UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


|X|   QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

                                       OR

|_|   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d) OF THE  SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from                to
                               --------------          -----------------

Commission file number:      000-28515
                             ---------

                              AFG ENTERPRISES, INC.
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

         Nevada                                            84-1249735
--------------------------------------------------------------------------------
(State or other jurisdiction of                   (IRS Employer Identification
 incorporation or organization)                   Number)

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

                                 (760) 674-1063
--------------------------------------------------------------------------------
                         (Registrant's telephone number)

                                       N/A
                                 --------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days: Yes No X

    APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEEDING FIVE YEARS

Check whether the  registrant  filed all  documents  and reports  required to be
filed by Section 12, 13 or 15(d) after  distribution of securities  under a plan
confirmed by a court: Yes |_| No |X|

<PAGE>

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares  outstanding of the issuer's  classes of common stock,  par
value $.001 per share, as of March 31, 2005 is 78,751,406 shares.


<PAGE>

                              AFG ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                      INDEX
                                      -----

                                                                       Page No.
                                                                       --------

PART I.  FINANCIAL INFORMATION
-------  ---------------------

ITEM 1.  FINANCIAL STATEMENTS

Balance Sheet - December 31, 2003 and September 30, 2004 (unaudited)          2

Statement of Operations - For the Three Months Ended September 30, 2003
and 2004 (unaudited)                                                          4

Statement of Operations - For the Nine Months Ended September 30, 2003
and 2004 and for the Period from December 30, 1992 (inception) through
September 30, 2004 (unaudited)                                                5

Statement  of Changes In  Stockholders'  Equity  (Deficit)  -
For the Nine Months Ended
September 30, 2004 (unaudited)                                                6

Statement of Cash Flows - For the Nine Months Ended September 30, 2003
and 2004 and for the Period from December 30, 1992 (inception) through
September 30, 2004 (unaudited)                                                7

Notes to Unaudited Financial Statements                                       8

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION           12

ITEM 3.  CONTROLS AND PROCEDURES                                             16

PART II. OTHER INFORMATION                                                   16
-------- -----------------

ITEM 1.     LEGAL PROCEEDINGS                                                16

ITEM 2.     CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER
                  PURCHASES OF EQUITY SECURITIES                             17

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES                                  17

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              17

ITEM 5.     OTHER INFORMATION                                                17

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K                                 17

                                       1
<PAGE>

                              AFG ENTERPRISES, INC.
                       (FORMERLY IN STORE MEDIA SYSTEMS)
                          (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                    DECEMBER 31, 2003 AND SEPTEMBER 30, 2004
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    2003            2004
                                                                ------------    ------------
<S>                                                             <C>             <C>
                               ASSETS
Current assets:
   Cash and cash equivalents                                    $      6,109    $     10,387
   Other current assets                                                  580           2,414
                                                                ------------    ------------

     Total current assets                                              6,689          12,801

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

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

                                                                $     94,880    $     12,801
                                                                ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       2
<PAGE>

                              AFG ENTERPRISES, INC.
                       (FORMERLY IN STORE MEDIA SYSTEMS)
                          (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEET
                    DECEMBER 31, 2003 AND SEPTEMBER 30, 2004
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    2003            2004
                                                                ------------    ------------
<S>                                                             <C>             <C>

                      LIABILITIES AND STOCKHOLDERS' (DEFICIT)

Liabilities Not Subject to Compromise
Current liabilities:
   Accounts payable                                             $     49,572    $     48,901
   Interest payable                                                   28,496          49,673
   Accrued expenses                                                  284,134         287,258
   Notes payable-related party                                        67,100          87,100
   Short-term notes payable                                          106,000         106,000
                                                                ------------    ------------

     Total current liabilities                                       535,302         578,932

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, 87,552,814 (2002) and 88,126,148
     (2003) 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)    (23,865,658)
                                                                ------------    ------------

     Total stockholders' (deficit)                                (1,891,686)     (2,124,062)
                                                                ------------    ------------

                                                                $     94,880    $     12,801
                                                                ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       3
<PAGE>

                              AFG ENTERPRISES, INC.
                       (FORMERLY IN STORE MEDIA SYSTEMS)
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2004
                                   (UNAUDITED)

                                                            2003        2004
                                                         ---------    ---------
Revenues:
    Coupon handling fees and other                       $      --    $      --

Costs and expenses:
    Research and development                                    --           --
    General and administrative                              47,459        4,533
    Depreciation and amortization                            8,100           --
                                                         ---------    ---------

      Total costs and expenses                              55,559        4,533
                                                         ---------    ---------

      Operating loss                                       (55,559)      (4,533)

Other income (expense):
    Interest income                                             --           --
    Litigation settlement                                       --           --
    Restructuring costs                                         --           --
    Debt conversion costs                                       --           --
    Debt forgiveness                                        30,581           --
    Gain/(loss) on sale of assets                         (119,830)          --
    Interest expense                                       (54,960)     (29,207)
                                                         ---------    ---------

      Total other income (expense)                        (144,209)     (29,207)
                                                         ---------    ---------

    Loss before reorganization items                      (199,768)     (33,740)

Reorganization expense                                    (116,015)      (2,978)
                                                         ---------    ---------

Net loss                                                  (315,783)     (36,718)

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

Net loss applicable to common
    stockholders                                         $(315,783)   $ (36,718)
                                                         =========    =========

Basic and diluted net loss per common
    share                                                        *            *
                                                         =========    =========

   The accompanying notes are an integral part of these financial statements


                                       4
<PAGE>

                              AFG ENTERPRISES, INC.
                       (FORMERLY IN STORE MEDIA SYSTEMS)
                          (A DEVELOPMENT STAGE COMPANY)
                            STATEMENT OF OPERATIONS
          FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2004 AND FOR
    THE PERIOD FROM DECEMBER 30, 1992 (INCEPTION) THROUGH SEPTEMBER 30, 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   Cummulative
                                                                                  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                         183,514         122,515      11,935,662
    Depreciation and amortization                       30,300              --         413,765
                                                  ------------    ------------    ------------

      Total costs and expenses                         213,814         122,515      15,669,564
                                                  ------------    ------------    ------------

      Operating loss                                  (213,814)       (122,515)    (15,649,900)

Other income (expense):
    Interest income                                         --              --         105,872
    Litigation settlement                                   --          10,000        (146,250)
    Restructuring costs                                     --              --        (222,632)
    Debt conversion costs                                   --              --      (1,437,198)
    Debt forgiveness                                   528,988              --         562,321
    Gain/(loss) on sale of assets                     (119,830)             --        (122,146)
    Interest expense                                  (159,854)       (107,844)     (5,908,989)
                                                  ------------    ------------    ------------

      Total other income (expense)                     249,304         (97,844)     (7,169,022)
                                                  ------------    ------------    ------------

      Income (loss) before reorganization items         35,490        (220,359)    (22,818,922)

    Reorganization expense                            (144,393)        (12,017)       (206,078)
                                                  ------------    ------------    ------------

Net loss                                              (108,903)       (232,376)    (23,025,000)

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

Net loss applicable to common
    stockholders                                  $   (108,903)   $   (232,376)   $(23,115,658)
                                                  ============    ============    ============

Basic and diluted net loss per common
    share                                                    *               *    $       (.42)
                                                  ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       5
<PAGE>

                              AFG ENTERPRISES, INC.
                       (FORMERLY IN STORE MEDIA SYSTEMS)
                          (A DEVELOPMENT STAGE COMPANY)
                 STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                              Preferred stock               Common stock             Additional
                                        ---------------------------   ---------------------------      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 nine months ended
     September 30, 2004                           --             --             --             --             --
                                        ------------   ------------   ------------   ------------   ------------

Balance, September 30, 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 nine months ended
     September 30, 2004                          --             --        (232,376)       (232,376)
                                       ------------   ------------    ------------    ------------

Balance, September 30, 2004            $    150,000   $   (563,750)   $(23,865,658)   $ (2,124,062)
                                       ============   ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       6
<PAGE>

                              AFG ENTERPRISES, INC.
                       (FORMERLY IN STORE MEDIA SYSTEMS)
                          (A DEVELOPMENT STAGE COMPANY)
          FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2004 AND FOR
    THE PERIOD FROM DECEMBER 30, 1992 (INCEPTION) THROUGH SEPTEMBER 30, 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       Cumulative
                                                                                        amounts
                                                                                          from
                                                           2003           2004         inception
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>
Cash flows from operating activities:
   Net loss                                           $   (108,903)   $   (232,376)   $(23,025,000)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
      Depreciation and amortization                         30,300          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                  119,999          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                                        18,601          (1,834)         (2,414)
        Accounts payable                                  (459,968)           (671)        680,920
        Interest payable                                    17,335          21,177         998,814
        Other                                              178,639          23,124         524,187
                                                      ------------    ------------    ------------

      Total adjustments                                     35,923         216,654       9,670,648
                                                      ------------    ------------    ------------

      Net cash used in operations                          (72,980)        (15,722)    (13,354,352)

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                              44,600          20,000       5,627,918
   Repayments of notes payable                                  --              --        (969,948)
                                                      ------------    ------------    ------------

      Net cash provided by financing activities             88,100          20,000      14,041,259
                                                      ------------    ------------    ------------

Net increase (decrease) in cash                             15,120           4,278          10,387

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

Cash and cash equivalents at end of period            $     19,808    $     10,387    $     10,387
                                                      ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements


                                       7
<PAGE>

                              AFG ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                               September 30, 2004


1.    Basis of presentation and management's plans:

      The accompanying  unaudited financial statements have been prepared by the
      Company.  In  the  opinion  of  management,   the  accompanying  unaudited
      financial  statements  contain all adjustments  (consisting of only normal
      recurring  accruals)  necessary for a fair  presentation  of the financial
      position as of September 30, 2004,  and the results of operations and cash
      flows for the periods ended September 30, 2003 and 2004.

      The accompanying financial statements have been prepared assuming that the
      Company  will  continue  as  a  going  concern.  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  September  30,  2004  of  $2,124,062.   These
      conditions  raise  substantial  doubt  about its  ability to continue as a
      going  concern.  The financial  statements do not include any  adjustments
      that might result from the outcome of this uncertainty.

      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  4-"Subsequent
      Events") As part of the Restructuring Proceedings, the Company changed its
      name to AFG Enterprises, Inc.

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

      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



                                       8
<PAGE>

                              AFG ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                               September 30, 2004

1.    Basis of presentation and management's plans (continued):

      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
      4-"Subsequent Events")

      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 4-"Subsequent Events")

2.    Income taxes

      No provision for income taxes is required at September 30, 2004,  because,
      in  management's  estimation  the Company will not  recognize  any taxable
      income through December 31, 2004.

3.    Registration of company equity incentive plan

      In February 2002, the Company  completed a Registration  Statement on Form
      S-8 with the Securities  and Exchange  Commission  registering  options to
      purchase  8,866,875  shares  of  the  Company's  common  stock  that  were
      authorized to be issued under the Company's 2000 Omnibus Equity  Incentive
      Plan.  As of  September  30,  2004,  the Company  had  granted  options to
      purchase a total of  3,066,875  shares of the  Company's  common  stock to
      various  employees  and  directors  of the Company and none of these stock
      options had been exercised.  As of September 30, 2004, options to purchase
      1,766,875 shares of the Company's common stock had expired.

                                       9
<PAGE>

                              AFG ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                               September 30, 2004

4.    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).

      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 will be  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 will be 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.

                                       10
<PAGE>

                              AFG ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                               September 30, 2004

4.    Subsequent events (continued):

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

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

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

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

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

                                       11
<PAGE>


ITEM  2 MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

These  discussions may contain  forward-looking  statements.  A  forward-looking
statement may contain words or phrases such as "will continue to be," "will be,"
"continue  to,"  "expect  to,"  "anticipates  that,"  "to be," or "can  impact."
Management  cautions that  forward-looking  statements  are subject to risks and
uncertainties that could cause the Company's actual results to differ materially
from those projected in forward-looking statements.

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.  The
preparation of this Quarterly  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  consultants  for the
purchase of the  Company's  common  stock 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  development  of its
system for distributing and electronically clearing coupons,  certain components
of which are patented.  The Company generated no revenues from operations during
the nine months ended September 30, 2004 and for the nine months ended September
30, 2003.  Additionally,  the Company has incurred  losses of $23,024,999  since
inception through September 30, 2004.

At September 30, 2004,  the Company had a  stockholders'  deficit of $2,124,062,
which reflects $21,741,596 of common stock,  preferred stock and paid in capital
(net of amount attributable to treasury stock) and stock subscriptions  received
less  accumulated  deficit of  $23,865,658.  The  accumulated  deficit amount is
primarily  the result of the amount of interest  expense  incurred in connection
with  short-term  convertible  notes  and  debentures  by the  Company  and  its
predecessor  in  private   transactions  in  1996  through  2001,  research  and
development,  general and  administrative  expenses  and the  valuation of stock
options and  warrants  incurred  since  inception.  At September  30, 2004,  the
Company had a working capital deficit of $566,131.

                                       12
<PAGE>

The Company was seeking to eliminate all remaining debt obligations  through the
conversion or buyout of notes payable. In March 2002, the Company provided these
noteholders with 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  common stock. As of September 30, 2004,  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.  As of
September 30, 2004,  notes  totaling  $287,500  (including  accrued  interest of
$176,182)  remain  outstanding  and in default.  Through  September 30, 2004 the
Company remained burdened with debt obligations and a continuing lack of working
capital.

FINANCIAL CONDITION

The Company had $12,801 in total assets and  $2,136,863 in total  liabilities at
September 30, 2004, as compared to $94,880 and  $1,986,566 at December 31, 2003,
respectively.  Accounts  payable and accrued  expenses at December 31, 2003 were
$1,237,054 as compared to  $1,259,507  at September 30, 2004.  The Company had a
working  capital  deficit of $566,131 at September  30,  2004,  as compared to a
working  capital  deficit of $528,613  at December  31,  2003.  This  difference
primarily is attributed to an increase in accounts  payable and accrued expenses
of $2,453,  an increase in notes payable and accrued  interest of $41,177 and an
increase in other current assets of $1,834 and an increase in cash of $4,278.

RESULTS OF OPERATIONS

The  Company's  operational  costs  historically  have  increased  or  decreased
primarily due to the expansion or contraction of the Company's  ongoing research
and  development  efforts.  The  Company  has  incurred  operating  expenses  of
$15,669,653  from inception  through  September 30, 2004. These expenses include
$3,320,137 in research and  development  expenses and $11,935,661 in general and
administrative expenses. The Company introduced its coupon booklet program in 38
Piggly Wiggly  Carolina Co., Inc.  supermarkets on September 26, 2002. The costs
of installation and promotion  increased  operating  expenses during the period.
The  remaining  77 Piggly  Wiggly  supermarkets  were  scheduled to activate the
coupon booklet program on or about November 1, 2002. However, on or about August
6, 2002 the Company was notified by legal  counsel for Let's Go  Shopping,  Inc.
("LGS") that in the opinion of LGS, the Patent and License Agreement between the
two  companies  signed  November 29, 2001 (the  "Agreement")  required a minimum
license  fee  payment of  $435,000  be paid by October 6, 2002 or the  Agreement
would be  terminated.  In Store Media  Systems  responded to and  disputed  this
demand.  On October 10, 2002 a  representative  of LGS advised the Company  that
notwithstanding   the  Company's   objections,   LGS  considered  the  Agreement
terminated.  In Store Media Systems disputed this  interpretation  and has taken
vigorous  action to enforce the  Agreement.  The Company filed for bankruptcy in
November  2002 in order to more  expeditiously  resolve  the  dispute  with LGS.
Thereafter,  the Company  ceased  operations  except  prosecution  of its claims
against LGS and the bankruptcy case. See Part II, Item I, LEGAL PROCEEDINGS.

                                       13
<PAGE>

QUARTER ENDED SEPTEMBER 30, 2004, COMPARED TO QUARTER ENDED JUNE 30, 2003

For the quarter ended September 30, 2004, the Company recorded a net loss before
reorganization  items of  $33,740,  as  compared  to a net  operating  income of
$199,768 for the quarter ended  September 30, 2003. The change was primarily due
to recognition of the the loss on the disposition of fixed assests that occurred
in the quarter ended September 30, 2003 offset by certain debt discharged by the
bankruptcy court along with the reduction in the interest rate on the DIP credit
facility for the nine months ended September 30, 2004.

As a result  of the LGS  action  and the  bankruptcy  filing,  the  Company  had
terminated  all but two key  employees as of December 31, 2002 and suspended all
development and research  activities.  The Company's  operating expenses for the
quarter ended  September 30, 2004  decreased by  approximately  92% to $4,533 as
compared to operating  expenses of $55,559,  for the same period last year.  The
decrease  in  operating  expenses  in 2004 was due to  decreases  in general and
administrative  expenses  primarily as a result of closing the Aurora,  Colorado
offices in August of 2003.  General and  administrative  expenses  decreased  by
$42,926 or 90% to $4,533 for the 2004 fiscal  quarter as compared to general and
administrative  expenses of $47,459 for the same period last year.  The decrease
in general and administrative  expenses primarily was due to decreases of $4,800
in contract labor to support the office,  $13,332 in wages and $14,536 in lender
expenses  associated with the credit facility  negotiated in the prior year. The
Company's  net  non-operating  income  and  expenses  (including   non-operating
interest income and interest expense) decreased to net non-operating  expense of
$33,740  for  the  quarter   ended   September  30,  2004  as  compared  to  net
non-operating  expense of $199,768 for the quarter ended September 30, 2003. The
change was due to the  recognition  of losses on the  disposal of certain  fixed
assets  in the  prior  period  combined  with  certain  debt  discharged  by the
banckruptcy court and less interest in the September 30, 2004 quarter.  This was
due to the  reduction  in the  interest  rate  charged  by AFGV II on its credit
facility  with  the  Company.  Reorganization  expenses  for the  quarter  ended
September 30, 2004 were $2,978 as compared to $116,015 in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

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

At September 30, 2004,  the Company had  $2,136,863 in current  liabilities  and
liabilities  subject to  compromise,  of which $287,500  (including  $176,182 of
interest accrued thereon) was in the form of convertible,  short-term debentures
issued by the Company and its  predecessor  in private  transactions  during the
1998,  1997 and 1996 fiscal  years.  At September  30, 2004,  the Company was in
default of its  obligations  under the notes  issued to investors by the Company
and its  predecessor  in the  amount  of  $287,500  (plus  accrued  interest  of
$176,182).  A portion of the notes were  converted  into shares of the Company's
common stock during the 1998,  1999, 2000, and 2001 fiscal years. In March 2002,
the Company  offered its noteholders the option of extending their notes through

                                       14
<PAGE>

October 31, 2002 or electing to convert  their notes and accrued  interest  into
shares of the Company's  restricted common stock.  Under the extension  feature,
each noteholder had the option of extending  their note and accrued  interest to
October 31, 2002. In  consideration  for extending  their note,  each noteholder
received  options to purchase  shares of the Company's  restricted  common stock
exercisable  at $1.00 per share for each dollar owed the  noteholder as of March
1, 2002  including all accrued  interest.  Under the  conversion  feature,  each
noteholder  had the option of  converting  their note and accrued  interest into
shares  of  the  Company's  restricted  common  stock  at  $.45  per  share.  In
consideration  for converting  their note, each noteholder  received  options to
purchase  shares of the Company's  restricted  common stock (one option for each
share of common  stock)  at prices  ranging  from  $.50 to $.75 per  share.  All
options  expired on December 31, 2002. As of September 30, 2004,  notes totaling
$75,000  had been  extended  and  notes  totaling  $310,676,  including  accrued
interest of $110,676 had been  converted  into 837,712  shares of the  Company's
common  stock.  At  December  31,  2003 and  September  30,  2004,  notes in the
aggregate  principal  amount of  $287,500  remained  outstanding  classified  as
liabilities  subject to  compromise.  The  remaining  portion  of the  Company's
current  liabilities  are  primarily  comprised of accounts  payable of $48,901,
accrued expenses of $287,258,  note  obligations and accrued  interest  totaling
$242,773. The Company's remaining liabilities subject to compromise consisted of
accounts  payable of $632,019,  notes payable of $156,097,  accrued  expenses of
$291,329 and accrued  interest  payable of $190,986.  The Company  relies on the
availability of additional capital to satisfy all such obligations.

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

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

Since the end of fiscal year 2003 through September 30, 2004, the Company's cash
position has increased. At September 30, 2004, the Company had available cash of
$10,387,  as compared to  available  cash of $6,109 at December  31,  2003.  The
increase in cash is a result of the Company borrowing under its credit facility.

In January 2002, the Company  raised an additional  $150,000 of equity from ISC,
enabling  the  Company  to  continue  the  marketing  of its  electronic  coupon
distribution  program.  In February 2002, the board of directors  authorized the
offering of up to $700,000 of 2002 Units to accredited investors.  In June 2002,
the board of directors  authorized an increase in this offering of an additional
$122,850  of these  Units.  As of  September  30,  2004,  the  Company  had sold
2,146,221 of its 2002 Units generating  total net proceeds of $782,186.  In June
2002,  the  Company  finalized  an  agreement  with  Piggly  Wiggly  Carolina to
implement the Let's Go Shopping  coupon  booklet  program in 115 of their retail
locations.  The rollout began with 38 stores on September 26, 2002 and the other
77 stores were  scheduled  to implement  the program in  November.  Prior to the

                                       15
<PAGE>

dispute with Let's Go Shopping,  Inc.,  the Company had entered into one funding
arrangement,  was  considering  another  funding  proposal  and had  established
contact  with two venture  capital  companies  that had an interest in providing
funding  to the  Company  after an  analysis  of  revenues  from  Piggly  Wiggly
operations.  These funding  opportunities were withdrawn following the Company's
announcement  of the LGS  action.  If the Company  were unable to secure  needed
additional  capital it would most  likely  impair the  ability of the Company to
meet its obligations in the near or medium term and to continue operations.

ITEM  3. CONTROLS AND PROCEDURES


(a) Evaluation of Disclosure Controls and Procedures.

The Company's Chief Executive Officer and Chief Financial Officer have conducted
an evaluation of the Company's  disclosure  controls and procedures as of a date
(the  "Evaluation  Date")  within 90 days  before the  filing of this  quarterly
report.  Based on their  evaluation,  the Company's Chief Executive  Officer and
Chief Financial  Officer have concluded that the Company's  disclosure  controls
and procedures are effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded,  processed,  summarized  and  reported  within the time
periods specified in the applicable Securities and Exchange Commission rules and
forms.

PART  II - OTHER INFORMATION

ITEM  1. LEGAL PROCEEDINGS

On October 23, 2002 Let's Go Shopping,  Inc. ("LGS") filed a lawsuit against the
Company for breach of contract in the United  States  District  Court,  Southern
District of Georgia,  Savannah  Division.  The Company  sought to obtain a legal
decision in its dispute with LGS. In order to expedite the decision, the Company
filed a Chapter  11  proceeding  under  the  Bankruptcy  Code in  United  States
Bankruptcy  Court for the District of Colorado on November 12, 2002. The Company
settled all claims and disputes  pursuant to a Settlement  Agreement dated March
25, 2004.

As a result of the litigation with LGS and the bankruptcy,  the Company deferred
executive  salaries totaling $385,982 as of March 31, 2004. Two former officers,
James Babo and Michael  Eckerman  filed lawsuits to collect back pay. The claims
and disputes with James Babo were settled in the  Settlement  Agreement with LGS
and  the  claims  of  Michael  Eckerman  were  discharged  as a  result  of  the
confirmation of the Plan of Reorganization. See Note 4. Subsequent Events to the
Financial Statements.

In addition,  a consultant firm,  Computer Task Group, Inc., has also filed suit
to collect $19,800 plus interest and collection  costs, for consulting  services
rendered  to  the  Company.  The  deferred   compensation  and  consulting  firm
obligations were subsequently discharged in the Restructuring Proceedings.

                                       16
<PAGE>

ITEM  2. CHANGES IN SECURITIES  AND SMALL  BUSINESS  ISSUER  PURCHASES OF EQUITY
         SECURITIES

None.

ITEM  3. DEFAULTS UPON SENIOR SECURITIES

As of August 15, 2002, the Company was in default on its notes payable issued to
investors  in  1996,  1997,  and  1998  in the  form of  convertible  short-term
debentures  totaling $287,500  (including  accrued interest of $176,182).  These
debentures,  which  originally  matured  between  1997 and 1999,  are in default
because of the Company's inability to repay these obligations as a result of the
Company's insufficient working capital. These obligations were discharged in the
Bankruptcy Proceedings.

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

None.

ITEM  5. OTHER INFORMATION

In February  2002, the Company  completed a  Registration  Statement on Form S-8
with the  Securities  and Exchange  Commission  registering  options to purchase
8,866,875 shares of the Company's common stock, par value $.001 per share,  that
were  authorized to be issued by the Company  under the  Company's  2000 Omnibus
Equity Incentive Plan. As of September 30, 2004,  options to purchase  3,066,875
shares of the Company's  common stock had been granted to various  employees and
directors of the Company;  no such options were exercised.  Additionally,  as of
September 30, 2004, options to purchase 1,766,875 shares of the Company's common
stock expired unexercised.

ITEM  6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

            None.

      (b)   Reports on Form 8-K.

            Current Report on Form 8-K filed on July 6, 2004.

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

                                       17
<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 13, 2005                            AFG ENTERPRISES, INC.
                                              (Registrant)



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


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