities Act and Regulation D promulgated thereunder. The Company paid no
underwriting fee in connection with these transactions.

      In May 2001, the Company sold 403,999 shares of its Common Stock to a
related party and three other purchasers who qualified as accredited investors,
pursuant to an exemption from registration under Section 4(2) of the Securities
Act and Regulation D promulgated thereunder, for total gross proceeds of
$303,000. The Company paid no underwriting fee in connection with these
transactions.

      In December 2001, the Company received stock subscriptions for an
additional $175,000 of equity from Michael T. Mozer, President, CEO and Chairman
and Derrick Bushman, Director, enabling the Company to begin the marketing of
its Budget Saver(TM) program. Under the term of these agreements, each Director
will receive 405,093 shares of the Company's Common Stock. Additionally, each
Director shall receive a royalty equal to one quarter of one cent ($.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; provided, that the royalty shall remain in place until
at least November 30, 2002, regardless of the bid price. These two Directors
also have the first right of refusal on providing additional equity to the
Company up to an initial $2,250,000 of equity. These sales were made pursuant to
an exemption from registration under Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.

      On July 1, 2001, one shareholder of the Company's Series A cumulative
preferred stock elected to convert their share into Common Stock of the Company.
Upon conversion, this shareholder received 661,926 shares of the Company's
Common Stock.

      During 2001, the Company issued 542,500 shares of its Common Stock to
various management consultants for services rendered valued at $574,425. These
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act and other exemptions from registration available under the
Securities Act.

      During 2001, the Company issued 513,039 shares of Common Stock upon the
exercise of certain class A, B, and C warrants issued in 1996 resulting in
proceeds to the Company of $82,597.

                                       13
<PAGE>

      During 2001, the Company also issued 2,715,000 shares of its Common Stock
to noteholders who converted their convertible notes issued in 1996, 1997 and
1998 into shares of the Company's Common Stock.

      During 2001, the Company borrowed $125,493 from Derrick Bushman, a
director of the Company, bearing interest at 8% per annum, convertible into
310,155 shares of the Company's Common Stock. During 2001, Mr. Bushman elected
to convert the note and $565 of accrued interest into 310,155 shares of the
Company's Common Stock.

      During 2001, the Company also issued options to purchase 650,000 shares of
the Company's Common Stock to six consultants and valued these shares at
$118,065. These transactions were exempt from registration pursuant to Section
4(2) of the Securities Act and other exemptions from registration available
under the Securities Act.

      Each of the investors (other than investors that are officers or Directors
of the Company) that purchased securities from the Company in 2001 executed a
subscription, purchase or other agreement, in which the investor made the
following representations and warranties to the Company:

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

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

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

      2002. In January 2002, the Company raised $150,000 of additional equity
from In Store Capital, LLC ("ISC") and other parties related to or affiliated
with Derrick Bushman, a Director of the Company, enabling the Company to
continue the marketing of its Budget Saver(TM) program. Under the term of the
agreement, ISC was to receive 347,222 shares of the Company's common stock.
Additionally, ISC was to receive a royalty equal to one half of one cent ($.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 3 to the Financial Statements attached as under Item 7). The

                                       14
<PAGE>

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.

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, 2002.

      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.

                                       15
<PAGE>

      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.

      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 $22,596,082 since inception through December 31, 2002.

      At December 31, 2002, the Company had a stockholders' deficit of
$1,738,377, which reflects $21,698,363 of paid in capital (net of amount
attributable to treasury stock) less accumulated deficit of $23,436,740. 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
2002, research and development, and general and administrative expenses incurred
since inception. At December 31, 2002, the Company had a working capital deficit
of $117,810, excluding $1,861,086 pre-petition liabilities subject to compromise
(net of debt issuance costs).

                                       16
<PAGE>

      In January 2002, the Company raised $150,000 of equity from ISC enabling
the Company to continue the marketing of its electronic coupon distribution
program. In February 2002, the board of directors authorized the offering of up
to $700,000 of 2002 Units to accredited investors to continue the marketing of
the electronic coupon distribution program. In June 2002, the board of directors
authorized an increase in this offering of an additional $122,850 of the 2002
Units. Through December 31 2002, the Company had sold 2,146,221 of its 2002
Units generating total net proceeds of $782,186. During 2002, the Company sold
1,875,146 shares of common stock generating total net proceeds of $269,105. In
2002, the Company received a subscription for the sale of 2,000,000 shares for
$100,000 from an officer of the Company.

      Financial Condition

      At December 31, 2002 the Company had $324,194 in total assets and $201,485
in total current liabilities (net of $1,861,086 of pre-petition liabilities
subject to compromise) compared to $709,696 and $1,688,056 at December 31, 2001,
respectively. Accounts payable, accrued expenses and interest payable at the end
of fiscal year 2002 were $47,085 (net of pre-petition liabilities subject to
compromise) compared to $1,166,560 at December 31, 2001. The Company had a
working capital deficit of $117,810 at December 31, 2002 as compared to a
working capital deficit of $1,597,567 at December 31, 2001. The difference from
2002 to 2001 is primarily attributed to the classification of substantial
liabilities as debt subject to compromise as a result of the Bankruptcy
Proceedings.

      Results of Operations

      The Company's operational costs historically have increased or decreased
primarily due to the expansion or contraction of the Company's ongoing research
and development efforts. The Company has incurred operating expenses of
$15,309,514 from inception through December 31, 2002. These expenses include
$3,320,137 in research and development expenses and $11,608,110 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, 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 operating 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 approximately 37% to $2,027,070, as compared to operating expenses
of $3,223,376 for the same period last year. The decrease in operating expenses
in 2002 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 the prior 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.

                                       17
<PAGE>

      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.

      Year Ended December 31, 2001 Compared To Year Ended December 31, 2000. For
the year ended December 31, 2001, the Company sustained net losses of
$4,653,268, as compared to net losses of $2,512,686 for the year ended December
31, 2000. The increase in loss primarily was due to an increase in interest
expense, debt conversion costs, and general and administrative expenses.

      The Company's operating expenses for the year ended December 31, 2001,
increased by approximately 77% to $3,223,376, as compared to operating expenses
of $1,824,011 for the same period last year. The increase in operating expenses
in 2001 was due to increases in general and administrative expenses. General and
administrative expenses increased by $1,432,075 or approximately 84% to
$3,136,796 for the 2001 fiscal year, as compared to general and administrative
expenses of $1,704,721 for the 2000 fiscal year. The increase in general and
administrative expenses primarily was due to increases of $585,772 in stock
based compensation to employees and consultants, and an increase of $683,674 in
expenses incurred with management consultants.

      The Company's net non-operating expense (including non-operating interest
income and interest expense) increased to $1,448,398 for the year ended December
31, 2001, as compared to non-operating expenses of $688,675 for the year ended
December 31, 2000. The increase was primarily due to an increase of
approximately 288% in interest expense and an increase of approximately 117% in
debt conversion costs for the year ended December 31, 2001. The increase in
interest expense was primarily due to the increase in value assigned to the
extension of the warrant exercise period related to the Company's debt
offerings. The effect of the valuation assigned to the warrants resulted in a
decrease in interest expense of $95,901 and an increase in interest expense of
$474,175 for the years ended December 31, 2000 and 2001 respectively. Debt
conversion costs for the year ended December 31, 2001, increased to $631,512 due
to the increase in the number of notes converted to the Company's common stock
during 2001 as compared to 2000.

      Liquidity and Capital Resources

      Since inception, the Company's principal requirements for capital have
been to finance the cost of research and development of its coupon selection,
dispensing and clearing systems and related technologies, and to pay for

                                       18
<PAGE>

expenses associated with securing patent protection, formulating its business
strategy and developing strategic relationships with third parties, such as
Unisys Corporation, retailers and product manufacturers. The Company has
historically financed its operations through loans and investments by directors
and officers, and the sale of equity and debt securities in private transactions
in reliance upon exemptions from the registration and qualification requirements
under federal and state securities laws.

      At December 31, 2002, the Company had $201,485 in current liabilities, of
which $154,400 was related to short term notes payable. The remaining portion of
the Company's current liabilities is primarily comprised of accrued expenses of
$44,055 (at December 31, 2002). The Company relied upon investments in debt and
equity securities to meet its obligations in the fiscal year ended December 31,
2002.

      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 2001 through December 31, 2002, the Company's
cash position has declined. At December 31, 2002, the Company had available cash
of $4,688, as compared to available cash of $21,457 at December 31, 2001.

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

                                       19
<PAGE>

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.

                                    PART III

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

      As of December 31, 2002, the Company's executive officers and directors
and their ages were as follows:

-------------------------------------------------------------------------------
             Name                Age                  Position
-------------------------------------------------------------------------------
Michael T. Mozer                 54    Chief Executive Officer, President and
                                       Chairman
-------------------------------------------------------------------------------
Thomas F. Carroll                57    Vice President of Sales and Marketing
-------------------------------------------------------------------------------
James B. Babo                    35    Vice President of Business Development
                                       and Operations
-------------------------------------------------------------------------------
Michael Eckerman                 50    Vice President of Manufacturer
                                       Marketing
-------------------------------------------------------------------------------
Ronald F. Anderegg               50    Director
-------------------------------------------------------------------------------
Frank J. Pirri                   62    Director
-------------------------------------------------------------------------------
John Watkins                     52    Director
-------------------------------------------------------------------------------
Ray Solomon                      50    Director
-------------------------------------------------------------------------------
Donald P. Uhl                    69    Director
-------------------------------------------------------------------------------
George E. Sattler                66    Director
-------------------------------------------------------------------------------
Derrick Bushman                  37    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.

      MICHAEL T. MOZER, Chief Executive Officer, President and Chairman, has
been President and Chairman of the Board since January of 2002 and has been a
director of the Company since March 2000. In December 1999, he co-founded Morris
& Mozer Financial, Inc. ("MMF"), where he was a principal and served as

                                       20
<PAGE>

President until December 2001. MMF provides financial consulting, structuring
and debt placement services for businesses throughout the United States. From
1996 to 1999, he served as a Senior Vice President of Dougherty Summit
Securities, Inc., where he established structured finance and fixed income
divisions to serve the needs of financial institutions and businesses throughout
the United States. From 1983 to 1996, Mr. Mozer was engaged in the private
practice of law. From 1979 to 1983 he served as General Counsel for Norwest
Mortgage, Inc.

      THOMAS F. CARROLL, Director, Vice President Sales and Marketing, joined
the Company as Vice President in August of 2000 and became a director on
February 23, 2001. Mr. Carroll has 32 years experience in the retail food
industry, working with both packaged goods manufacturers and food retailers
nationally. Before joining the Company, Mr. Carroll was the founder and
president of I.D.Y. Ltd., which was a company organized by Mr. Carroll in 1996
to create marketing programs for supermarket retailers nationally. I.D.Y. also
planned and executed marketing programs for small to mid-size consumer packaged
goods companies. Before his involvement with I.D.Y., from 1988 to 1996 Mr.
Carroll was Vice President, Marketing and Technology for Five Star Brokerage
Company, the leading food brokerage company in Colorado. Mr. Carroll previously
was a sales representative for Oscar Mayer and Company and a sales
representative for Gillette. He also served as director of National Accounts for
Ragu.

      JAMES B. BABO, Vice President / Director of Product Development and
Operations, joined the Company in September 2001. Prior to joining the Company,
Mr. Babo worked for TKI Consulting, a division of Hall Kinion Company as a
Senior Consultant. Mr. Babo worked with Fortune 100 Companies as well as
start-ups, with a focus on managing I.T. and eCommerce projects. From 1991 to
1998, Mr. Babo worked for Dayton Hudson Corporation (Target Corporation), a
general merchandise retailer with annual gross sales in excess of $30 Billion.
Jim Babo worked as a Financial Analyst in operations and at corporate
headquarters. Jim Babo brings to the Company superior analytical, organizational
and management skills.

      MICHAEL ECKERMAN, Vice President of Manufacturer Marketing, joined the
Company in January 2002 to handle all marketing to manufacturers. Mr. Eckerman
has more than 30 years experience in all facets of the retail food industry,
where he gained valuable expertise interacting with brand managers and senior
marketing managers of the vast majority of the major consumer packaged goods
(CPG) manufacturers. Mr. Eckerman began his career as territory manager for the
Campbell Soup Company and gained professional marketing and management
experience with the Nash Finch Company, a major wholesale distributor to
supermarkets. Thereafter, Mr. Eckerman was the key executive with several food
brokerage companies. Mr. Eckerman was President and General Manager of Remco
Ltd. in 1991. Mr. Eckerman was President and General Manager of Acosta Sales and
Marketing, Inc., in the Upper Midwest United States from 1985 to 2000. In
December of 2000, Mr. Eckerman was hired as a service representative for
Principal Financial.

                                       21
<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.

      FRANK J. PIRRI, Director, has been a director of the Company since 1995.
He has over 37 years of experience in the management of consumer and
business-to-business motivational programs. Since April 2001 he has been
self-employed. From the end of March of 2001 to December 1998 he served as a
Senior Vice President, Offline Commerce for MyPoints.com, Inc. From May 1997 to
November 1998, Mr. Pirri served as Executive Vice President of Motivation.Net,
an Internet Loyalty Marketing company. From January 1994 to May 1997, Mr. Pirri
served as the President and Chief Executive Officer of Life Facts, Inc., a
medical information products company. From January 1993 to January 1994, Mr.
Pirri served as the Vice Chairman of S&H Citadel, Inc., an incentive marketing
services company, following its merger with S&H Motivation and Citadel
Motivation. From 1987 to January 1993, Mr. Pirri served as President and Chief
Executive Officer of S&H Motivation, a consumer and business-to-business
performance improvement company. Before joining S&H Motivation, Mr. Pirri held
numerous positions over a 24-year period at The Sperry & Hutchinson Company (S&H
Green Stamps).

      JOHN WATKINS, Director, has more than 17 years of experience in the food
industry. He currently serves as the Executive Vice President of New Business
Development for Acosta Sales and Marketing. Before becoming Executive Vice
President of New Business Development, Mr. Watkins held various positions at
Acosta Sales and Marketing beginning in 1983 before joining Acosta Sales and
Marketing, from 1977 to 1983, Mr. Watkins held several positions at Procter &
Gamble.

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

      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

                                       22
<PAGE>

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.

      GEORGE E. SATTLER, Director, was elected to the board of directors of the
Company in October 2000. Mr. Sattler has 47 years experience in the retail food
industry with supermarkets and with major packaged goods manufacturers. From
1996 to 2000, Mr. Sattler was the president of G.E.S. Associates, which provides
consulting services to food brokers and retailers across the United States. In
1974, he co-founded the Mancini Groesbeck Brokerage Company, the first regional
food brokerage in the west. In 1987, Mr. Sattler bought out his partner and
merged with another local food broker to form Five Star Brokerage of Colorado.
Five Star operated in northern California, Oregon, Washington, Montana, Idaho,
Utah, and Colorado. In 1995, Five Star was acquired by Marketing Specialists, a
national sales and marketing company. Mr. Sattler remained chairman of the
Colorado operation, which served such clients as: Nabisco, H.J. Heinz, Borden
Foods, Ragu Corp., Jergens, Kelloggs, Mars, Dial, Quaker Oats Company, and many
others. Since leaving Marketing Specialists, George Sattler has devoted full
time to operating his master broker/consulting business, G.E.S. Associates,
bringing manufacturers together with brokers throughout the U.S.

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

      Subsequent Changes in Management. Following the end of the fiscal year,
the Company received the resignations of Messrs. Bushman, Pirri, Watkins,
Solomon, Sattler and Mozer on various dates from January 2003 until July 13,
2003. On July 14, 2003, the sole remaining directors of the Company were Donald
P. Uhl and Ronald F. Anderegg. On that date, the Board of Directors formally

                                       23
<PAGE>

terminated and removed all officers of the Company and appointed Erich
Spangenberg as the Chairman, CEO, Treasurer and Secretary, and Donald P. Uhl as
President. Mr. Spangenberg is a principal of AFGVII (see Item 12. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS"). Mr. Spangenberg and Douglas B. Croxall
were appointed to fill two vacant positions on the Board of Directors.

      Compensation Committee Interlocks and Insider Participation. From
approximately December 2000 to February 2002, Mr. Derrick Bushman, Director and
Mr. Michael T. Mozer, President, Chief Executive Officer and Chairman, were both
on the board of directors of ISC. Mr. Mozer resigned from the board of directors
of ISC in February 2002 and relinquished all interest in ISC.

      As of December 31, 2002, no other interlocking relationship existed
between the Company's board of directors or Compensation Committee and the board
of directors or Compensation Committee of any other Company.

      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, 2002 one Form 4 was not timely filed by Michael T. Mozer and
one Form 5 was not filed by Robert Cohen.


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, 2002, 2001 and 2000 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 2002 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.

                                       24
<PAGE>
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------
                                                                                 Long Term Compensation
                                                                                 ----------------------
                                     Annual Compensation (1)                   Awards               Payouts
                                     -----------------------                   ------               -------
                                                                                    Securities
                                                                     Restricted     Underlying                  All other
  Names and Principal             Salary     Bonux                       Stock       Options/SARs               Compen
      Position             Year     ($)       ($)      Other ($)     Awards ($)         (#)         LTIP ($)    sation(1)
-------------------------------------------------------------------------------------------------------------------------
<S>                        <C>    <C>          <C>        <C>           <C>         <C>              <C>          <C>
Michael Mozer, CEO         2002   130,000      -0-        -0-           -0-           200,000         -0-          -0-
                           2001     -0-        -0-        -0-           -0-           25,000(2)      -0-          -0-
                           2000     -0-        -0-        -0-           -0-             -0-           -0-          -0-
-------------------------------------------------------------------------------------------------------------------------
Donald P. Uhl,  former     2002    29,999      -0-        -0-           -0-             -0-           -0-          -0-
CEO                        2001   129,990      -0-        -0-           -0-           700,000         -0-          -0-
                           2000    80,000      -0-        -0-           -0-             -0-           -0-          -0-
-------------------------------------------------------------------------------------------------------------------------
Robert L. Cohen, CFO       2002    87,500      -0-        -0-           -0-             -0-           -0-          -0-
                           2001   120,000      -0-        -0-           -0-             -0-           -0-          -0-
                           2000    56,800      -0-        -0-           -0-          349,375-         -0-          -0-
-------------------------------------------------------------------------------------------------------------------------
James B. Babo, Vice        2002    78,000      -0-         0            -0-             -0-           -0-          -0-
President Business Dev.    2001    54,250      -0-        -0-           -0-             -0-           -0-          -0-
and Operations             2000     -0-        -0-        -0-           -0-             -0-           -0-          -0-
-------------------------------------------------------------------------------------------------------------------------
Michael Eckerman, Vice     2002    65,000      -0-        -0-           -0-             -0-           -0-          -0-
President Manufacturer     2001     -0-        -0-        -0-           -0-             -0-           -0-          -0-
Mareketing                 2000     -0-        -0-        -0-           -0-             -0-           -0-          -0-
-------------------------------------------------------------------------------------------------------------------------
Thomas F. Carroll, Vice    2002    43,333      -0-        -0-           -0-             -0-           -0-          -0-
President Sales and        2001   150,000      -0-       13,827         -0-             -0-           -0-          -0-
Marketing                  2000    62,500      -0-       2,900          -0-           212,500         -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 warrants to purchase 3,150,000 shares of Common Stock
granted to Morris & Mozer Financial Inc., of which Mr. Mozer is a principal,
granted in 2001.

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.

      In January 2001 the Company's board of directors approved the grant of
options to purchase 25,000 shares of the Company's restricted Common Stock to
each outside director, for each year of service provided to the Company at an
exercise price of $.25 per share. The Company granted options to purchase 25,000
shares of its Common Stock to Mr. Anderegg, Mr. Mozer, Mr. Sattler and Mr.
Solomon, options to purchase 125,000 shares of its Common Stock to Mr. Pirri and
options to purchase 175,000 shares of its Common Stock to Mr. Monsky. Upon
exercise, the cost of these shares will be paid by a note from each director for
their respective shares and be collateralized by the corresponding stock. This
resolution was ratified by the Company's shareholders at the 2001 Annual
Shareholders' Meeting. See ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.

                                       25
<PAGE>

Employment Agreements

      The Company and Mr. Robert Cohen were parties to a one-year employment
agreement dated July 11, 2000, pursuant to which the Company retained Mr. Cohen
as its Chief Financial Officer and Vice President. The term of the agreement was
12 months and ended on July 10, 2001. Mr. Cohen continued to serve as Chief
Financial Officer until October 2002. The agreement provided for a salary of
$10,000 per month during its term. Under the employment agreement, the Company
granted to Mr. Cohen options to purchase 114,375 shares of the Company's Common
Stock under the employment agreement. Mr. Cohen's employment agreement also
contains certain other customary terms and provisions, including provisions
relating to the treatment of confidential information and the solicitation of
customers and accounts belonging to the Company. Mr. Cohen was also granted
options to purchase an additional 150,000 shares of Common Stock, 12,500 for
each month of employment, at an exercise price of $1.00 or 85% of the average
closing price during the 15 days prior to exercise, whichever is less. Such
options were exercisable for a period of two years from the date of grant and
expired unexercised in July 2002.

      The Company and Mr. Thomas F. Carroll were parties to a one-year
employment agreement dated August 1, 2000, pursuant to which the Company
retained Mr. Carroll as its Vice President of Sales and Marketing. Mr. Carroll's
employment agreement provided for a gross salary for $12,500 per month during
its term. In addition to salary compensation, Mr. Carroll received options to
purchase 87,500 shares of the Company's Common Stock, which are immediately
exercisable at an exercise price of $0.25 per share and will expire two (2)
years from the date on which they were granted. Under the employment agreement,
Mr. Carroll also is eligible to receive additional options to purchase shares of
the Company's Common Stock, which options shall be exercisable at the date on
which they will have been granted. These options will be exercisable at an
exercise price equal to the lesser of $1.00 per share or 85% of the average
closing price of the stock during the 15 calendar days before the date on which
they will have been exercised. These options expired in August 2002. Mr. Carroll
continued to serve as Vice President until May 2003.

Individual Option Grants

      During the fiscal years ended December 31, 2002, options and warrants to
purchase 200,000 shares of the Company's Common Stock, were granted to Michael
T. Mozer at an average exercise price of approximately $0.36 per share. These
options expired on November 15, 2002. Options to purchase 1,100,000 shares of
Common Stock were granted to two lenders at exercise prices ranging from $0.01
to $0.40 per share. The following tables set forth certain information at
December 31, 2002, and for the fiscal year then ended with respect to stock
options granted to and exercised by the individuals named in the Summary
Compensation Table above.

                                       26
<PAGE>

                                Option/SAR Awards

-------------------------------------------------------------------------------
         Name           Number of    % of Total
                                    Options/SARs
                        Securities   Granted to
                        Underlying   Employees   Exercise or
                        Options/SARs in Fiscal   Base Price     Expiration
     Names               Granted      Year (1)    ($/share)       date
-------------------------------------------------------------------------------
Michael T. Mozer         200,000        100%        $0.36     November 15, 2002
-------------------------------------------------------------------------------

----------
(1) Based on options granted to certain directors, executive officers and
employees to purchase 200,000 shares of the Company's Common Stock, but not
including options granted to (i) noteholders of the Company to extend the
payment dates (1,898,631 shares), (ii) certain consultants to purchase 365,493
additional shares of Common Stock of the Company, and (iii) investors or lenders
to purchase 1,100,000 shares of Common Stock of the Company.

                                       27
<PAGE>

                                Option Exercises

--------------------------------------------------------------------------------
                                                  Number of
                                                 Securities      Value of
                                                 Underlying    Unexercised
                                                Unexercised    In-the-Money
                                                Options/SARs   Options/SARs
                                                  at Fiscal     at Fiscal
                                                 Year End       Year End
                         Shares                    (1)            (2)
                       Acquired on    Value     Exercisable/   Exercisable/
   Name                  Exercise    Realized   Unexercisable  Unexercisable
--------------------------------------------------------------------------------
Michael T. Mozer           -0-          $0        -0-/-0-       $-0-/-0-
--------------------------------------------------------------------------------
Donald P. Uhl              -0-          -0-     700,000/-0-      -0-/-0-
--------------------------------------------------------------------------------
James B. Babo              -0-          -0-       -0-/-0-        -0-/-0-
--------------------------------------------------------------------------------
Michael Eckerman           -0-          -0-       -0-/-0-        -0-/-0-
--------------------------------------------------------------------------------
Robert L. Cohen            -0-          -0-     349,375/-0-      -0-/-0-
--------------------------------------------------------------------------------
Thomas F. Carroll          -0-          -0-      212,500/0       -0-/-0-
--------------------------------------------------------------------------------
Other Directors            -0-          -0-      375,000/0       -0-/-0-
--------------------------------------------------------------------------------

----------
(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, 2002 ($0.015 per share) minus the exercise price.

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, 2002, 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.

                                       28
<PAGE>

                                                     Amount and
                                                     Nature of
      Name and Address of                            Beneficial      Percent of
       Beneficial Owner        Class of Secutiry     Owner (1)        Class
       ----------------        -----------------     ---------        -----
Ronald F. Anderegg              Common Stock       4,911,921(2)        6.28%
1600 South Beacon Boulevard
Grand Haven, MI 49417

Melissa Schulze                 Common Stock       4,700,000(3)        5.94%
6756 South Holland Way
Littleton, CO 80128

Michael T. Mozer                  Common           3,543,643(4)        4.54%
                                   Stock
Donald P. Uhl                     Common           4,080,000(5)        5.17%
                                   Stock
Derrick Bushman                   Common           3,059,680(6)        3.86%
                                   Stock
Frank J. Pirri                    Common             650,000(7)           *
                                   Stock
Raymond Solomon                   Common             377,500(8)           *
                                   Stock
George E. Sattler                 Common              25,000(9)           *
                                   Stock
John Watkins                      Common                 -0-              *
                                   Stock
Robert L. Cohen                   Common              10,000              *
                                   Stock
Thomas F. Carroll                 Common                 -0-              *
                                   Stock
Dale Davis                       Preferred                1            50.0%
                                   Stock
CHKM LLC                         Preferred                1            50.0%
                                   Stock
All Officer and Directors        Common          16,669,101           20.78%
as a group (ten persons)         Stock

----------
*    Less than 1.0%

(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, 2002, 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, 2002 (78,178,072 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, 2002.

(2) 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.

(3) Includes options to purchase 1,000,000 shares of Common Stock at an exercise
price of $0.012 per share.

(4) Includes options to purchase 200,000 shares at an exercise price of
approximately $0.36 per share.

                                       29
<PAGE>

(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.

(6) Includes 1,914,006 shares of the Company's Common Stock held in Mr.
Bushman's name and options to purchase 1,145,674 shares of the Company's Common
Stock at prices ranging from $.75 per share to $1.50 per share.

(7) Includes 525,000 shares of the Company's Common Stock held in Mr. Pirri's
name and options to purchase 125,000 shares of the Company's Common Stock at
$.25 per share.

(8) Includes 352,500 shares of the Company's Common Stock held in Mr. Solomon's
name and options to purchase 25,000 shares of the Company's Common Stock at $.25
per share.

(9) Includes options to purchase 25,000 shares of the Company's Common Stock at
an exercise price of $.25 per share.


ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Acquisition of E. 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. Prior to the acquisition, the
Schulze Corp. owned 20,144,196 shares of the Company's Common Stock. Under the
terms of an Agreement and Plan of Merger dated March 30, 2001, among 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. The effect of the merger was to remove from the
market over 20 million shares of the Company's Common Stock that may have been
free-trading shares and to acquire a patent and equipment that the Company
believes could be valuable to the Company's future operations.

                                       30
<PAGE>

      The Company generated the cash necessary to pay the Cash Amount through
the sale to certain investors, 2,292,000 shares of its Common Stock at a price
per share of $.75. The purchasers of these shares of the Company's Common Stock
included Derrick Bushman, a director of the Company, and certain principals and
affiliates of Mr. Bushman.

Loans To and From Officers

      In March 2000, the Company signed an agreement with MMF, whose former
principal officer and principal was Michael T. Mozer, the CEO, President and
Chairman 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 an exercise 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.

      In September 2000, the Company borrowed $30,000 from Mr. Donald Uhl,
President and Chief Executive Officer of the Company. Management believes that
such funds were borrowed on terms no less favorable than would otherwise have
been available to the Company through unrelated third-party sources. This loan
was evidenced by a promissory bearing interest at an annual rate of 9.5%. In
February 2001, the Company paid all principal and interest payable under the
loan in the amount of $31,281.

      In November 2000, the Company borrowed $180,000 from a partnership whose
general partner is Mr. Donald Uhl, President and Chief Executive Officer of the
Company. This loan was evidenced by a promissory note bearing interest at an
annual rate of 9.5%. Management believes that such funds were borrowed on terms
no less favorable than would otherwise have been available to the Company
through unrelated third-party sources. In February 2001, the Company paid all
remaining principal and interest due under the promissory note in the amount of
$183,631.

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

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

                                       31
<PAGE>

      On May 15, 2001, the Company borrowed $125,493 from a Derrick Bushman, a
director of the Company, 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.

      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 to1,000,000 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.

Sale of Common Stock to Directors

      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 an exercise price of $.25
per share (400,000 shares in the aggregate). The Company granted options to
purchase 25,000 shares of its Common Stock to Mr. Anderegg, Mr. Mozer, Mr.
Sattler and Mr. Solomon, options to purchase 125,000 shares of its Common Stock
to Mr. Pirri and options to purchase 175,000 shares of its Common Stock to Mr.
Monsky. 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.

      In May 2001, the Company sold 403,999 shares of Common Stock to Derrick
Bushman, Director, 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 gross proceeds of $303,000. These proceeds
were than used by the Company to reduce notes payable and accrued interest
payable to selected note holders of the Company outlined in Note 3 to the
Financial Statements included with this Annual Report.

      In December 2001, the Company received stock subscriptions for $175,000 of
additional equity from each of Michael T. Mozer, President, CEO and Chairman and
Derrick Bushman, Director, enabling the Company to begin the marketing of its
Budget Saver(TM) program. Under the term of these agreements, each director will
receive 405,093 shares of the Company's Common Stock. Additionally, each
director shall receive a royalty equal to one quarter of one cent ($.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; provided, that the royalty shall remain in place until
at least November 30, 2002 regardless of the bid price. The directors also have
the first right of refusal on providing up to $2,250,000 of additional equity to
the Company.

                                       32
<PAGE>

      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.

Certain Business Relationships

      ISC entered into an Agreement for the Purchase and Sale of Stock on
December 1, 2001. Derrick Bushman, Director of the Company, is also an executive
officer of ISC and is a beneficial owner of over 10% of ISC. Michael T. Mozer,
the Chief Executive Officer, President and Chairman of the Company, was an
executive officer of ISC until February 2002, when he resigned his position with
ISC and divested himself of any interest therein. As described elsewhere in this
Annual Report, in January 2001, the Company completed a private equity funding
agreement with ISC 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. Under the terms of the agreement, the Company received
initial proceeds of $1,000,000 and an additional $1,052,000 was held in escrow
pending the Company's completion of certain milestones, including the
commencement of the pilot program and the initial signing of long-term contracts
with retailers. In April 2001, the Company received $500,000 of these escrowed
funds as a result of the successful launch of its pilot program in March 2001.
In August 2001, the Company received the remaining $552,000 from escrow in
exchange for the issuance of 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. These options were issued to the investor group since the Company did
not complete the milestones required for the release of the escrowed funds as
designated by the agreement. In addition to the equity proceeds, the Company
required supplementary financing to fund the equipment and accounts receivable
financing required for the launch by the Company of the initial pilot program of
its proprietary electronic coupon clearing system in four retail supermarkets in
South Carolina. Pursuant to the terms of the agreement, the Company is provided
with accounts receivable financing, and in connection with the satisfaction by
ISC of those conditions, in August 2001 the Company released from escrow
1,000,000 shares of the Company's restricted Common Stock. In January 2002, ISC
provided the Company with an additional $150,000 to purchase 347,222 shares of
the Company's Common Stock and a royalty equal to one half of one cent ($.005)
for each coupon processed by the Company through the Budget Saver(TM) program
until such time as ISC shall have received royalty payments totaling $300,000.

                                       33
<PAGE>

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.

      In January 2001, the Company's board of directors approved the grant of
options to each of the Company's directors, based on their respective years of
service. The board approved a grant of options to purchase a total of 400,000
shares of the Company's Common Stock at an exercise price of $0.25 per share,
subject to the subsequent approval of the Company's shareholders. This grant was
approved by the shareholders at the annual meeting held in October 2001. All
such options expire two years after the date on which they will have been
granted.

      The investment group that provided additional development capital to the
Company and that formed ISC, was introduced to the Company by Morris & Mozer
Financial, Inc., of which Michael T. Mozer, the CEO, President and Chairman was
formerly a principal. In addition to providing the Company with development
capital, ISC is expected to provide the Company with debt financing in
connection with its coupon distribution and clearing systems. In January 2001,
as compensation for its services, MMF received warrants to purchase 3,150,000
shares of the Company's Common Stock that can be exercised anytime in the third,
fourth or fifth year after the date on which they were issued. The exercise
price is $2.00 per share and the Company may call the warrants anytime after two
and one-half years at $4.00 per share. In addition, MMF would receive a one-time
fee equal to 1% of the amount of each "draw" made by the Company against either
the equipment financing or the receivables revolver.


ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K

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

                                       34
<PAGE>

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)

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)

                                       35
<PAGE>

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)

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 Option Agreement between the Company and Michael T. Mozer dated June
      18, 2002. *

10.9  Purchase Agreement between the Company and Michael T. Mozer dated June 18,
      2002. *

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

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

10.12 Settlement Agreement and Release between the Company and Derrick Bushman
      and related parties dated September 25, 2003. *

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

10.14 Purchase Agreement between the Company and Michael T. Mozer dated August
      29, 2002.

                                       36
<PAGE>

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) *

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.


(b) REPORTS ON FORM 8-K.

      Current Report on Form 8-K filed on November 25, 2002.

                                       37
<PAGE>

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, 2002 and 2001 were $24,785
and $32,465, respectively.

      Audit Related Fees

      The Company paid fees of $760 and $9,100 for assurance and related
services by the Company's principal accountant for the fiscal years ended
December 31, 2002 and 2001, respectively.

      Tax Fees

      The Company paid its principal accountant $1,400 and $1,000 for
professional services related to tax compliance, tax advice and tax planning for
the fiscal years ended December 31, 2002 and 2001, respectively.

      All Other Fees

      During the fiscal year ended December 31, 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 year ended December 31, 2001, the Company
paid its principal accountant $790 for other services.

      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.

                                       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

                                       39
<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/ Douglass B. Croxall
                                                --------------------------------
                                                Douglas B. Croxall, Director


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


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


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

                                       40
<PAGE>

                              AFG ENTERPRISES, INC.
                     (FORMERLY IN STORE MEDIA SYSTEMS, INC.)
                              FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 and 2002
               AND THE PERIOD FROM INCEPTION TO DECEMBER 31, 2002
                                      WITH
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


<PAGE>

                              AFG ENTERPRISES, INC.
                     (FORMERLY IN STORE MEDIA SYSEMS, INC.)
                          INDEX TO FINANCIAL STATEMENTS


AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2002 AND
FOR THE PERIOD FROM DECEMBER 30, 1992 (INCEPTION) THROUGH DECEMBER 31, 2002:

Report of Independent Registered Public Accounting Firm                      F-2

Balance Sheet as of December 31, 2001 and 2002                               F-3

Statement of Operations for Years Ended December 31, 2001 and 2002, and for
the Period from December 30, 1992 (Inception) Through December 31, 2002      F-5

Statement of Changes in Stockholders' Equity (Deficit) For the Period from
December 30, 1992 (Inception) Through December 31, 2002                      F-6

Statement of Cash Flows For Years Ended December 31, 2001 and 2002, and for
the Period from December 30, 1992 (Inception) Through December 31, 2002     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, 2001 and 2002, 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, 2002. 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, 2001 and 2002 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, 2002, 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, 2002 of
$1,738,377. 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, 2001 and 2002

                     ASSETS
                     ------

                                                          2001            2002
                                                          ----            ----
Current assets:
   Cash and cash equivalents                          $  21,457       $  4,688
   Accounts receivable                                    3,224             --
   Inventory                                              5,525          5,454
   Other current assets                                  60,283         73,533
                                                      ---------       --------
   Total current assets                                  90,489         83,675

Property and equipment, at cost:
   Office furniture and equipment
    (Notes 10 and 12)                                   243,024        256,972
   Leasehold improvements                                55,228         55,228
                                                      ---------       --------
                                                        298,252        312,200
   Less accumulated depreciation and amortization      (133,898)      (168,370)
                                                      ---------       --------
   Net property and equipment                           164,354        143,830

Other assets:
   Debt issuance costs                                  356,667             --
   Patent costs, net of accumulated amortization
     of $31,436 (2001) and $39,862 (2002)                98,186         96,689
                                                      ---------       --------
   Net other assets                                     454,853         96,689
                                                      ---------       --------
                                                      $ 709,696      $ 324,194
                                                      =========       ========

                             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, 2001 and 2002


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

                                                            2001         2002
                                                            ----         ----
Liabilities Not Subject to Compromise:
Current liabilities:
   Accounts payable (Note 4)                           $   823,869  $       532
   Accrued expenses                                         98,698       44,055
   Interest payable                                        243,993        2,498
   Notes payable (Notes 3 and 4)                           487,500           --
   Short-term notes payable (Note 3)                        33,996      154,400
                                                      ------------  -----------

   Total current liabilities                             1,688,056      201,485

Liabilities Subject to Compromise:
   Pre-Petition Liabilities net of debt issuance
    costs of $239,166                                           --    1,861,086

Commitments and contingencies (Note 8)

Stockholders' equity (deficit) (Notes 3 and 6):
   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, 80,378,240 (2001) and 87,552,814
   (2002) shares issued                                     80,378       87,553
   Additional paid-in capital                           19,740,240   21,349,560
   Stock subscriptions received                            350,000      325,000
   Treasury stock, at cost; 9,374,742 shares              (563,750)    (563,750)
   Deficit accumulated during the development stage    (21,085,228) (23,436,740)
                                                      ------------  -----------

   Total stockholders' equity (deficit)                   (978,360)  (1,738,377)
                                                      ------------  -----------

                                                       $   709,696  $   324,194
                                                      ============  ===========

                             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, 2001 and 2002
 and for the Period from December 30, 1992 (inception) through December 31, 2002
<TABLE>
<CAPTION>

                                                                                Cumulative
                                                                               amounts from
                                                  2001           2002           inception
                                             ------------    ------------    --------------
<S>                                          <C>             <C>             <C>
Revenues:
     Coupon handling fees                    $     18,506    $      1,158    $       19,664

Costs and expenses:
     Research and development                      43,071           1,714         3,320,137
     General and administrative                 3,136,796       1,980,930        11,608,110
     Depreciation and amortization                 43,509          44,426           381,267
                                             ------------    ------------    --------------
        Total costs and expenses                3,223,376       2,027,070        15,309,514
                                             ------------    ------------    --------------
        Operating loss                         (3,204,870)     (2,025,912)      (15,289,850)
                                             ------------    ------------    --------------

Other income (expense):
     Interest income                               15,892              20           105,872
     Litigation settlement (Note 6)                    --              --          (156,250)
     Restructuring charges (Note 10)              (26,121)             --          (222,632)
     Debt conversion costs (Note 3)              (631,512)       (128,856)       (1,437,198)
     Gain/(loss) on sale of assets                     --          (2,316)           (2,316)
     Interest expense                            (806,657)       (148,370)       (5,577,630)
                                             ------------    ------------    --------------
        Total other income (expense)           (1,448,398)       (279,522)       (7,290,154)
                                             ------------    ------------    --------------
     Loss before reorganization items          (4,653,268)     (2,305,434)      (22,580,004)
Reorganization expense (Note 11)                       --         (16,078)          (16,078)
                                             ------------    ------------    --------------
Net loss (Note 5)                              (4,653,268)     (2,321,512)      (22,596,082)

Preferred stock dividends                          56,055          30,000            90,658
                                             ------------    ------------    --------------

Net loss applicable to common stockholders   $ (4,709,323)   $ (2,351,512)   $  (22,686,740)
                                             ============    ============    ==============

Basic and diluted net loss per common
     share (Note 5)                          $       (.07)   $       (.03)   $         (.44)
                                             ============    ============    ==============
Weighted average common shares
     outstanding (Note 7)                      65,800,000      73,900,000        51,100,000
                                             ============    ============    ==============
</TABLE>

                             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, 2002


<TABLE>
<CAPTION>

                                                                                                                Additional
                                                            Preferred stock             Common stock             paid-in
                                                        Shares        Amount         Shares       Amount         capital
                                                     -----------   -----------    -----------  ----------      -----------
<S>                                                         <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 6)                         --            --     30,462,375      30,462           (7,367)

    Sale of common stock for cash
       in 1993 ($.07 per share)(Note 6)                       --            --      2,812,496       2,813          187,187

    Sale of common stock for hardware,
       software and lab time in 1993 ($.07 per
       share)(Note 6)                                         --            --      1,125,000       1,125           77,625

    Sale of common stock for cash
       in 1993 ($.21 per share)(Note 6)                       --            --         94,125          94           19,806

    Sale of common stock for cash
       in 1994 ($.08 per share)(Note 6)                       --            --      5,861,005       5,861          479,139

    Sale of common stock for cash
       in 1995 ($.40 per share)(Note 6)                       --            --        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 6)                                                --            --         75,000          75           42,321

    Exercise of warrants for cash
       in 1995 ($.01 per share)(Note 6)                       --            --        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
                                                             Stock       Treasury    development
                                                        subscriptions     stock         stage        Total
                                                        ------------    ---------    ---------    ----------
<S>                                                         <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 6)                             --           --           --        23,095

    Sale of common stock for cash
       in 1993 ($.07 per share)(Note 6)                           --           --           --       190,000

    Sale of common stock for hardware,
       software and lab time in 1993 ($.07 per
       share)(Note 6)                                             --           --           --        78,750

    Sale of common stock for cash
       in 1993 ($.21 per share)(Note 6)                           --           --           --        19,900

    Sale of common stock for cash
       in 1994 ($.08 per share)(Note 6)                           --           --           --       485,000

    Sale of common stock for cash
       in 1995 ($.40 per share)(Note 6)                           --           --           --       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 6)                                                    --           --           --        42,396

    Exercise of warrants for cash
       in 1995 ($.01 per share)(Note 6)                           --           --           --         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, 2002
                         (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 6)                                 --          --            --          --           --

    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 6)                             --       (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 ($.27per 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, 2002
                         (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 6)                           --              --       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 6)                              --            --                --             --

    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, 2002
                         (continued from preceding page)

<TABLE>
<CAPTION>

                                                                                                  Additional
                                                     Preferred stock           Common stock         paid-in
                                                   Shares       Amount      Shares      Amount      capital
                                                  --------    --------    ----------    ------    -----------
    Sale of common stock for cash and in
      exchange for stock offering services
<S>                                               <C>          <C>         <C>          <C>        <C>
      ($1.00 per share) (Note 6)                        --          --     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 6)                         --          --            --        --             --

    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 6)                        --          --        50,000        50         49,950

    Exercise of warrants  (Note 6)                      --          --       249,892       249         16,394

    Issuance of common stock for employee
      compensation ($.90 per share) (Note 6)            --          --       105,000       105         94,395

    Warrants exercised on a cashless basis in
      consideration for private stock offering
      services ($.90 per share)(Note 6)                 --          --     2,009,202     2,009         (2,009)

<CAPTION>

                                                                                     Deficit
                                                                                   accumulated
                                                                                    during the
                                                 Stock             Treasury        development
                                             subscriptions           stock            stage                      Total
                                              -----------         -----------    --------------                ----------
<S>                                               <C>                 <C>               <C>                     <C>
Sale of common stock for cash and in
  exchange for stock offering services
  ($1.00 per share) (Note 6)                           --                  --                --                 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 6)                            --            (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 6)                           --                  --                --                    50,000

Exercise of warrants  (Note 6)                         --                  --                --                    16,643

Issuance of common stock for employee
  compensation ($.90 per share) (Note 6)               --                  --                --                    94,500

Warrants exercised on a cashless basis in
  consideration for private stock offering
  services ($.90 per share)(Note 6)                    --                  --                --                        --

</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, 2002
                         (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 6)                     --            --            --            --       (95,901)

Sale of preferred stock for cash (Note 6)                         3       750,000            --            --       750,000

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

Intrinsic value of stock options granted to
  officers of the Company (Note 6)                               --            --            --            --       324,527

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

Settlement of debenture payable (Note 6)                         --            --            --            --       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 6)                                                --            --     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 6)                      --            --            --            --       474,175

<CAPTION>

                                                                                                Deficit
                                                                                               accumulated
                                                                                                during the
                                                            Stock           Treasury           development
                                                         subscriptions        stock               stage              Total
                                                          -----------      -----------         -----------         -----------
<S>                                                          <C>             <C>           <C>          <C>       <C>
 Extension of exercise period of warrants issued
   in connection with debt offerings (Note 6)                       --                --                 --             (95,901)

 Sale of preferred stock for cash (Note 6)                          --                --           (750,000)            750,000

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

 Intrinsic value of stock options granted to
   officers of the Company (Note 6)                                 --                --                 --             324,527

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

 Settlement of debenture payable (Note 6)                           --                --                 --             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 6)                                                  --                --                 --           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 6)                        --                --                 --             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, 2002
                         (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 6)                                                    --              --        2,292,000               --              --

 Net retirement of stock and cash paid upon merger
   with E. Schulze Corp. (Note 6)                              --              --       (2,292,000)              --              --

 Stock issued to consultants for services (Note 6)             --              --          542,500              543         573,882

 Sales of common stock for cash ($.75 per  share)
   (Note 6)                                                    --              --          403,999              404         302,596

 Exercise of warrants (Note 6)                                 --              --          513,039              513          82,084

 Conversion of preferred stock into common stock
   (Note 6)                                                   (1)        (250,000)         661,926              662         249,338

 Issuance of common stock for debt issuance
   costs ($.39 per share) (Note 6)                             --              --        1,000,000            1,000         389,000

 Stock subscription received for the purchase
   of 810,186 shares of common stock (Note 6)                  --              --               --               --              --

 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 6)                   --              --        2,261,716            2,262         779,924

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

 Intrinsic value of stock options granted to
   officers of the Company (Note 6)                            --              --               --               --          12,600

 Value of stock options granted to
   consultants (Note 6)                                        --              --               --               --          45,180

 Cancellation of common stock issued to consultants            --              --         (100,000)            (100)            100

 Conversion of notes payable into common
   stock (Note 3)                                              --              --          837,712              838         438,694

 Extension of exercise period of warrants issued
   in connection with debt offering (Note 3)                   --              --               --               --         (74,108)


<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 6)                                                      --        1,719,000               --        1,719,000

  Net retirement of stock and cash paid upon merger
    with E. Schulze Corp. (Note 6)                                --       (1,719,000)              --       (1,719,000)

  Stock issued to consultants for services (Note 6)               --               --               --          574,425

  Sales of common stock for cash ($.75 per  share)
    (Note 6)                                                      --               --               --          303,000

  Exercise of warrants (Note 6)                                   --               --               --           82,597

  Conversion of preferred stock into common stock
    (Note 6)                                                      --               --               --               --

  Issuance of common stock for debt issuance
    costs ($.39 per share) (Note 6)                               --               --               --          390,000

  Stock subscription received for the purchase
    of 810,186 shares of common stock (Note 6)               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 6)               (175,000)              --               --          607,186

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

  Intrinsic value of stock options granted to
    officers of the Company (Note 6)                              --               --               --           12,600

  Value of stock options granted to
    consultants (Note 6)                                          --               --               --           45,180

  Cancellation of common stock issued to consultants              --               --               --               --

  Conversion of notes payable into common
    stock (Note 3)                                                --               --               --          439,532

  Extension of exercise period of warrants issued
    in connection with debt offering (Note 3)                     --               --               --          (74,108)

</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, 2002
                         (continued from preceding page)

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

  Stock subscription received for the purchase
    of 2,752,315 shares of common stock (Note 6)                --              --              --              --              --

  Sale of common stock to three individuals (Note 6)            --              --       1,451,146           1,451         233,549

  Sale of common stock to individuals net of offering
    costs of $3,789 (Note 6)                                    --              --         424,000             424          33,681

  Issuance of common stock previously purchased and
    recorded as stock subscription receivable (Note 6)          --              --       2,000,000           2,000          98,000

  Common stock issued to consultants (Note 6)                   --              --         300,000             300          11,700

  Value of stock options granted to
    lender (Note 6)                                             --              --              --              --          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
                                                       ===========     ===========     ===========     ===========     ===========

<CAPTION>

                                                                                             Deficit
                                                                                              accumulated
                                                                                               during the
                                                               Stock          Treasury        development
                                                           subscriptions       stock             stage                Total
                                                           ------------     ------------      ------------      -----------
<S>                                                        <C>              <C>               <C>               <C>

  Stock subscription received for the purchase
    of 2,752,315 shares of common stock (Note 6)                370,000               --                --          370,000

  Sale of common stock to three individuals (Note 6)           (120,000)              --                --          115,000

  Sale of common stock to individuals net of offering
    costs of $3,789 (Note 6)                                         --               --                --           34,105

  Issuance of common stock previously purchased and
    recorded as stock subscription receivable (Note 6)         (100,000)              --                --        2,098,000

  Common stock issued to consultants (Note 6)                        --               --                --           12,000

  Value of stock options granted to
    lender (Note 6)                                                  --               --                --           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)
                                                           ============     ============      ============      ===========

</TABLE>

                             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, 2001 and 2002
 and for the Period from December 30, 1992 (inception) through December 31, 2002

<TABLE>
<CAPTION>

                                                                                                                         Cumulative
                                                                                                                           amounts
                                                                                                                           from
                                                                                 2001                 2002              inception
                                                                             --------------      --------------      --------------
<S>                                                                          <C>                 <C>                 <C>
Cash flows from operating activities:
    Net loss                                                                 $   (4,653,268)     $   (2,321,512)     $  (22,596,082)
    Adjustments to reconcile net loss to net
      cash used in operating activities:
         Depreciation and amortization                                               43,509              44,426             381,267
         Loss on disposal of fixed assets                                                --               2,316               2,316
         Restructuring charges                                                       26,121                  --             222,632
         Common stock issued for services, patents,
           payables and extension of warrants                                     2,110,486             124,528           4,424,033
         Amortization of debt issuance costs                                        169,391             147,501           1,877,404
         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)              3,224             (63,860)
           Inventory                                                                    400                  71            (109,834)
           Other assets                                                             (16,013)            (13,250)            (73,533)
           Accounts payable                                                         226,539             340,422           1,164,291
           Interest payable                                                         (34,520)             60,169             951,640
           Other liabilities                                                         50,033             247,266             345,964
                                                                             --------------      --------------      --------------

         Total adjustments                                                        2,572,722             956,673           9,366,631
                                                                             --------------      --------------      --------------

         Net cash used in operations                                             (2,080,546)         (1,364,839)        (13,229,451)

Cash flows from investing activities:
    Purchase of property and equipment                                             (114,410)             (1,342)           (382,780)
    Proceeds from sale of property and equipment                                         --                  --             125,000
    Decrease (increase) in advances - related party                                  46,658                  --            (244,311)
    Patent costs                                                                    (18,941)             (6,929)           (136,549)
    Lease deposits                                                                       --                  --             (27,880)
    Debt issuance costs                                                                  --                  --             (10,000)
                                                                             --------------      --------------      --------------

         Net cash used in investing activities                                      (86,693)             (8,271)           (676,520)

Cash flows from financing activities:
    Proceeds from sale of common stock                                            4,506,597           1,056,290           9,204,534
    Purchase of treasury stock                                                   (1,719,000)                 --            (520,000)
    Proceeds from preferred stock                                                        --                  --             750,000
    Preferred stock dividends                                                       (56,055)            (20,000)            (80,658)
    Repayments of stockholder loans                                                (251,000)                 --                  --
    Repayments of capital leases                                                         --                  --             (14,087)
    Proceeds from notes payable                                                     175,893             320,051           5,540,818
    Repayments of notes payable                                                    (658,778)                 --            (969,948)
                                                                             --------------      --------------      --------------

         Net cash provided by financing activities                                1,997,657           1,356,341          13,910,659
                                                                             --------------      --------------      --------------

Net increase (decrease) in cash                                                    (169,582)            (16,769)              4,688

Cash and cash equivalents at beginning of period                                    191,039              21,457                  --
                                                                             --------------      --------------      --------------

Cash and cash equivalents at end of period                                   $       21,457      $        4,688      $        4,688
                                                                             ==============      ==============      ==============
</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, 2001 and 2002
 and for the Period from December 30, 1992 (inception) through December 31, 2002

                         (Continued from preceding page)
<TABLE>
<CAPTION>

Supplemental disclosure of cash flow information:
                                                                                                                         Cumulative
                                                                                                                           amounts
                                                                                                                            from
                                                                                 2001                 2002               inception
                                                                             ------------         ------------         ------------
<S>                                                                          <C>                  <C>                  <C>
Cash paid during period for
    interest                                                                $     174,468         $         --         $  1,362,414

Supplemental disclosure of non-cash financing
  activities:
                                                                                                                         Cumulative
                                                                                                                           amounts
                                                                                                                            from
                                                                                 2001                 2002               inception
                                                                             ------------         ------------         ------------
Common stock issued for:
    Services, patents and payables                                           $    574,425         $     12,000         $  1,009,991
    Conversion of notes payable                                                 1,030,469              200,000            3,813,719
    Conversion of interest                                                        458,325              110,667              868,388
    Cancellation of notes payable                                                      --                   --              300,000
    Debt issuance costs                                                           390,000               30,000              420,000
    Debt conversion costs                                                         631,512              128,856            1,179,304
                                                                             ------------         ------------         ------------

                                                                             $  3,084,731         $    481,523         $  7,591,402
                                                                             ============         ============         ============

Warrants issued in debt offer:
    Additional paid-in capital                                               $    474,175         $    (74,108)        $  2,924,173
    Expensed as interest                                                         (474,175)              74,108           (2,924,173)

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

Compensation recorded upon
    grant of stock options                                                   $    430,374         $     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, 2001 and 2002

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, 2002.

      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 12-"Subsequent
      Events". As part of the Restructuring Proceedings, the Company has changed
      its name to AFG Enterpirses, 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 12 - "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, 2001 and 2002

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 12-"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. A June 10, 2003 bar date was set for the filing of proofs of claim
      against the Company. Because the Debtors have not completed evaluation of
      the claims received in connection with this process, the


                                      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, 2001 and 2002

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

      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.

      Approximately 41 proofs of claim totaling approximately $1,937,423
      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, 2001 and 2002

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 $595,440 and $110,855 for the years ended December 31, 2001
      and 2002, respectively.

      Cash equivalents:

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

      Concentrations of credit risk:

      Financial instruments which potentially subject the Company to
      concentrations of credit risk consist principally of cash and cash
      equivalents. The Company's excess cash is deposited in liquid low-risk
      interest bearing accounts within high quality national financial
      institutions. At December 31, 2001 and at times during the year 2002, the
      balance at one financial institution exceeded the FDIC limits.

      Recent accounting pronouncements:

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
      Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
      Combinations". SFAS No. 141 requires the use of the purchase method of
      accounting for all business combinations initiated after June 30, 2001 and
      eliminates the pooling-of-interest method. The adoption of SFAS No. 141
      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, 2001 and 2002

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

      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.

      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.

2. Note receivable

      Through December 31, 2000, the Company had advanced $46,658 to a company
      owned by the former president of the Company. During 2001, this advance
      was fully reimbursed to the Company.

                                      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, 2001 and 2002

3. 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, 2001 and 2002

3. 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


                                      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, 2001 and 2002

3. Notes payable (continued)

      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 6).

      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.

      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

                                      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, 2001 and 2002

3. Notes payable (continued)

      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.

      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.

      Notes payable at December 31, 2001 and 2002 consisted of the following:

<TABLE>
<CAPTION>
                                                                                  2001          2002
                                                                                ---------    ---------
<S>    <C>                                                                      <C>          <C>
9% Notes payable, interest payable quarterly, principal past due,
   unsecured, in  default at December 31, 2001
   and 2002 - reclassified as pre-petition liability in 2002                    $ 437,500    $      --

10% Notes payable, interest payable quarterly, principal past due,
   unsecured, in default at December 31, 2001
   and 2002 - reclassified as pre-petition liability in 2002                       50,000           --
                                                                                ---------    ---------

                                                                                $ 487,500    $      --
                                                                                =========    =========
</TABLE>

      Short term notes payable at December 31, 2001 and 2202 consisted of the
      following:

<TABLE>
<CAPTION>

                                                                                   2001         2002
                                                                                ---------    ---------
<S>    <C>                                                                      <C>          <C>
18% Note payable, secured, to a shareholder related to the
   former president of the Company                                              $      --    $ 100,000

6.75% Note payable to an insurance finance company,
   payable in monthly installments of $6,216 including interest
   through July 10, 2003                                                           33,996       54,400
                                                                                ---------    ---------

(2002 weighted average interest rate 14.04%)                                    $  33,996    $ 154,400
                                                                                =========    =========
</TABLE>


4. 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.

                                      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, 2001 and 2002

4. Pre-Petition Liabilities (continued)

   As of December 31, 2001 and 2002, pre-petition liabilities subject to
   compromise consisted of the following:

                                    2001             2002
                                 -----------     -----------
Accounts payable                 $        --     $ 1,163,759
Accrued expenses                          --         301,910
Interest payable                          --         190,986
Notes payable                             --         443,597
                                 -----------     -----------

                                          --       2,100,252
Less:
Debt issuance costs                       --        (239,166)
                                 -----------     -----------
Net pre-petition liabilities
 subject to compromise           $        --     $ 1,861,086
                                 ===========     ===========

5. Income taxes

      At December 31, 2002, the Company has a net operating tax loss
      carryforward of approximately $14,437,600, future tax deductions of
      $3,594,900 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. 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                                             $ 311,70
        2009                                                28,00
        2011                                             1,109,90
        2012                                             2,054,00
        2018                                               520,00
        2019                                             1,624,30
        2020                                               484,20
        2021                                             4,926,40
        2022                                            3,379,100
                                                        ---------
                                                     $ 14,437,600
                                                     ============

                                      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, 2001 and 2002

5. Income Taxes (continued)

      At December 31, 2001 and 2002, total deferred tax assets and valuation
      allowance are as follows:

                                              2001           2002
                                          -----------     -----------
Deferred tax assets resulting from:
  Net operating loss carryforwards        $ 3,650,000     $ 5,385,000
  Capitalized pre-operating costs           2,235,000       1,341,000
  Research and development tax credits        270,000         274,000
                                          -----------     -----------

  Total                                     6,155,000       7,000,000
  Less valuation allowance                 (6,155,000)     (7,000,000)
                                          -----------     -----------
                                          $        --     $        --
                                          ===========     ===========

      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.

6. 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.

      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,


                                      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, 2001 and 2002

6. Stockholders' equity (continued)

      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.

      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 3.

      During 1998, the Company issued 937,500 shares of its common stock in
      exchange for services valued at $.17 per share. This issuance includes the
      750,000 shares issued to the attorney in the Continuum/HealthStar lawsuit.
      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

                                      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, 2001 and 2002

6. Stockholders' equity (continued)

      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.

      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. At bankruptcy plan confirmation, the remaining
      2 preferred shares convert into 1,890,598 shares of 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 3.

      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.

                                      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, 2001 and 2002

6. Stockholders' equity (continued)

      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 3.

      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

                                      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, 2001 and 2002

6. Stockholders' equity (continued)

      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).

      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 in exchange for the cancellation of a note payable -
      see Note 3). 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

                                      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, 2001 and 2002

6. Stockholders' equity (continued)

      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.

      Stock warrants:

      The following is a summary of stock warrant activity:

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

Balance at December 31, 2000                                      8,310,756

Issued in 2001                                $2.00               3,150,000
Exchanged in 2001                     $.067, $.667 and $1.33     (2,036,195)
Exercised in 2001                        $.067 and $.667           (289,645)
Expired in 2001                           $.067 to $1.33         (2,741,695)
                                                                -----------
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                  $2.00              3,150,000
                                                                 ==========

Exercisable at December 31, 2002              $2.00                      --
                                                                 ==========

      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


                                      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, 2001 and 2002

6. Stockholders' equity (continued)

      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.

      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 vest over time and upon
      the attainment of certain milestones. During 2000, the Company issued
      options to a consultant to purchase in the aggregate 400,000 shares of the
      Company's common stock exercisable at $1.00 to $3.00 per share for two
      years. For the 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.

                                      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, 2001 and 2002

6. Stockholders' equity (continued)

      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.

      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.

      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


                                      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, 2001 and 2002


6. Stockholders' equity (continued)

      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, 2002, no such options were exercised.

      The following is a summary of stock option activity:

<TABLE>
<CAPTION>
                                                  Option price       Weighted average         Number
                                                   per share          exercise price         of shares
                                              ------------------     ----------------     ----------------
<S>                                            <C>                            <C>                <C>
Balance December 31, 2000                      $ 0.25 to $  3.00              $  0.85            3,386,875

Granted                                        $ 0.21 to $  1.50              $  0.98           10,040,000
Exercised                                      $              --              $    --                   --
Forfeited                                      $ 0.50 to $  1.00              $  0.94           (1,150,000)
                                              ------------------                          ----------------
Balance December 31, 2001                      $ 0.21 to $  3.00              $  0.93           12,276,875

Granted                                        $ 0.012 to $  .44              $  0.26            3,907,769
Exercised                                      $              --              $    --                   --
Forfeited                                      $ 0. 25 to $ 3.00              $  0.51           (3,919,644)
                                              ------------------                          ----------------

Balance December 21, 2002                      $ 0.01 to $  1.50              $  0.86           12,265,000
                                              ==================                          ================

Options exercisable at December 31, 2002       $ 0.01 to $  1.50              $  0.86           12,265,000
                                              ==================                          ================
</TABLE>

                                      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, 2001 and 2002

6. Stockholders' equity (continued)

      The following is additional information with respect to those options and
      warrants outstanding at December 31, 2002:

<TABLE>
<CAPTION>
                                                        Weighted             Weighted
                                                     average remaining       average
                                       Price per     contractual life        exercise            Number of
                                        share           in years              price               shares
                                        -----           --------              -----               ------
<S>                                    <C>                  <C>               <C>                <C>
 Options                               $0.01                0.47              $0.01              1,000,000
                                       $0.12                1.71              $0.12                 50,000
                                  $0.21 to $0.30            2.13              $0.27              1,480,000
                                  $0.36 to $0.50            2.94              $0.44                800,000
                                  $0.67 to $1.00            1.47              $0.85              4,805,000
                                  $1.25 to $1.50            1.64              $1.38              4,130,000
                                                                                               -----------
                                                                                                12,265,000
                                                                                                ==========

 Warrants                              $2.00                3.0               $2.00              3,150,000
                                                                                                ==========
</TABLE>

      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, 2001 and 2002 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:

                                              2001              2002
                                        -------------     -------------
        Net loss - as reported          $  (4,653,268)    $  (2,321,512)
        Net loss - pro forma               (4,860,678)       (2,386,321)
        Loss per share - as reported            (0.07)            (0.03)
        Loss per share - pro forma              (0.07)            (0.03)

      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 2001 and 2002, dividend
      yield of 0%; expected volatility of 100%, risk-free interest rate of 3.07%
      to 6.54% (2001) and 5.48% (2002); and expected life of 1.5 to 4 years
      (2001) and 10 years (2002).


                                      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, 2001 and 2002

7. 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.

8. 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. This debt was discharged as a result of the bankruptcy
      proceedings (See Note 12).

      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.

      Capital lease commitments:

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

      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.


                                      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, 2001 and 2002

9. Financial instruments

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

10. 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.

11. 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.

12. Subsequent events

      New Chairman, President and Chief Executive Officer:

      During February 2003, Michael T. Mozer resigned as Chairman, President,
      and Chief Executive Officer of the Company. Donald P. Uhl, the Company's
      previous Chairman, President and Chief Executive Officer succeeded Mr.
      Mozer.

      During May and June 2003, the Company entered into negotiations with
      Acclaim Financial Group Ventures II, LLC ("AFGVII") wherein subject to
      Bankruptcy Court approval, AFGVII would provide financing to the Company.

      Between February and June 2003, the Company received a net of $12,350 in
      short-term loans from an officer and director of the Company which funds
      were used to support Company activity.

      In June of 2003, the Company discharged the liability it had recorded to
      Unisys Corporation for $498,407 as a result of the Restructuring
      Proceedings.

      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


                                      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, 2001 and 2002

12. Subsequent events (continued)

      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.

      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.

      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-37
<PAGE>

                             AFG ENTERPRISES, INC.
         (FORMERLY IN STORE MEDIA SYSTEMS, INC. - DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2002

12. Subsequent events (continued)

      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:

                  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 constituted 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.


                                      F-38
<PAGE>

                             AFG ENTERPRISES, INC.
         (FORMERLY IN STORE MEDIA SYSTEMS, INC. - DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2002

12. Subsequent events (continued):

            Class 3--Allowed Unsecured Claims in Excess of $1,000: These claims
            constituted allowed unsecured claims held by various claimants
            incurred 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
            treatment under this Class.

            Class 6--Interests: This Class constitutes 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 its direct stock ownership and indirectly through
      affiliated companies, AFGV II will control approximately 63.7% of the
      stock in the reorganized debtor.


                                      F-39