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, 2004

                                       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) 674-1063
                                 --------------
              (Registrant's telephone number, including area code)

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

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

                              YES [ ] NO [X]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference of Part III of this Form 10-KSB, or any amendment to
this Form 10-KSB. [ ]

Registrant had no revenue for the fiscal year ended December 31, 2004.


<PAGE>

On March 31, 2005, the Registrant had 70,484,485 shares of common voting stock
held by non-affiliates. The aggregate market value of shares of Common Stock
held by non-affiliates was approximately $704,844 as of March 31, 2005. This
valuation is based upon the most recent sales price of Common Stock as reported
by the Pink Sheets, LLC.

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 April 30, 2005, the issuer had 78,751,406 shares of its Common Stock, par
value $.001 per share outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:  Yes [ ] No [X]


<PAGE>

                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

Forward Looking Statements

      This Annual Report on Form 10-KSB for the Company for the fiscal year
ended December 31, 2004 (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.

      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.

      Until November 2002, the Company was 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. Since the Company declared bankruptcy in November 2002 the primary
activities have been the prosecution of various legal proceedings, including the
bankruptcy reorganization. See Part I. Item 3. Legal Proceedings.


                                       1
<PAGE>

      For the twelve months ended December 31, 2004, the Company generated no
operating revenue. Since inception of the Company through December 31, 2004, the
Company has incurred accumulated losses of $23,016,429.

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."

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, an affiliate of AFGVII was required to subordinate its claims
to any claims of AFGVII arising under the DIP Facility. 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.


                                       2
<PAGE>

      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.

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

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

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


                                       3
<PAGE>

      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 incurred by
      the Company under the DIP Facility prior to the effective date of the
      Plan. 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
      holders of which elect to receive an amount not in excess of $1,000 in
      cash in respect of their claims. No creditors elected to be treated as a
      Class 5 claim.

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

      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


                                       4
<PAGE>

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

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

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

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

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

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

Plan of Operation

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

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


                                       5
<PAGE>

      The financial statements of the Company reflect that the ISM Intellectual
Property does not have any book value under generally accepted accounting
principles. Book value may not reflect actual market value.

      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.

      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.


                                       6
<PAGE>

      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:

      "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.


                                       7
<PAGE>

      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.

      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.


                                       8
<PAGE>

      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.

Employees

      As of December 31, 2004, the Company had no full time employees. All
activities of the Company related to the Bankruptcy Proceedings and were
conducted by independent advisors. As of May 1, 2005, the Company has employment
agreements with two officers, Erich Spangenberg, President, and William P.
Stelt, Chief Financial Officer. See Part III, Item 10 "EXECUTIVE COMPENSATION -
Employment Agreements."


ITEM 2 - DESCRIPTION OF PROPERTIES

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

ITEM 3 - LEGAL PROCEEDINGS

      During the fiscal year ended December 31, 2004, 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 executed on March 29, 2004.


                                       9
<PAGE>

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

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

      The Company did not hold any shareholder meetings in fiscal year 2004. In
November 2004, the Company submitted to each shareholder the Joint Disclosure
Statement and Plan of Reorganization approved by the Bankruptcy Court. The votes
in favor of the Plan were 38,154,683 representing a majority of the outstanding
shares. The approval of the Plan of Reorganization had the effect of appointing
five directors, effectuating a reverse split of the outstanding shares and
changing the name of the Company. See Part I, Item 1. Business - Bankruptcy
Proceedings above.

                                     PART II

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

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

      In May 2003, the Common Stock of the Company was delisted from the
Electronic Bulletin Board and since the stock has traded only sporadically in
The Pink Sheets.

      The following table shows the range of high and low bid quotations for the
Company's Common Stock for the period from January 1, 2003 until May 22, 2003,
as reported by the OTC Bulletin Board. From May 22, 2003 until March 31, 2005,
the table reflects actual sales prices as reported by The Pink Sheets, LLC.
Prices reflect inter-dealer prices, and do not necessarily reflect actual
transactions, retail mark-up, mark-down, or commission.


                                       10
<PAGE>


                                STOCK QUOTATIONS

          Fiscal Quarter Ended                      Closing Sales
                                            High                   Low
                                            ----                   ---

      2005
      March 31, 2005                        0.0125                0.0001

      2004
      December 31, 2004                     0.0001                0.0001
      September 30, 2004                    0.015                 0.0001
      June 30, 2004                         0.02                  0.0001
      March 31, 2004                        0.005                 0.0001

      2003
      December 31, 2003                     0.015                 0.0001
      September 30, 2003                    0.02                  0.0001
      June 30, 2003                         0.03                  0.0001

                                          High Bid               Low Bid
                                          --------               -------
      May 22, 2003                          0.01                  0.01
      March 30, 2003                        0.02                  0.01

      At December 31, 2004, the number of record holders of the Company's Common
Stock was approximately 420 beneficial owners of its Common Stock.

Dividends

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

Recent Sales of Unregistered Securities

      2004. None.

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

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 as of December
31, 2004 and 2003, and for each of the two years then ended.


                                       11
<PAGE>

      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-18.

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

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

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

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

      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 $23,016,429 since inception through December 31, 2004.

      At December 31, 2004, the Company had a stockholders' deficit of
$2,115,491 which reflects $21,741,596 of common stock, preferred stock and paid
in capital (net of amount attributable to treasury stock) less accumulated
deficit of $23,857,087. 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 2004, research and development, and general and
administrative expenses incurred since inception. At December 31, 2004, the
Company had a working capital deficit of $557,560, excluding $1,557,931
pre-petition liabilities subject to compromise (net of debt issuance costs).


                                       12
<PAGE>

      Financial Condition

      At December 31, 2004 the Company had $58,764 in total assets and $616,324
in total current liabilities (net of $1,557,931 of pre-petition liabilities
subject to compromise) compared to $94,880 in total assets and $535,302 in total
current liabilities (net of $1,451,264 of pre-petition liabilities subject to
compromise) at December 31, 2003. Accounts payable and accrued expenses at the
end of fiscal year 2004 were $423,224 (net of pre-petition liabilities subject
to compromise) compared to $362,202 (net of pre-petition liabilities subject to
compromise) at December 31, 2003. The Company had a working capital deficit of
$557,560 at December 31, 2004 compared to a working capital deficit of $528,613
at December 31, 2003. The difference from 2004 to 2003 is primarily attributed
to the increase in accrued expenses and accounts payable attributable to the
costs of the Bankruptcy Proceedings and prosecuting the LGS Adversary Proceeding
(see Part I, Item 3, "LEGAL PROCEEDINGS").

      Results of Operations

      Until November 2002, the Company's operational costs historically have
increased or decreased primarily due to the expansion or contraction of the
Company's ongoing research and development efforts. Commencing in November 2002
through December 31, 2004, the Company's costs have increased or decreased
depending upon the costs of the Bankruptcy Proceedings and the lawsuits with
LGS.

      The Company has incurred operating expenses of $15,672,469 from inception
through December 31, 2004. These expenses include $3,320,137 in research and
development expenses, $11,938,567 in general and administrative expenses and
$413,765 in depreciation and amortization. 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, 2004 Compared to Year Ended December 31, 2003

      For the year ended December 31, 2004, the Company sustained net operating
losses of $125,420 as compared to net operating losses of $237,535 for the year
ended December 31, 2003. The decrease in net operating losses primarily was due
to a decrease in general and administrative expenses and the reduction in
depreciation and amortization.

      The Company's operating expenses for the year ended December 31, 2004,
decreased by $112,115 or approximately 47% to $125,420 as compared to operating
expenses of $237,535, for the year ended December 31, 2003. The decrease in
operating expenses in 2004 was due to a decrease in general and administrative
expenses and the reduction in depreciation and amortization. General and
administrative expenses decreased by $79,617 or approximately 39% to $125,420
for the 2004 year, as compared to general and administrative expenses of
$205,037 for the year ended December 31, 2003. The decrease in general and
administrative expenses primarily was due to a reduction in cash and stock based
compensation to employees and consultants, and a reduction of expenses incurred
with management consultants.


                                       13
<PAGE>

      The Company had a net loss of $223,805 for the year ended December 31,
2004, compared to a net loss of $196,542 for the prior year. The increase in net
loss was attributable to various factors, including reduction of debt
forgiveness income from $562,321 in 2003 to $0 in 2004, offset by a reduction in
the loss on the sale of assets, income from the litigation settlement with LGS
and a reduction in reorganization expense. As a result, for the fiscal year
ended 2004, the Company had total other expenses of $55,762 compared to total
other income of $218,976 for the fiscal year ended December 31, 2003.
Reorganization expenses for 2004 declined by $135,360 or approximately 76% to
$42,623.

      Year Ended December 31, 2003 Compared to Year Ended December 31, 2002. For
the year ended December 31, 2003, the Company sustained net operating losses of
$237,535 as compared to net losses of $2,025,912 for the year ended December 31,
2002. 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, 2003,
decreased by $1,789,535 or approximately 88% to as compared to operating
expenses of $2,027,070, for the period ended December 31, 2002. The decrease in
operating expenses in 2003 was due to a decrease in general and administrative
expenses. General and administrative expenses decreased by $1,775,893 or
approximately 90% to $205,037 for the 2003 year, as compared to general and
administrative expenses of $1,980,930 for the same period in 2002. The decrease
in general and administrative expenses primarily was due to a reduction in cash
and stock based compensation to employees and consultants, and a reduction of
expenses incurred with management consultants.

      The Company's net non-operating expense (including non-operating interest
income and interest expense) increased to $343,345 for the year ended December
31, 2003, as compared to non-operating expenses of $279,522 for the year ended
December 31, 2002. The increase was primarily due to a loss of $119,830 on the
sale of certain assets and an increase of $75,145 or approximately 50% in
interest expense. Interest expense for the year ended December 31, 2003 was
$223,515 compared to $148,370 for the prior year. Debt conversion costs
decreased from $128,856 to $0 in 2003. However, the decreases in debt conversion
costs and increases in losses from the sale of assets and interest expense were
offset by the recognition of $562,321 in debt forgiveness income. As a result,
for the fiscal year ended 2003, the Company had total other income of $218,976
compared to total losses of $279,522 for the fiscal year ended December 31,
2002.


                                       14
<PAGE>

      Liquidity and Capital Resources

      From inception until November 2002, the Company's principal requirements
for capital have been to finance the cost of research and development of its
coupon selection, dispensing and clearing systems and related technologies, and
to pay for expenses associated with securing patent protection, formulating its
business strategy and developing strategic relationships with third parties,
such as Unisys Corporation, retailers and product manufacturers. From November
2002 until December 31, 2004, the primary capital requirements of the Company
have been to finance the costs of the Bankruptcy Proceedings and the lawsuits
with LGS. The Company has historically financed its operations through loans and
investments by directors and officers, and the sale of equity and debt
securities in private transactions in reliance upon exemptions from the
registration and qualification requirements under federal and state securities
laws. In July 2003, the Company entered into a Debtor in Possession Credit
Agreement (the "DIP Facility") with Acclaim Financial Group Ventures II, LLC
("AFGVII"). Since such date the Company has relied primarily on the DIP
Facility to provide all required capital.

      At December 31, 2004, the Company had $616,324 in current liabilities (net
of $1,557,931 of liabilities subject to compromise), of which $312,584 was from
accrued expenses, primarily professional fees relating to the Bankruptcy
Proceeding and the LGS lawsuits.

      The remaining portion of the Company's current liabilities is primarily
comprised of short-term note obligations totaling $193,100 (including $87,100
due to a related party) at December 31, 2004. The Company relied primarily on
the DIP Facility to finance operations during the fiscal year ended December 31,
2004. At December 31, 2004, the Company had available cash of $6,809, as
compared to available cash of $6,109 at December 31, 2003. Other current assets
increased to $51,955, primarily as a result of the receivable due from LGS in
connection the Settlement Agreement.

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-2 of this Annual Report.

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

      On April 21, 2005, Causey Demgen & Moore Inc. ("CDM") declined to stand
for re-appointment as AFG Enterprises, Inc. (the "Company") independent
accountants due to the restrictions imposed by Section 208(a) of the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the Securities
Exchange Commission that prohibit partners on the audit engagement team from
providing audit services to the issuer for more than five consecutive years and
from returning to audit services with the same issuer within five years. The
Company appointed the firm of Singer Lewak Greenbaum & Goldstein LLP ("SLGG") to
serve as independent public accountants of the Company for the fiscal year
ending December 31, 2004.


                                       15
<PAGE>

      CDM's report on the Company's financial statements for the fiscal years
ended December 31, 2003 and 2002 did not contain an adverse opinion or
disclaimer of opinion, or was modified as to uncertainty, audit scope or
accounting principles. However, they did include an explanatory paragraph
wherein they expressed substantial doubt about the Company's ability to continue
as a going concern.

      During the years ended December 31, 2003 and 2002 and through April 21,
2005, there were no disagreements with CDM on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to CDM's satisfaction, would have caused them
to make reference to the subject matter of such disagreements in connection with
their report on the Company's financial statements for such years.

ITEM 8A. CONTROLS AND PROCEDURES

      Evaluation of Disclosure Controls and Procedures. As of May 1, 2005, we
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 Rules
13a-15(e) and 15d-15(e)). That evaluation was performed under the supervision
and with the participation of its management, including its Chief Executive
Officer and its Chief Financial Officer. Based on that evaluation, our Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting him to material information relating
to the Company required to be included in its periodic SEC filings.

      Changes in Internal Control over Financial Reporting. The Company has made
no significant change in its internal control over financial reporting as of May
1, 2005 that has materially affected, or is reasonably likely to materially
affect, its internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

      None.


                                       16
<PAGE>


                                    PART III

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

      As of December 31, 2004, the Company's executive officers and directors
and their ages were as follows:

--------------------------------------------------------------------------------
         Name                   Age                  Position
--------------------------------------------------------------------------------
Erich Spangenberg               44     Chief Executive Officer, Treasurer and
                                       Secretary  and Chairman of the Board
--------------------------------------------------------------------------------
Donald P. Uhl                   71     President and Director
--------------------------------------------------------------------------------
Douglas B. Croxall              36     Director
--------------------------------------------------------------------------------
Ronald F. Anderegg              52     Director
--------------------------------------------------------------------------------

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

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

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


                                       17
<PAGE>

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

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

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

      Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
Beneficial Ownership Reporting Compliance Section 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules of the
Commission thereunder require the Company's executive officers, directors and
greater than 10% stockholders to file reports of ownership and changes in
ownership of the Common Stock of the Company with the Commission. Based upon a
review of such reports, the Company has determined that during the fiscal year
ended December 31, 2004 all required forms were timely filed.


                                       18
<PAGE>

ITEM 10 - EXECUTIVE COMPENSATION

Remuneration of Executive Officers

         The following table sets forth information concerning the compensation
received for the fiscal years ended December 31, 2004, 2003 and 2002 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 2004 fiscal year and
other highly compensated executives of the Company. The total amount of the
annual salary and bonus payable to each of the Company's other executive
officers for the last completed fiscal year was below $100,000. See Item 12 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                      Annual Compensation (1)                Long Term Compensation
                                  ------------------------------     --------------------------------------
                                                                               Awards               Payouts
                                                                                    Securities
                                                                     Restricted     Underlying                  All other
Name and Principal                 Salary                               Stock       Options/SARs                  Compen-
     Position              Year    ($)(1)    Bonus ($)  Other ($)    Awards ($)         (#)         LTIP ($)    sation(2)
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>     <C>         <C>        <C>           <C>          <C>             <C>          <C>
Erich Spangenberg, CEO     2004     -0-        -0-        -0-           -0-             -0-           -0-          -0-
                           2003     -0-        -0-        -0-           -0-           -0- (2)         -0-          -0-
                           2002     -0-        -0-        -0-           -0-             -0-           -0-          -0-
---------------------------------------------------------------------------------------------------------------------------
Donald P. Uhl, President   2004     -0-        -0-        -0-           -0-             -0-           -0-          -0-
                           2003    53,328      -0-        -0-           -0-             -0-           -0-          -0-
                           2002    29,999      -0-        -0-           -0-             -0-           -0-          -0-
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

Director Compensation

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


                                       19
<PAGE>

Employment Agreements

At May 1, 2005, the Company had an employment agreement with Erich Spangenberg,
Chief Executive Officer, Treasurer and Secretary which provides for annual
compensation of $1.00 per annum.

The employment agreement with William P. Stelt, Chief Financial Officer, is "at
will" and provides for an annual salary of $96,000, plus a performance bonus of
$5,000 upon filing of all outstanding annual and quarterly reports due under the
Securities Exchange Act of 1934.

Individual Option Grants

      During the fiscal years ended December 31, 2004, no options to purchase
shares of Common Stock were granted.

Option Exercises

      During the fiscal year ended December 31, 2004 no employees exercised any
outstanding options. The following table sets forth the number of options held
by each of the named principal executive officers and the value thereof.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                           Number of
                                                                          Securities           Value of
                                                                          Underlying         Unexercised
                                                                          Unexercised        In-the-Money
                                                                        Options/SARs at    Options/SARs at
                                                                        Fiscal Year End    Fiscal Year End
                                                                              (1)                (2)

                                   Shares Acquired                       Exercisable/        Exercisable/
              Name                   on Exercise      Value Realized     Unexercisable      Unexercisable
-------------------------------------------------------------------------------------------------------------
<S>                                      <C>               <C>             <C>                 <C>
Erich Spangenberg                        -0-               -0-              -0- (3)            -0-/-0-
-------------------------------------------------------------------------------------------------------------
Donald P. Uhl                            -0-               -0-             700,000/0           -0-/-0-
-------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

(2) Calculated on the basis of the fair market value of the underlying
securities at December 31, 2003 ($0.01 per share) minus the exercise price.

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


                                       20
<PAGE>

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

         Except as otherwise indicated, the following table sets forth certain
information regarding the beneficial ownership of the Company's Common Stock at
December 31, 2004, by (i) each of the Company's directors and officers, (ii)
each person or entity who beneficially owned more than five percent of the
Company's Common Stock or Preferred Stock, and (iii) all directors and officers
of the Company as a group. Unless otherwise indicated, all addresses are care of
the Company at its executive offices.

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

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

Ronald F. Anderegg                 Common Stock                   4,886,921                   6.24%
1600 South Beacon Boulevard
Grand Haven, MI 49417

Melissa Schulze                    Common Stock                   3,700,000                   4.70%
6756 South Holland Way
Littleton, CO 80128

Donald P. Uhl                      Common Stock                   4,080,000 ((3))             5.14%

Dale Davis                         Preferred Stock                        1                  50.00%

CHKM LLC                           Preferred Stock                        1                  50.00%

All Officer and Directors as a     Common Stock                  28,249,730                  28.63%
group (four persons)
</TABLE>

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

      (2) Includes options to purchase 19,282,809 shares of Common Stock granted
to AFGVII, of which Mr. Spangenberg and Mr. Croxall are principals and owners.
Mr. Spangenberg and Mr. Croxall each disclaim beneficial ownership of such
shares. Excludes the right of NMPP to acquire 347,222 shares of Common Stock
which NMPP acquired from ICS in connection with the settlement agreement between
the Company and Derek Bushman and ISC.


                                       21
<PAGE>

      (3) Includes 1,000,000 shares of the Company's Common Stock held in Mr.
Uhl's name and options to purchase 700,000 shares of the Company's Common Stock
at an exercise price of $.30 per share. Includes 2,380,000 shares of the
Company's Common Stock are held in the name of the PLDLC Family Limited
Partnership, a Colorado limited partnership. Mr. Uhl is General Partner and
exercises voting control with respect to the stock in the partnership. Mr. Uhl
disclaims beneficial ownership of the PLDLC shares other than through his
derivative ownership interest in the PLDLC partnership.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loans To and From Affiliates

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

Certain Business Relationships

      Erich Spangenberg CEO, Treasurer and Secretary and Chairman of the Board,
and Douglas B. Croxall, Director, are principals of AFGVII. In July 2003, the
Company and AFGVII entered into the DIP Facility. See Item I, Part 1
"BUSINESS--Bankruptcy Proceedings" above. Erich Spangenberg is also a principal
of NMPP which was a secured creditor of the Company and which purchased from ISC
the right to acquire 347,222 shares of Common Stock.

ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K

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


                                       22
<PAGE>

Exhibit
Number      Description

3.1         Articles of Incorporation (1)

3.1.2       Certificate of Amendment filed with the Nevada Secretary of State as
            of October 7, 1998 (2)

3.1.3       Articles and Agreement of Merger filed with the Nevada Secretary of
            State as of October 8, 1998 (2)

3.1.4       Certificate of Amendment filed with the Nevada Secretary of State as
            of April 21, 2000 (2)

3.1.5       Certificate of Amendment filed with the Nevada Secretary of State as
            of November 14, 2000 (2)

3.1.6       Certificate of Amendment filed with the Nevada Secretary of State as
            of May 4, 2005*

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

4.1         Specimen of Common Stock of the Company (2)

10.1        Credit Agreement between the Company and Acclaim Financial Group
            Ventures II, LLC dated July 15, 2003. (3)

10.2        Settlement Agreement dated March 25, 2004 between the Company and
            Let's Go Shopping, Inc., James McCreary and James B. Babo. (3)

10.3        Employment Agreement with Erich Spangenberg. (4)

10.4        Employment Agreement with William P. Stelt dated February 1, 2005.
            (4)

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.


                                       23
<PAGE>

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

(2)   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.

(3)   Filed with the Commission and incorporate by reference from the Company's
      Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002
      and filed on April 15, 2005.

(4)   Filed with the Commission and incorporate by reference from the Company's
      Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002
      and filed on April 20, 2005.

(b)   REPORTS ON FORM 8-K.

      Current Report on Form 8-K filed on January 30, 2004.

      Current Report on Form 8-K filed on March 15, 2004.

      Current Report on Form 8-K filed on April 1, 2004.

      Current Report on Form 8-K filed on May 3, 2004.

      Current Report on Form 8-K filed on June 3, 2004.

      Current Report on Form 8-K filed on July 16, 2004.

      Current Report on Form 8-K filed on July 19, 2004.

      Current Report on Form 8-K filed on August 31, 2004.

      Current Report on Form 8-K filed on September 30, 2004.

      Current Report on Form 8-K filed on October 28, 2004.

      Current Report on Form 8-K filed on November 23, 2004.

      Current Report on Form 8-K filed on December 29, 2004.


                                       24
<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, 2004 and 2003 were
$20,000 and $0, respectively.

      Audit Related Fees

      The Company did not pay any fees for assurance and related services by the
Company's principal accountant, other than amounts previously reported in this
Item 14 for the fiscal years ended December 31, 2004 and 2003.

      Tax Fees

      The Company did not pay its principal accountant for any professional
services related to tax compliance, tax advices and tax planning for the fiscal
years ended December 31, 2004 and 2003.

      All Other Fees

      During the fiscal year ended December 31, 2004, and 2003, the Company's
principal accountant did not provide any other services and accordingly did not
bill the Company any other fees for the fiscal years ended December 31, 2004 and
2003, except as provided above.

      Audit Committee

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


                                       25
<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: May __, 2005                      AFG ENTERPRISES, INC.
                                             (Registrant)

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

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


                                       26
<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:    May __, 2005                      ____________________________
                                           John B. Burns, III, Director

Date:    May __, 2005                      ____________________________
                                           Douglas B. Croxall, Director

Date:    May __, 2005                      ____________________________
                                           Erich Spangenberg, Director

Date:    May __, 2005                      ____________________________
                                           David Pridham, Director

Date:    May __, 2005                      ____________________________
                                           Stephen Peary, Director


                                       27
<PAGE>

                              AFG ENTERPRISES, INC.

                     (FORMERLY IN STORE MEDIA SYSTEMS, INC.)

                              FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 2003 and 2004
               AND THE PERIOD FROM INCEPTION TO DECEMBER 31, 2004

                                      WITH
            REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

<PAGE>

                              AFG ENTERPRISES, INC.
                     (FORMERLY IN STORE MEDIA SYSTEMS, INC.)
                         (A development stage company)

                          INDEX TO FINANCIAL STATEMENTS

AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004 AND
FOR THE PERIOD FROM DECEMBER 30, 1992 (INCEPTION) THROUGH DECEMBER 31, 2004:

<TABLE>
<S>                                                                             <C>
Reports of Independent Registered Public Accounting Firms                        F-3

Balance Sheet as of December 31, 2003 and 2004                                   F-5

Statement of Operations for Years Ended December 31, 2003 and 2004, and
for the Period from December 30, 1992 (Inception) Through December 31, 2004      F-7

Statement of Changes in Stockholders' Deficit For the Period from
December 30, 1992 (Inception) Through December 31, 2004                          F-8

Statement of Cash Flows For Years Ended December 31, 2003 and 2004, and
for the Period from December 30, 1992 (Inception) Through December 31, 2004     F-16

Notes to Financial Statements                                                   F-18
</TABLE>


                                      F-2
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
AFG Enterprises, Inc. (Formerly In Store Media Systems, Inc.)
Palm Desert, CA

      We have audited the accompanying balance sheet of AFG Enterprises, Inc.
(Formerly In Store Media Systems, Inc. - a development stage company) as of
December 31, 2004, and the related statements of operations, changes in
stockholders' deficit and cash flows for the year then ended. 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 audit. We have not audited the statements of operations and changes in
stockholders' deficit and cash flows for the period from December 30, 1992
(inception) to December 31, 2003, which constituted stockholders' deficit
aggregating to $1,891,686.

      We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit 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
audit provides 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.
(Formerly In Store Media Systems, Inc.) as of December 31, 2004, and the results
of its operations and its cash flows for the year then ended in conformity with
U.S. generally accepted accounting principles.

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage and has been
primarily involved in research and development activities, resulting in
significant losses and a stockholders' deficit at December 31, 2004 of
$2,115,491. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Singer Lewak Greenbaum & Goldstein LLP
Los Angeles, California
April 1, 2005


                                      F-3
<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. - a development stage company) as of
December 31, 2003, and the related statements of operations, changes in
stockholders' equity (deficit) and cash flows for the year then ended and for
the period from December 30, 1992 (inception) through December 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

      We conducted our audit in accordance with standards of The Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit provides 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.
(Formerly In Store Media Systems, Inc.) as of December 31, 2003 and the results
of its operations and its cash flows for the year then ended and for the period
from December 30, 1992 (inception) through December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage and has been
primarily involved in research and development activities, resulting in
significant losses and a stockholders' deficit at December 31, 2003 of
$1,891,686. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Denver, Colorado                                     Causey Demgen & Moore Inc.
February 3, 2005


                                      F-4
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                           December 31, 2003 and 2004


                                     ASSETS

                                                         2003           2004
                                                     ------------   ------------
Current assets:
   Cash and cash equivalents                         $      6,109   $      6,809
   Other current assets                                       580         51,955
                                                     ------------   ------------

    Total current assets                                    6,689         58,764

Other assets:
   Patent costs, net of accumulated amortization of
    $48,360 (2003)                                         88,191             --
                                                     ------------   ------------

    Net other assets                                       88,191             --
                                                     ------------   ------------

                                                     $     94,880   $     58,764
                                                     ============   ============

   The accompanying notes are an integral part of these financial statements.


                                      F-5
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                           December 31, 2003 and 2004

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                                2003            2004
                                                            ------------    ------------
Liabilities Not Subject to Compromise
Current liabilities:
<S>                                                         <C>             <C>
   Accounts payable                                         $     49,572    $     53,049
   Interest payable                                               28,496          57,591
   Accrued expenses                                              284,134         312,584
   Notes payable-related party                                    67,100          87,100
   Short-term notes payable                                      106,000         106,000
                                                            ------------    ------------

    Total current liabilities                                    535,302         616,324

Liabilities Subject to Compromise
   Pre-Petition Liabilities net of debt issuance costs of
    $86,667 (2003) and $0 (2004)                               1,451,264       1,557,931

Commitments and contingencies

Stockholders' deficit:
   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, 88,126,148 shares issued                          88,126          88,126
   Additional paid-in capital                                 21,567,220      21,567,220
   Stock subscriptions received                                  150,000         150,000
   Treasury stock, at cost; 9,374,742 shares                    (563,750)       (563,750)
   Deficit accumulated during the development stage          (23,633,282)    (23,857,087)
                                                            ------------    ------------

    Total stockholders' deficit                               (1,891,686)     (2,115,491)
                                                            ------------    ------------

                                                            $     94,880    $     58,764
                                                            ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-6
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF OPERATIONS

                 For the Years Ended December 31, 2003 and 2004
 and for the Period from December 30, 1992 (inception) through December 31, 2004

<TABLE>
<CAPTION>
                                                                          Cumulative
                                                                         amounts from
                                             2003            2004         inception
                                         ------------    ------------    ------------
<S>                                      <C>             <C>             <C>
Revenues:
    Coupon handling fees and other       $         --    $         --    $     19,664

Costs and expenses:
    Research and development                       --              --       3,320,137
    General and administrative                205,037         125,420      11,938,567
    Depreciation and amortization              32,498              --         413,765
                                         ------------    ------------    ------------

      Total costs and expenses                237,535         125,420      15,672,469
                                         ------------    ------------    ------------

      Operating loss                         (237,535)       (125,420)    (15,652,805)

Other income (expense):
    Interest income                                --              --         105,872
    Litigation settlement                          --          60,000         (96,250)
    Restructuring costs                            --              --        (222,632)
    Debt conversion costs                          --              --      (1,437,198)
    Debt forgiveness                          562,321              --         562,321
    Gain/(loss) on sale of assets            (119,830)             --        (122,146)
    Interest expense                         (223,515)       (115,762)     (5,916,907)
                                         ------------    ------------    ------------
      Total other income (expense)            218,976         (55,762)     (7,126,940)
                                         ------------    ------------    ------------
      Loss before reorganization items        (18,559)       (181,182)    (22,779,745)

    Reorganization expense                   (177,983)        (42,623)       (236,684)
                                         ------------    ------------    ------------

Net loss                                     (196,542)       (223,805)    (23,016,429)

Preferred stock dividends                          --              --          90,658
                                         ------------    ------------    ------------

Net loss applicable to common
    stockholders                         $   (196,542)   $   (223,805)   $(23,107,087)
                                         ============    ============    ============

Basic and diluted net loss per common
    share                                           *               *    $       (.41)
                                         ============    ============    ============

Weighted average common shares
    outstanding                            78,700,000      78,800,000      55,600,000
                                         ============    ============    ============
</TABLE>

* Less than ($0.01) per share

   The accompanying notes are an integral part of these financial statements.


                                      F-7
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)

   For the Period from December 30, 1992 (inception) through December 31, 2004

<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)                                    --              --      30,462,375          30,462          (7,367)

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

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

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

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

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

   Sale of common stock for cash
     in 1995 ($.01 per share)                                  --              --         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                                     --              --              --              --       1,140,915

<CAPTION>
                                                                       Deficit
                                                                     accumulated
                                                                     during the
                                                        Stock         Treasury       development
                                                    subscriptions       stock            stage           Total
                                                     ------------    ------------    ------------    ------------
<S>                                                  <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)                                    --              --              --          23,095

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

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

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

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

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

   Sale of common stock for cash
     in 1995 ($.01 per share)                                  --              --              --           2,970

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

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

                         (Continued on following page)
   The accompanying notes are an integral part of these financial statements.


                                      F-8
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)

   For the Period from December 30, 1992 (inception) through December 31, 2004

                         (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)                                  --              --              --              --              --

   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                                     --              --              --              --         361,201

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

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

   Additional purchases of common stock for
     cash in connection with note conversions
     in 1997 ($.27 per share)                                  --              --       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                                             --              --              --              --         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)                                  --         (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                                     --              --              --         361,201

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

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

   Additional purchases of common stock for
     cash in connection with note conversions
     in 1997 ($.27 per share)                                  --              --              --         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                                             --              --              --         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)
   The accompanying notes are an integral part of these financial statements.


                                       F-9
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)

   For the Period from December 30, 1992 (inception) through December 31, 2004

                         (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)                            --              --          56,250              56           3,694

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

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

   Exercise of warrants by conversion of
     note principal and interest ($.52 per share)              --              --         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                                       --              --       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)              --              --         543,750             544         398,445

   Exercise of warrants by conversion of
     note principal and interest ($.53 per share)              --              --         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)                            --              --              --           3,750

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

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

   Exercise of warrants by conversion of
     note principal and interest ($.52 per share)              --              --              --         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                                       --              --              --              --

   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)              --              --              --         398,989

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

                         (Continued on following page)
   The accompanying notes are an integral part of these financial statements.


                                      F-10
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)

   For the Period from December 30, 1992 (inception) through December 31, 2004

                         (Continued from preceding page)

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

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

   Exercise of warrants                                        --              --         249,892             249          16,394

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

   Warrants exercised on a cashless basis in
     consideration for private debt offering
     services ($.90 per share)                                 --              --       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)                                         --              --              --       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)                                          --        (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)                                         --              --              --          50,000

   Exercise of warrants                                        --              --              --          16,643

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

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

                         (Continued on following page)
   The accompanying notes are an integral part of these financial statements.


                                      F-11
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)


   For the Period from December 30, 1992 (inception) through December 31, 2004

                         (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                         --              --              --              --         (95,901)

   Sale of preferred stock for cash                             3         750,000              --              --         750,000

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

   Intrinsic value of stock options granted to
     officers of the Company                                   --              --              --              --         324,527

   Conversion of notes payable into common stock               --              --       1,389,000           1,389         895,675

   Settlement of debenture payable                             --              --              --              --         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)                                                    --              --       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                            --              --              --              --         430,374

   Conversion of notes payable into common
     stock                                                     --              --       2,715,000           2,715       1,866,040

   Conversion of short-term note payable into common
     stock                                                     --              --         310,155             310         251,241

   Extension of exercise period of warrants issued
     in connection with debt offering                          --              --              --              --         474,175

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

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

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

   Intrinsic value of stock options granted to
     officers of the Company                                                   --              --         324,527

   Conversion of notes payable into common stock                               --              --         897,064

   Settlement of debenture payable                                             --              --         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)                                                    --              --              --       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                            --              --              --         430,374

   Conversion of notes payable into common
     stock                                                     --              --              --       1,868,755

   Conversion of short-term note payable into common
     stock                                                     --              --              --         251,551

   Extension of exercise period of warrants issue
     in connection with debt offering                          --              --              --         474,175
</TABLE>

                         (Continued on following page)
   The accompanying notes are an integral part of these financial statements.


                                      F-12
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)

   For the Period from December 30, 1992 (inception) through December 31, 2004

                         (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)            --              --       2,292,000              --              --

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

    Stock issued to consultants for services                   --              --         542,500             543         573,882

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

    Exercise of warrants                                       --              --         513,039             513          82,084

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

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

    Stock subscription received for the purchase
      of 810,186 shares of common stock                        --              --              --              --              --

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

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

    Intrinsic value of stock options granted to
      officers of the Company                                  --              --              --              --          12,600

    Value of stock options granted to
      consultants                                              --              --              --              --          45,180

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

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

    Stock issued to consultants for services                   --              --              --         574,425

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

    Exercise of warrants                                       --              --              --          82,597

    Conversion of preferred stock into common stock            --              --              --              --

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

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

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

    Intrinsic value of stock options granted to
      officers of the Company                                  --              --              --          12,600

    Value of stock options granted to
      consultants                                              --              --              --          45,180
</TABLE>

                         (Continued on following page)
   The accompanying notes are an integral part of these financial statements.


                                      F-13
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)


   For the Period from December 30, 1992 (inception) through December 31, 2004

                         (Continued from preceding page)

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

   Conversion of notes payable into common
     stock                                                     --              --         837,712             838         438,694

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

   Stock subscription received for the purchase
     of 2,752,315 shares of common stock                       --              --              --              --              --

   Sale of common stock to three individuals                   --              --       1,451,146           1,451         233,549

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

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

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

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

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

Balance, December 31, 2002                                      2         500,000      87,552,814          87,553      21,349,260

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

   Issuance of options in connection with
      debt financing                                           --              --              --              --          37,500

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

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

<CAPTION>
                                                                       Deficit
                                                                     accumulated
                                                                     during the
                                                        Stock         Treasury       development
                                                    subscriptions       stock            stage           Total
                                                     ------------    ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>
   Cancellation of common stock issued
     to consultants                                            --              --              --              --

   Conversion of notes payable into common
     stock                                                     --              --              --         439,532

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

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

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

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

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

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

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

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

Balance, December 31, 2002                                325,000        (563,750)    (23,436,740)     (1,738,677)

   Common stock issued in exchange for services                --              --              --           5,733

   Issuance of options in connection with
      debt financing                                           --              --              --          37,500

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

   Net loss for the year ended
     December 31, 2003                                         --              --        (196,542)       (196,542)
</TABLE>

                         (Continued on following page)
   The accompanying notes are an integral part of these financial statements.


                                      F-14
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)


   For the Period from December 30, 1992 (inception) through December 31, 2004

                         (Continued from preceding page)

<TABLE>
<CAPTION>
                                                                                                                      Additional
                                                           Preferred stock                   Common stock               paid-in
                                                        Shares          Amount          Shares          Amount          capital
                                                     ------------    ------------    ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>             <C>
Balance, December 31, 2003                                      2    $    500,000      88,126,148    $     88,126    $ 21,567,220

   Net loss for the year ended
     December 31, 2004                                         --              --              --              --              --
                                                     ------------    ------------    ------------    ------------    ------------

Balance, December 31, 2004                                      2    $    500,000      88,126,148    $     88,126    $ 21,567,220
                                                     ============    ============    ============    ============    ============

<CAPTION>
                                                                       Deficit
                                                                     accumulated
                                                                     during the
                                                        Stock         Treasury       development
                                                    subscriptions       stock            stage           Total
                                                     ------------    ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>
Balance, December 31, 2003                           $    150,000    $   (563,750)   $(23,633,282)   $ (1,891,686)

   Net loss for the year ended
     December 31, 2004                                         --              --        (223,805)       (223,805)
                                                     ------------    ------------    ------------    ------------

Balance, December 31, 2004                           $    150,000    $   (563,750)   $(23,857,087)   $ (2,115,491)
                                                     ============    ============    ============    ============
</TABLE>

                         (Continued on following page)
   The accompanying notes are an integral part of these financial statements.


                                      F-15
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF CASH FLOWS

                 For the Years Ended December 31, 2003 and 2004
 and for the Period from December 30, 1992 (inception) through December 31, 2004

<TABLE>
<CAPTION>
                                                                                           Cumulative
                                                                                            amounts
                                                                                             from
                                                            2003             2004          inception
                                                        ------------     ------------     ------------
Cash flows from operating activities:
<S>                                                     <C>              <C>              <C>
   Net loss                                             $   (196,542)    $   (223,805)    $(23,016,429)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation, amortization and impairment              32,498           88,191          501,956
       Loss on disposal of fixed assets                      119,830               --          122,146
       Restructuring charges                                      --               --          222,632
       Common stock issued for services, patents and
         payables                                              5,733               --        4,429,766
       Amortization of debt issuance costs                   152,499           86,667        2,116,570
       Reduction in note receivable - related party
         charged to research and development                      --               --          244,311
       Changes in assets and liabilities:
         Accounts receivable and notes receivable                 --               --          (63,860)
         Inventory                                             5,454               --         (104,380)
         Other assets                                         72,953          (51,375)         (51,955)
         Accounts payable                                   (482,700)           3,476          685,067
         Interest payable                                     25,997           29,095        1,006,732
         Other                                               155,099           48,451          549,514
                                                        ------------     ------------     ------------

       Total adjustments                                      87,363          204,505        9,658,499
                                                        ------------     ------------     ------------

       Net cash used in operations                          (109,179)         (19,300)     (13,357,930)

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

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

Cash flows from financing activities:
   Proceeds from sale of common stock and warrants            37,500               --        9,242,034
   Purchase of treasury stock                                     --               --         (520,000)
   Proceeds from sale of preferred stock                          --               --          750,000
   Preferred stock dividends                                      --               --          (80,658)
   Proceeds from (repayments of) stockholder loans             6,000               --            6,000
   Repayments of capital leases                                   --               --          (14,087)
   Proceeds from notes payable                                67,100           20,000        5,627,918
   Repayments of notes payable                                    --               --         (969,948)
                                                        ------------     ------------     ------------

       Net cash provided by financing activities             110,600           20,000       14,041,259
                                                        ------------     ------------     ------------

Net increase (decrease) in cash                                1,421              700            6,809

Cash and cash equivalents at beginning of period               4,688            6,109               --
                                                        ------------     ------------     ------------

Cash and cash equivalents at end of period              $      6,109     $      6,809     $      6,809
                                                        ============     ============     ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-16
<PAGE>

                             AFG ENTERPRISES, INC.
                         (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF CASH FLOWS

                 For the Years Ended December 31, 2003 and 2004
 and for the Period from December 30, 1992 (inception) through December 31, 2004

                         (Continued from preceding page)

Supplemental disclosure of cash flow information:

<TABLE>
<CAPTION>
                                                                                               Cumulative
                                                                                                 amounts
                                                                                                  from
                                                                 2003             2004          inception
                                                             ------------     ------------     ------------
<S>                                                          <C>             <C>             <C>
Cash paid during period for
   interest                                                  $         --    $         --    $  1,362,414

Supplemental disclosure of non-cash financing activities:

<CAPTION>
                                                                                               Cumulative
                                                                                                 amounts
                                                                                                  from
                                                                 2003             2004          inception
                                                             ------------     ------------     ------------
<S>                                                          <C>             <C>             <C>
Common stock issued for:
   Services, patents and payables                            $      5,733     $         --    $  1,015,724
   Conversion of notes payable                                         --               --       3,813,719
   Conversion of interest                                              --               --         868,388
   Cancellation of notes payable                                       --               --         300,000
   Debt issuance costs                                                 --               --         420,000
   Debt conversion costs                                               --               --       1,179,304
                                                             ------------     ------------    ------------

                                                             $      5,733     $         --    $  7,597,135
                                                             ============     ============    ============

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

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

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

The accompanying notes are an integral part of these financial statements.


                                      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, 2003 and 2004


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 5). The
      Company was merged into Crescent, and Crescent changed its name to In
      Store Media Systems, Inc. For accounting purposes, the acquisition has
      been treated as a recapitalization of the Company, based upon historical
      cost, a reverse acquisition with the Company as the acquirer. The Company
      owns 100% of Data Driven Marketing, Inc., which has had no activity
      through December 31, 2004.

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

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


                                      F-18
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

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 (vi) the Company's ability
      to achieve profitability following such confirmation. (See Note
      11-"Subsequent Events")

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

      Reorganization Under Chapter 11:

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

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

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


                                      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, 2003 and 2004

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 million
      alleging a right to payment from the Company were filed in connection with
      the June 10, 2003 bar date, including unsecured claims totaling $1,795,960
      million 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.

      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. At 12/31/04 patent costs were impaired and written
      off as impairment expense.

     Impairment of long-lived assets:

      The Company evaluates the potential impairment of long-lived assets in
      accordance with Statement of


                                      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, 2003 and 2004

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

      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.

      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.

Recent accounting pronouncements:

      SFAS No. 151

      In November 2004, the FASB issued SFAS No. 151,"Inventory Costs". SFAS No.
      151 amends the accounting for abnormal amounts of idle facility expense,
      freight, handling costs, and wasted material (spoilage) under the guidance
      in ARB No. 43, Chapter 4,"Inventory Pricing". Paragraph 5 of ARB No. 43,
      Chapter 4, previously stated that ". . . under some circumstances, items
      such as idle facility expense, excessive spoilage, double freight, and
      rehandling costs may be so abnormal as to require treatment as current
      period charges. . . ." This Statement requires that those items be
      recognized as current-period charges regardless of whether they meet the
      criterion of "so abnormal." In addition, this Statement requires that
      allocation of fixed production overheads to the costs of conversion be
      based on the normal capacity of the production facilities. This statement
      is effective for inventory costs incurred during fiscal years beginning
      after June 15, 2005. Management does not expect adoption of SFAS No. 151
      to have a material impact on the Company's financial statements.

      SFAS No. 152

      In December 2004, the FASB issued SFAS No. 152,"Accounting for Real Estate
      Time-Sharing


                                      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, 2003 and 2004

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

      Transactions". The FASB issued this Statement as a result of the guidance
      provided in AICPA Statement of Position (SOP) 04-2,"Accounting for Real
      Estate Time-Sharing Transactions". SOP 04-2 applies to all real estate
      time-sharing transactions. Among other items, the SOP provides guidance on
      the recording of credit losses and the treatment of selling costs, but
      does not change the revenue recognition guidance in SFAS No.
      66,"Accounting for Sales of Real Estate", for real estate time-sharing
      transactions. SFAS No. 152 amends Statement No. 66 to reference the
      guidance provided in SOP 04-2. SFAS No. 152 also amends SFAS No. 67,
      "Accounting for Costs and Initial Rental Operations of Real Estate
      Projects", to state that SOP 04-2 provides the relevant guidance on
      accounting for incidental operations and costs related to the sale of real
      estate time-sharing transactions. SFAS No. 152 is effective for years
      beginning after June 15, 2005, with restatements of previously issued
      financial statements prohibited. This statement is not applicable to the
      Company.

      SFAS No. 153

      In December 2004, the FASB issued SFAS No. 153,"Exchanges of Nonmonetary
      Assets," an amendment to Opinion No. 29,"Accounting for Nonmonetary
      Transactions". Statement No. 153 eliminates certain differences in the
      guidance in Opinion No. 29 as compared to the guidance contained in
      standards issued by the International Accounting Standards Board. The
      amendment to Opinion No. 29 eliminates the fair value exception for
      nonmonetary exchanges of similar productive assets and replaces it with a
      general exception for exchanges of nonmonetary assets that do not have
      commercial substance. Such an exchange has commercial substance if the
      future cash flows of the entity are expected to change significantly as a
      result of the exchange. SFAS No. 153 is effective for nonmonetary asset
      exchanges occurring in periods beginning after June 15, 2005. Earlier
      application is permitted for nonmonetary asset exchanges occuring in
      periods beginning after December 16, 2004. Management does not expect
      adoption of SFAS No. 153 to have a material impact on the Company's
      financial statements.

      SFAS No. 123(R)

      In December 2004, the FASB issued SFAS No. 123(R),"Share-Based Payment".
      SFAS 123(R) amends SFAS No. 123,"Accountung for Stock-Based Compensation",
      and APB Opinion 25,"Accounting for Stock Issued to Employees." SFAS
      No.123(R) requires that the cost of share-based payment transactions
      (including those with employees and non-employees) be recognized in the
      financial statements. SFAS No. 123(R) applies to all share-based payment
      transactions in which an entity acquires goods or services by issuing (or
      offering to issue) its shares, share options, or other equity instruments
      (except for those held by an ESOP) or by incurring liabilities (1) in
      amounts based (even in part) on the price of the entity's shares or other
      equity instruments, or (2) that require (or may require) settlement by the
      issuance of an entity's shares or other equity instruments. This statement
      is effective (1) for public companies qualifying as SEC small business
      issuers, as of the first interim period or fiscal year beginning after
      December 15, 2005, or (2) for all other public companies, as of the first
      interim period or fiscal year beginning after June 15, 2005, or (3) for
      all nonpublic entities, as of the first fiscal year beginning after
      December 15, 2005. Management is currently assessing the effect of


                                      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, 2003 and 2004

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

      SFAS No. 123(R) on the Company's financial statement.

2.    Notes payable

      Effective February 14, 1996, the Company initiated a private offering of
      16 (the minimum) to 200 units with each unit consisting of a $25,000
      convertible Promissory Note ("Notes") and warrants to purchase 56,250
      shares of the Company's common stock. During the years ended December
      31,1996, 1997 and 1998, the Company sold an aggregate of 170 units and
      issued notes payable of $3,040,000, $962,500 and $247,500, respectively.
      The term of the Notes was one year from date of issue and they bore
      interest at the rate of 9% per annum payable quarterly. The warrants
      consisted of 18,750 "A", "B", and "C" warrants to purchase shares of the
      Company's stock at an exercise price of $.07; $.67; and $1.33 per share,
      respectively. In addition, the Company has granted to a broker/dealer "A",
      "B", and "C" warrants equal to 10% of the warrants included in the units
      at the same price and also granted to an attorney 575,000 warrants to
      purchase common stock at $.67 per share exercisable for a period of five
      years from December 4, 1995. These warrants have been reclassified in
      these financial statements as stock options do to the nature of the
      transaction and are properly reflected as such in the tables in Note 6.
      The Company has also paid the broker/dealer a 10% selling commission and a
      3% non-accountable expense allowance on each unit sold in conjunction with
      the offering, and has issued warrants to purchase 1,875,000 shares of the
      Company's stock to a consultant who facilitated the offering. The exercise
      price for these warrants is approximately $.05 per share and are
      exercisable for a period of five years from date of the close of the
      offering. The warrants issued to the note holders were valued at
      $1,069,996 and have been reflected as additional paid-in capital and a
      discount, proportionate to the issuance of the notes, which is being
      amortized over the one-year term of the notes. The warrants issued to the
      consultant and the attorney were valued at $397,500 and have been
      reflected as additional paid-in capital and debt issuance costs,
      proportionate to the issuance of the notes, which is being amortized to
      interest expense over the one-year term of the notes.

      In April of 1997, the Company requested note holders to extend the due
      date of the Notes. Note holders representing 62 Notes agreed to extensions
      of between 120 and 180 days. As of September 30, 1997, the Company had
      repaid $5,000 toward Notes which matured and were not extended. In
      consideration of a selling agent's assistance in getting note holder
      extensions, the Company agreed to pay a 5% cash commission and 5% of the
      warrants issued in connection with the Notes that were extended. The
      selling agent was issued 380,881 "A", "B", and "C" warrants. The warrants
      were valued at $127,500 and were treated as additional paid-in capital and
      debt issuance costs which are amortized to interest expense during 1997,
      1998 and 1999. All A, B, and C warrants that were not exercised during
      2001, expired on December 31, 2001. The exercise period for the remaining
      warrants was 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


                                      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, 2003 and 2004

2.    Notes payable (continued):

      1,416,146 shares of common stock, $28,864 of the accrued interest
      purchased 108,241 shares of common stock and $470,741 of additional cash
      sales purchased 1,765,278 shares of common stock.

      The additional shares received as compared to the conversion provisions in
      the note have been reflected as debt conversion costs amounting to
      $257,894. In January and February of 1998, the short-term note holders
      purchased 427,500 of the Company's shares of common stock with $114,000 of
      cash, or $0.27 per share.

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

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

      During 2000 and 2001 the Company 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-24
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

2.    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 5).

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

      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 $.349 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 has 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 has the
      option of converting their note and accrued interest into shares of the
      Company's restricted common stock at $.45 per share. In consideration for
      converting their note, each noteholder received options to purchase shares
      of the Company's restricted common stock (one option for each share of
      common stock) at prices ranging from $.50 - $.75 per share. All options
      expired on December 31, 2002. During the year ended December 31, 2002,
      notes totaling $75,000 were extended and notes totaling $310,676,
      including accrued interest of $110,676 were converted into 837,712 shares
      of the Company's common stock. The Company recorded an expense of $128,856
      as debt conversion costs in recognition of the beneficial conversion terms
      offered.

      In October 2002, the Company borrowed $100,000 from a shareholder of the
      Company bearing interest at 18% per annum with the option of purchasing
      1,000,000 shares of stock in lieu of receiving interest under the note.
      The loan is collateralized by a collateral assignment of all litigation
      claims


                                      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, 2003 and 2004

2.    Notes payable (continued):

      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.

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

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

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

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

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


                                      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, 2003 and 2004

2.    Notes payable (continued):

      security interest in all of the assets of the Company and (ii) the
      interest rate on all new borrowings will be 7% per annum.

      Short-term notes payable at December 31, 2003 and 2004 consisted of the
      following:

<TABLE>
<CAPTION>
                                                                     2003            2004
                                                                 ------------    ------------
<S>                                                              <C>             <C>
      7% Note payable, secured, to Acclaim Financial Group
          Ventures II                                            $    100,000    $    100,000

      Non interest bearing loans from shareholders                      6,000           6,000
                                                                 ------------    ------------

          (Weighted average interest rate 6.6% 2003 and 2004)    $    106,000    $    106,000
                                                                 ============    ============
</TABLE>

3.    Pre-petition liabilities

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

      As of December 31, 2003 and 2004, pre-petition liabilities subject to
      compromise consisted of the following:

                                                     2003             2004
                                             ------------     ------------
      Accounts payable                       $    632,019     $    632,019
      Accrued expenses                            271,329          291,329
      Interest payable                            190,986          190,986
      Notes payable                               443,597          443,597
                                             ------------     ------------
                                                1,537,931        1,557,931

      Less:
      Debt issuance costs                         (86,667)              --
                                             ------------     ------------

      Net pre-petition liabilities
        subject to compromise                $  1,451,264     $  1,557,931
                                             ============     ============


                                      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, 2003 and 2004

4.    Income taxes

      At December 31, 2004, the Company has a net operating tax loss
      carryforward of approximately $17,189,000, future tax deductions of
      $1,198,300 which may be used to offset future taxable income, and unused
      tax credits of $270,000. 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                           $    311,700
             2009                                 28,000
             2011                              1,109,900
             2012                              2,054,000
             2018                                520,000
             2019                              1,624,300
             2020                                484,200
             2021                              4,926,400
             2022                              3,379,100
             2023                              1,429,100
             2024                              1,322,300
                                            ------------
                                            $ 17,189,000
                                            ============

4.    Income taxes (continued):

      At December 31, 2003 and 2004, total deferred tax assets and valuation
      allowance are as follows:

                                                      2003             2004
                                                      ----             ----
      Deferred tax assets resulting from:
          Net operating loss carryforwards        $  5,918,000     $  6,448,000
          Capitalized pre-operating costs              894,000          447,000
          Research and development tax credits         274,000          270,000
                                                  ------------     ------------

          Total                                      7,086,000        7,165,000
          Less valuation allowance                  (7,086,000)      (7,165,000)
                                                  ------------     ------------

                                                  $         --     $         --
                                                  ============     ============

      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.

                                      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, 2003 and 2004

5.    Stockholders' equity

      Recapitalization:

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

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

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

      Capital contributions:

      During the year ended December 31, 1993, 30,462,375 shares of the
      Company's common stock was issued in exchange for assignment of patents
      and services valued at $23,095, 2,812,496 shares were issued to Peter
      Indovina, et al for $190,000 cash, 94,125 shares were issued for $19,900
      in cash, and 1,125,000 shares were issued to two vendors who provided an
      aggregate of $78,750 of hardware, software, laboratory time, and man hours
      for the development of the coupon exchange prototype which is included in
      research and development expense on the statement of operations.
      Additionally, the Company included in "units" sold in conjunction with a
      private offering memorandum, 30,900 warrants to purchase one share each of
      common stock for $.267. In the aggregate, 19,320 of these warrants were
      exercised and the balance have expired.

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

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

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


                                      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, 2003 and 2004

      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 2.

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

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

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

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


                                      F-30
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

      On March 29, 2000, the board of directors authorized the sale of up to 14
      shares of its Series A cumulative preferred stock for $250,000 per share
      that would generate maximum proceeds of $3,500,000 if all shares were
      sold. During 2000 three shares were sold generating total proceeds of
      $750,000. The board has designated the Series A cumulative preferred stock
      as having a liquidation preference of $250,000 per share accruing
      dividends at the rate of 8% per annum. The Series A cumulative preferred
      stock is convertible into common stock at the rate of $.385 per common
      share, subject to certain dilution adjustments. At the date of issuance,
      the rate at which the preferred stock could be converted into common stock
      was below the trading market price of the common stock. For accounting
      purposes, this difference has been recorded as an increase in additional
      paid-in-capital and a corresponding increase in the deficit accumulated
      during the development stage. On July 1, 2001, one shareholder of the
      series A cumulative preferred stock elected to convert their share into
      common stock. Upon conversion, this shareholder received 661,926 shares of
      the Company's common stock.

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

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

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


                                      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, 2003 and 2004

5.    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.

      <PAGE>

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

      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-32
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

5.    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. The directors
      received options to purchase 501,146 shares of common stock exercisable at
      $.35 per share until November 15, 2002 and a future royalty of $.00175 per
      coupon issued under the Let's Go Shopping coupon booklet program until the
      amount paid for the stock is repaid.

      Private placement

     In February 2002, the board of directors of the Company authorized the
     offering of up to $700,000 of 2002 Units to accredited investors of the
     Company. Each "2002 Unit" is comprised of (i) one share of the Company's
     common stock at a price equal to 90% of the average closing price over the
     five trading days immediately preceding the purchase of the Unit, (ii) an
     option to purchase an additional share of


                                      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, 2003 and 2004

5.    Stockholders' equity (continued):

      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.

      <PAGE>

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

      Stock warrants:

      The following is a summary of stock warrant activity:

                                            Exercise        Number of
                                              price          shares

      Balance at December 31, 2002                           3,150,000
                                                          ------------

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

      Exchanged in 2004                                             --
      Exercised in 2004                                             --
      Expired in 2004                                               --
      Balance at December 31, 2004                           3,150,000
                                                          ============
      Exercisable at December 31, 2004    $       2.00       3,150,000
                                                          ============


                                      F-34
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

5.    Stockholders' equity (continued):

      During 1999, 2000, and 2001 the Company extended the exercise period of
      the remaining A, B and C warrants issued in 1996 in connection with the
      private placement of promissory notes for an additional 90 to 120 days.
      For accounting purposes the Company treated these extensions as stock
      appreciation rights and therefore were valued at $959,895 for 1999 and
      were treated as additional paid-in capital and interest expense. During
      2000, although more warrants were extended, the market price of the
      Company's stock declined resulting in the reduction of interest expense
      and additional paid-in capital of $95,901. During 2001, in connection with
      a further extension of these warrants, $474,175 was recorded as an
      increase in interest expense and additional paid-in-capital. All such
      related warrants that were not exercised during 2001, expired as of
      December 31, 2001. Additionally, during 2001 the Company issued 513,039
      shares of common stock upon the exercise of certain A, B, and C warrants
      resulting in proceeds of $82,597. Through June 2002, the Company recorded
      interest expense of $74,108 relating to other warrants at which time these
      warrants expired.

      In March 2000, the Company signed an agreement with a financial firm whose
      principal officer is a director of the Company. This agreement provides
      for the firm to assist the Company in obtaining the necessary equipment
      financing and revolving credit facility required to implement and rollout
      the Company's proprietary electronic coupon clearing system in multiple
      retail locations. In association with this agreement, the Company agreed
      to issue the firm warrants to purchase 3,150,000 shares of the Company's
      restricted common stock at a price of $2.00 per share. These warrants may
      not be exercised for two years following the date of issue and expire five
      years after the date of issue. Additionally, the Company may call the
      warrants any time after two and one-half years from the date of issue and
      before the expiration of the warrants at a price of $4.00 per share. These
      warrants were issued effective January 19, 2001 in connection with the
      $2,052,000 private equity funding arrangement completed in January 2001.

      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


                                      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, 2003 and 2004

5.    Stockholders' equity (continued):

      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. 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.


                                      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, 2003 and 2004

5.    Stockholders' equity (continued):

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

      2000 Omnibus Equity Incentive Plan:

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

      Registration of company equity incentive plan:

      In February 2002, the Company completed an S-8 Registration with the
      Securities and Exchange Commission registering 8,866,875 options to
      purchase shares of the Company's common stock that were authorized to be
      issued under the Company's 2000 Omnibus Equity Incentive Plan. As of
      December 31, 2002, options representing 3,066,875 shares of common stock
      had been granted to various employees and directors of the Company.
      Additionally, as of December 31, 2004, 2,166,875 had expired and none of
      such options were exercised.


                                      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, 2003 and 2004

      The following is a summary of stock option activity:

<TABLE>
<CAPTION>
                                                                     Weighted
                                                    Option price      average       Number of
                                                      per share    exercise price     shares
                                                  ---------------  --------------  ------------
<S>                                               <C>                  <C>         <C>
      Balance December 21, 2002                   $ 0.01 to $1.50      $ 0.86        12,265,000
                                                                                   ============
      Granted                                     $0. 001 to $.03      $ 0.02        19,282,809
      Exercised                                   $            --      $   --                --
      Forfeited                                   $ 0.01 to $1.00      $ 0.33        (2,455,000)
                                                                                   ------------
      Balance December 21, 2003                   $0.001 to $1.50      $ 0.35        29,092,809

      Granted                                     $            --      $   --                --
      Exercised                                   $            --      $   --                --
      Forfeited                                   $ 0.12 to $1.50      $ 1.06        (8,910,000)
                                                                                   ------------
      Balance December 21, 2004                   $0.001 to $1.50      $ 0.03        20,182,809
                                                                                   ============
      Options exercisable at December 31, 2004    $0.001 to $0.36      $ 0.03        20,182,809
                                                  ===============                  ============
</TABLE>


                                      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, 2003 and 2004

5.    Stockholders' equity (continued):

      The following is additional information with respect to those options and
      warrants outstanding at December 31, 2004:

<TABLE>
<CAPTION>
                                       Weighted average
                                          remaining          Weighted
                                       contractual life       average        Number of
                     Price per share       in years       exercise price       shares
<S>                  <C>                     <C>              <C>            <C>
      Options            $0.001              3.58             $0.001           4,473,840
                         $0.01               3.58             $0.010           4,697,532
                      $0.02-$0.03            3.58             $0.025          10,111,437
                     $0.30 to $0.45          2.36             $0.313             900,000
                                                                            ------------
                                                                              20,182,809
                                                                            ============
      Warrants           $2.00               3.0               $2.00           3,150,000
                                                                            ============
</TABLE>

      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 2003, dividend
      yield of 0%; expected volatility of 100%, risk-free interest rate of 3.07%
      to 6.54% (2003); and expected life of 1.5 to 4 years.


                                      F-39
<PAGE>
                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

6.    Basic and diluted warrants net loss per share

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

7.    Commitments and contingencies

      As a result of the Restructuring Proceedings, the Company has no lease
      commitments.


                                      F-40
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

8.    Financial instruments

      The carrying values of cash, advances and note receivable-shareholder,
      accounts payable and notes payable (excluding the convertible notes
      payable and related accrued interest) approximated fair value due to the
      short-term maturities of these instruments. The fair value of the $487,500
      carrying value of convertible notes payable and accrued interest is
      $731,493, based on the common stock price at December 31, 2001 and the
      conversion offer in effect allowing the note holders to convert their
      notes into common stock.

9.    Restructuring charges

      As of December 31, 2004, the Company had incurred restructuring charges of
      $222,632.

10.   Reorganization expense

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

11.   Subsequent events

      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
      Debtor 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
      arrangements acceptable to such claim holders (such amounts to be provided
      by AFGVII under the DIP Facility).


                                      F-41
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

11.   Subsequent events (continued):

      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 Claims 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
      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 are currently estimated at $ 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 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
      arrangements acceptable to such claim holders (such amounts to be provided
      by AFGVII under the DIP Facility).

      Class 5--Allowed Administrative Convenience Claims: These claims
      constituted claims allowed under ss.11 U.S.C. ss.503(b) of the Code, the
      holder of which elected 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: These interests constituted interests represented by
      any equity interest in the Debtor (including Common Stock, preferred
      stock, options, warrants, convertible instruments and other equity
      equivalents). 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. Effective as
      of April 7, 2005, the capital stock was reverse split at a ratio of one
      (1) share of Replacement Common Stock for each approximately 161 shares of
      Old Common Stock. As a result, all outstanding shares of Old Common Stock
      and preferred stock will be converted into their pro rata share of 500,000
      shares of the Replacement Common Stock. The options issued to AFGVII 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 per share.

      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


                                      F-42
<PAGE>

                              AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2004

11.   Subsequent events (continued):

      approval of the Plan expired.

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


                                      F-43