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 June 30, 2003

                                       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) 674-9696
--------------------------------------------------------------------------------
                         (Registrant's telephone number)

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

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]


    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]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]

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


<PAGE>

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

                                      INDEX

                                                                       Page No.
                                                                       --------

      PART I.  FINANCIAL INFORMATION

      ITEM 1.  FINANCIAL STATEMENTS

      Balance Sheet - December 31, 2002 and June 30, 2003
      (unaudited)                                                       2 and 3

      Statement of Operations - For the Three Months Ended
      June 30, 2002 and 2003 (unaudited)                                      4

      Statement of  Operations - For the Six Months Ended June 30,
      2002 and 2003 and for the Period from December 30, 1992
      (inception) through June 30, 2003 (unaudited)                           5

      Statement of Changes In Stockholders' Equity
      (Deficit) - For the Six Months Ended
      June 30, 2003 (unaudited)                                               6

      Statement  of Cash Flows - For the Six Months Ended
      June 30, 2002 and 2003 and for the Period from
      December 30, 1992 (inception) through
      June 30, 2003 (unaudited)                                               7

      Notes to Unaudited Financial Statements                                 8

      ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION     13

      ITEM 3.  CONTROLS AND PROCEDURES                                       17

      PART II.    OTHER INFORMATION                                          17

      ITEM 1.     LEGAL PROCEEDINGS                                          17

      ITEM 2.     CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER
                  PURCHASES OF EQUITY SECURITIES                             18

      ITEM 3.     DEFAULTS UPON SENIOR SECURITIES                            18

      ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS        18

      ITEM 5.     OTHER INFORMATION                                          19

      ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K                           19


                                       1
<PAGE>

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

                      December 31, 2002 and June 30, 2003
                                  (Unaudited)

                                     ASSETS

                                                           2002          2003
                                                         ---------    ---------
Current assets:

    Cash and cash equivalents                            $   4,688    $     368
    Inventory                                                5,454           --
    Other current assets                                    73,533          532
                                                         ---------    ---------
     Total current assets                                   83,675          900

Property and equipment, at cost:
    Office furniture and equipment                         256,972      256,972
    Leasehold improvements                                  55,228       55,228
                                                         ---------    ---------
                                                           312,200      312,200

    Less accumulated depreciation and amortization        (168,370)    (186,370)

     Net property and equipment                            143,830      125,830
                                                         ---------    ---------

Other assets:

    Patent costs, net of accumulated amortization of
     $39,862 (2002) and $44,062 (2003)                      96,689       92,489
                                                         ---------    ---------
     Net other assets                                       96,689       92,489
                                                         ---------    ---------
                                                         $ 324,194    $ 219,219
                                                         =========    =========

See accompanying notes.


                                       2
<PAGE>

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

                      December 31, 2002 and June 30, 2003
                                  (Unaudited)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                 2002            2003
                                                             ------------    ------------
<S>                                                          <C>             <C>
Liabilities Not Subject to Compromise:
Current liabilities:
    Accounts payable                                         $        532    $     29,399
    Interest payable                                                2,498          12,380
    Accrued expenses                                               44,055         129,926
    Notes payable-related party                                        --          17,100
    Short-term notes payable                                      154,400         106,000
                                                             ------------    ------------
     Total current liabilities                                    201,485         294,805

Liabilities Subject to Compromise:

    Pre-Petition Liabilities net of debt issuance costs of
     $239,166 (2002) and $151,667 (2003)                        1,861,086       1,450,178

Commitments and contingencies

Stockholders' equity (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                                          87,553          88,126
    Additional paid-in capital                                 21,349,560      21,354,720
    Stock subscriptions received                                  325,000         325,000
    Treasury stock, at cost; 9,374,742 shares                    (563,750)       (563,750)
    Deficit accumulated during the development stage          (23,436,740)    (23,229,860)
                                                             ------------    ------------
     Total stockholders' equity (deficit)                      (1,738,377)     (1,525,764)
                                                             ------------    ------------
                                                             $    324,194    $    219,219
                                                             ============    ============
</TABLE>

                            See accompanying notes.


                                       3
<PAGE>

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

                For the Three Months Ended June 30, 2002 and 2003
                                   (Unaudited)

                                                    2002            2003
                                                ------------    ------------
Revenues:
    Coupon handling fees and other              $         --    $         --

Costs and expenses:
    Research and development                              --              --
    General and administrative                       465,394          54,766
    Depreciation and amortization                     11,052          11,100
                                                ------------    ------------
       Total costs and expenses                      476,446          65,866
                                                ------------    ------------
       Operating loss                               (476,446)        (65,866)

Other income (expense):

    Interest income                                       --              --
    Litigation settlement                                 --              --
    Restructuring costs                                   --              --
    Debt conversion costs                           (112,661)             --
    Debt forgiveness                                      --         498,407
    Gain/(loss) on sale of assets                         --              --
    Interest expense                                 (67,543)        (48,980)
                                                ------------    ------------
       Total other income (expense)                 (180,204)        449,427
                                                ------------    ------------
    Income (loss) before reorganization items       (656,650)        383,561

Reorganization expense                                    --         (15,030)
                                                ------------    ------------
Net income (loss) (Note 3)                          (656,650)        368,531

Preferred stock dividends                             20,000              --
                                                ------------    ------------
Net income (loss) applicable to common
    stockholders                                $   (676,650)   $    368,531
                                                ============    ============

Basic and diluted net loss per common
    share                                       $       (.01)              *
                                                ============    ============

Weighted average common shares
    outstanding                                   71,700,000      78,500,000
                                                ============    ============

    * less than $.01 per share

                            See accompanying notes.


                                       4

<PAGE>

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

                 For the Six Months Ended June 30, 2002 and 2003
  and for the Period from December 30, 1992 (inception) through June 30, 2003
                                  (Unaudited)

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

Costs and expenses:

    Research and development                        --              --       3,320,137
    General and administrative               1,127,875         136,056      11,744,166
    Depreciation and amortization               22,116          22,200         403,467
                                          ------------    ------------    ------------
       Total costs and expenses              1,149,991         158,256      15,467,770
                                          ------------    ------------    ------------
       Operating loss                       (1,148,833)       (158,256)    (15,448,106)

Other income (expense):

    Interest income                                 20              --         105,872
    Litigation settlement                           --              --        (156,250)
    Restructuring costs                             --              --        (222,632)
    Debt conversion costs                     (128,856)             --      (1,437,198)
    Debt forgiveness                                --         498,407         498,407
    Gain/(loss) on sale of assets                   --              --          (2,316)
    Interest expense                           (31,440)       (104,893)     (5,682,523)
                                          ------------    ------------    ------------
       Total other income (expense)           (160,276)        393,514      (6,896,640)
                                          ------------    ------------    ------------
       Loss before reorganization items     (1,309,109)        235,258     (22,344,746)
                                          ------------    ------------    ------------
    Reorganization expense                          --         (28,378)        (44,456)
                                          ------------    ------------    ------------
Net income (loss) (Note 3)                  (1,309,109)        206,880     (22,389,202)

Preferred stock dividends                       20,000              --          90,658
                                          ------------    ------------    ------------
Net income (loss) applicable to common
    stockholders                          $ (1,329,109)   $    206,880    $(22,479,860)
                                          ============    ============    ============

Basic and diluted net loss per common
    share                                 $       (.02)              *    $       (.43)
                                          ============    ============    ============

Weighted average common shares
    outstanding                             71,300,000      78,700,000      52,400,000
                                          ============    ============    ============
</TABLE>

    * less than $.01 per share

                            See accompanying notes.


                                       5

<PAGE>

                             AFG ENTERPRISES, INC.
          (FORMERLY IN STORE MEDIA SYSTEMS, INC.-DEBTOR-IN-POSSESSION)
                         (A DEVELOPMENT STAGE COMPANY)
             STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                     For the Six Months Ended June 30, 2003
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                               Additional
                                                        Preferred stock                  Common stock           paid-in
                                                      Shares        Amount          Shares        Amount        capital
                                                  ------------   ------------     ----------   ------------   ------------
<S>                                               <C>            <C>              <C>          <C>            <C>
Balance, December 31, 2002                                   2   $    500,000     87,552,814   $     87,553   $ 21,349,560

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

   Net loss for the six months ended
     June 30, 2003                                          --             --             --             --             --
                                                  ------------   ------------     ----------   ------------   ------------

Balance, June 30, 2003                                       2   $    500,000     88,126,148   $     88,126   $ 21,354,720
                                                  ============   ============     ==========   ============   ============
<CAPTION>

                                                                                  Deficit
                                                                                 accumulated
                                                                                 during the
                                                     Stock        Treasury       development
                                                 subscriptions     stock           stage            Total
                                                  ------------   ------------    ------------    ------------
<S>                                               <C>            <C>             <C>             <C>
Balance, December 31, 2002                        $    325,000   $   (563,750)   $(23,436,740)   $ (1,738,377)

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

   Net loss for the six months ended
     June 30, 2003                                          --             --         206,880         206,880
                                                  ------------   ------------    ------------    ------------

Balance, June 30, 2003                            $    325,000   $   (563,750)   $(23,229,860)   $ (1,525,764)
                                                  ============   ============    ============    ============
</TABLE>

                            See accompanying notes.


                                       6

<PAGE>

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

                 For the Six Months Ended June 30, 2002 and 2003
  and for the Period from December 30, 1992 (inception) through June 30, 2003
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                       Cumulative
                                                                                         amounts
                                                                                          from
                                                            2002           2003         inception
                                                       ------------    ------------    ------------
Cash flows from operating activities:
<S>                                                    <C>             <C>             <C>
   Net income (loss)                                   $ (1,309,109)   $    206,880    $(22,389,202)
   Adjustments to reconcile net income (loss) to net
     cash used in operating activities:
       Depreciation and amortization                         22,116          22,200         403,467
       Loss on disposal of fixed assets                          --              --           2,316
       Restructuring charges                                     --              --         222,632
       Common stock issued for services, patents and
         payables                                           101,815           5,733       4,429,766
       Amortization of debt issuance costs                   65,000          87,499       1,964,903
       Reduction in note receivable - related party
         charged to research and development                     --              --         244,311
       Changes in assets and liabilities:
         Accounts receivable and notes receivable             1,789              --         (63,860)
         Inventory                                               --           5,454        (104,380)
         Other assets                                        42,194          18,601         (54,932)
         Accounts payable                                    98,640        (469,540)        694,751
         Interest payable                                    28,432           9,881         961,521
         Other liabilities                                   60,499          85,872         431,836
                                                       ------------    ------------    ------------
       Total adjustments                                    420,485        (234,300)      9,132,331
                                                       ------------    ------------    ------------
       Net cash used in operations                         (888,624)        (27,420)    (13,256,871)

Cash flows from investing activities:
   Purchase of property and equipment                        (1,342)             --        (382,780)
   Proceeds from sale of property and equipment                  --              --         125,000
   Advances - related party                                      --              --        (244,311)
   Patent costs                                              (2,087)             --        (136,549)
   Lease deposits                                                --              --         (27,880)
   Debt issuance costs                                           --              --         (10,000)
                                                       ------------    ------------    ------------
       Net cash used in investing activities                 (3,429)             --        (676,520)

Cash flows from financing activities:

   Proceeds from sale of common stock                       807,185              --       9,204,534
   Purchase of treasury stock                                    --              --        (520,000)
   Proceeds from sale of preferred stock                         --              --         750,000
   Preferred stock dividends                                (20,000)             --         (80,658)
   Proceeds from stockholder loans                           70,000           6,000           6,000
   Repayments of capital leases                                  --              --         (14,087)
   Proceeds from notes payable                              100,000          17,100       5,557,918
   Repayments of notes payable                              (33,996)             --        (969,948)
                                                       ------------    ------------    ------------
       Net cash provided by financing activities            923,189          23,100      13,933,759
                                                       ------------    ------------    ------------
Net increase (decrease) in cash                              31,136          (4,320)            368
                                                       ------------    ------------    ------------
Cash and cash equivalents at beginning of period             21,457           4,688              --
                                                       ------------    ------------    ------------
Cash and cash equivalents at end of period             $     52,593    $        368    $        368
                                                       ============    ============    ============
</TABLE>

                            See accompanying notes.

                                       7
<PAGE>


                              AFG ENTERPRISES, INC.
         (FORMERLY IN STORE MEDIA SYSTEMS, INC. - DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                                  JUNE 30, 2003

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 June 30, 2003, and the results of operations and cash flows
      for the periods ended June 30, 2002 and 2003.

      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 June 30, 2003 of  $1,525,764.  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  5-"Subsequent
      Events") As part of the Restructuring Proceedings, the Company changed its
      name to AFG Enterprises, Inc.

      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
      5-"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

                                       8
<PAGE>

                              AFG ENTERPRISES, INC.
         (FORMERLY IN STORE MEDIA SYSTEMS, INC. - DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                                  JUNE 30, 2003

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

      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 5-"Subsequent Events")

2.    Notes payable and amounts subject to compromise

      Between  May and June  2003,  the  Company  received  a net of  $4,300  in
      unsecured, non-interest bearing loans from an officer and directors of the
      Company which funds were used to support Company activity.

      During May and June 2003,  the  Company  entered  into  negotiations  with
      Acclaim  Financial  Group Ventures II, LLC ("AFGVII")  wherein  subject to
      Bankruptcy Court approval,  AFGVII would provide financing to the Company.
      (See Note 5)

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

3.    Income taxes

      No provision  for income taxes is required at June 30, 2003,  because,  in
      management's  estimation the Company will not recognize any taxable income
      through December 31, 2003.

4.    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 June 30, 2003,  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.  As of June 30, 2003,  options to
      purchase  1,766,875  shares of the Company's  common stock had expired and
      none of these stock options had been exercised.

5.    Subsequent events

      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 AFGVII to supplement liquidity and fund
      operations during the Restructuring  Proceedings,  and potentially  beyond
      such period.  Under the DIP Facility,  a creditor,  Melissa  McBride,  was
      required to  subordinate  her claims to any claims of AFGVII arising under
      the DIP Facility. NMPP, an affiliate of

                                       9
<PAGE>

                              AFG ENTERPRISES, INC.
         (FORMERLY IN STORE MEDIA SYSTEMS, INC. - DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                                  JUNE 30, 2003

5.    Subsequent events (continued):

      AFGVII,  subsequently acquired Melissa McBride's claim. 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  five  members)  and  an  individual
      designated  by AFGVII  assumed the role of Chairman,  CEO,  Secretary  and
      Treasurer of the Company.

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

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

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

                                       10
<PAGE>

                              AFG ENTERPRISES, INC.
         (FORMERLY IN STORE MEDIA SYSTEMS, INC. - DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                                  JUNE 30, 2003

5.    Subsequent events (continued):

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

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

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

      Under the  Plan,  various  claim  holders  and  interest  holders  will be
      entitled to receive various  consideration  in respect of their claims and
      interests.  The Plan  classified  the claims  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 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.

                                       11
<PAGE>

                              AFG ENTERPRISES, INC.
         (FORMERLY IN STORE MEDIA SYSTEMS, INC. - DEBTOR-IN-POSSESSION)
                          (A DEVELOPMENT STAGE COMPANY)
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS
                                  JUNE 30, 2003

5.    Subsequent events (continued):

      Class  3--Allowed  Unsecured  Claims  in Excess of  $1,000:  These  claims
      constituted  allowed unsecured claims held by various  claimants  incurred
      prior to the  Petition  Date who have not elected to be treated as Class 4
      Claims.  These claims 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:  This class  constitutes  any equity  interest in the
      Company  including  Common  Stock,  preferred  stock,  options,  warrants,
      convertible  instruments  and other equity  equivalents  but excluding the
      options granted to AFGVII in connection  with the DIP Facility.  There are
      currently  78,751,406 shares (net of 9,374,742  treasury shares) of Common
      Stock  outstanding,  2 shares of Preferred Stock outstanding ( convertible
      into 1,890,598  shares of Common Stock) and  19,282,809  options and other
      equity equivalents  outstanding.  All shares of Common Stock and preferred
      stock will be reverse split into 500,000 shares of the Replacement  Common
      Stock.  The number of shares subject to AFGVII's option to purchase Common
      Stock will be adjusted to reflect the stock split.  The exercise price per
      share is not  subject to  adjustment  and will  remain at  various  prices
      ranging from $0.001 to $0.03.

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

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

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

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


                                       12
<PAGE>

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

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.

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

The Company is a development  stage company  engaged in the  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 six months  ended  June 30,  2003 as  compared  to $1,158 for the six months
ended  June  30,  2002.  Additionally,   the  Company  has  incurred  losses  of
$22,389,202 since inception through June 30, 2003.

At June 30, 2003, the Company had a stockholders'  deficit of $1,525,764,  which
reflects  $21,704,096 of paid in capital (net of amount attributable to treasury
stock) less accumulated  deficit of $23,229,860.  The accumulated deficit amount
is primarily the result of the amount of interest expense incurred in connection


                                       13
<PAGE>

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 June 30, 2003, the Company had
a working capital deficit of $293,905.

In January  2002,  the Company  raised  $150,000 of equity from ISC enabling the
Company to continue the marketing of its electronic coupon distribution program.
In  February  2002,  the board of  directors  authorized  the  offering of up to
$700,000 of 2002 Units to accredited  investors to continue the marketing of the
electronic  coupon  distribution  program.  In June 2002, the board of directors
authorized an increase in this offering of an additional $122,850 of 2002 Units.
Through  June 30,  2003,  the  Company  had  sold  2,146,221  of its 2002  Units
generating  total net  proceeds of  $782,186.  During  2002,  the  Company  sold
1,875,146 shares of common stock  generating total net proceeds of $269,105.  In
2002, the Company  received a subscription  for the sale of 2,000,000 shares for
$100,000  from an officer of the  Company.  The Company is unable to provide any
assurance  that it will be able to  raise  the  additional  funds  necessary  to
finance  anticipated  costs  associated with the  commencement of the electronic
coupon  distribution  program and  otherwise to implement  its business plan and
strategy, as presently contemplated.

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 June 30,  2003,  notes  totaling  $75,000  were
extended and notes totaling  $310,676,  including  accrued interest of $110,676,
have been  converted into 837,712  shares of the Company's  common stock.  As of
June 30, 2003, notes totaling $287,500  (including accrued interest of $176,182)
remain  outstanding and in default.  Through June 30, 2003 the Company  remained
burdened with debt  obligations  and a continuing lack of working  capital.  The
raising of additional  equity in the first three  quarters of 2002 relieved some
of the burden  relating  to the debt  obligations  and  provided  the  necessary
funding  to  continue  the   marketing  of  the  Company's   electronic   coupon
distribution  program.  If  the  Company  is  unsuccessful  in  eliminating  all
remaining debt obligations  either through conversion or buyout, the Company may
require the securing of additional  working  capital to continue its program and
operations  as  planned.  Otherwise,  the  Company  may be forced to  curtail or
discontinue  its  operations.

FINANCIAL CONDITION

The Company had $219,219 in total assets and $1,744,983 in total  liabilities at
June 30,  2003,  as compared to $324,194  and  $2,062,571  at December 31, 2002,
respectively.  Accounts  payable,  accrued  expenses and liabilities  subject to
compromise  (net of debt issuance costs) at December 31, 2002 were $1,905,673 as
compared to  $1,609,503  at June 30,  2003.  The  Company had a working  capital
deficit of $293,905 at June 30, 2003, as compared to a working  capital  deficit
of $117,810 at December 31, 2002. This difference  primarily is attributed to an
increase in  accounts  payable  and  accrued  expenses  of $114,738  offset by a
decrease in notes  payable and  accrued  interest of $21,418 and a reduction  in
cash, inventory and prepaid expenses of $82,775.


                                       14
<PAGE>

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
$15,467,770  from  inception  through  June 30,  2003.  These  expenses  include
$3,320,137 in research and  development  expenses and $11,744,166 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 ceased its support of the
coupon  booklet   program   introduced  at  Piggly  Wiggly  Carolina  Co.,  Inc.
supermarkets.  In the interim, Let's Go Shopping,  Inc. took over responsibility
for the expenses of continuing the Piggly Wiggly operation. See Part II, Item I,
LEGAL PROCEEDINGS.

QUARTER ENDED JUNE 30, 2003, COMPARED TO QUARTER ENDED JUNE 30, 2002

For the quarter  ended June 30, 2003,  the Company  recorded  net income  before
reorganization items of $383,561,  as compared to net losses of $656,650 for the
quarter ended June 30, 2002.  The change was  primarily due to debt  forgiveness
recorded  as a result of the  bankruptcy  discharge  of  obligations  previously
recorded to Unisys  Corporation  of  $498,407  less  general and  administrative
expenses and continuing interest expense.

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  June 30,  2003  decreased  by  approximately  86% to  $65,866 as
compared to operating  expenses of $476,446,  for the same period last year. The
decrease  in  operating  expenses  in 2003 was due to  decreases  in general and
administrative  expenses.  General  and  administrative  expenses  decreased  by
$410,628 or 88% to $54,766  for the 2003  fiscal  quarter as compared to general
and  administrative  expenses  of $465,394  for the same  period last year.  The
decrease in general and  administrative  expenses primarily was due to decreases
of $41,372 in management consultants related to the Company's project management
requirements,   $67,105   in   advertising/promotion,   $27,263   in  legal  and
professional fees, $230,176 in wages and benefits, $18,050 in insurance expense.

The Company's net  non-operating  income and expenses  (including  non-operating
interest income and interest expense)  increased to net non-operating  income of
$449,427  for the quarter  ended June 30, 2003 as compared to net  non-operating
expense of $180,204  for the  quarter  ended June 30,  2002.  The  increase  was
primarily due to debt forgiveness  arising from the bankruptcy  discharge of the
Unisys obligation of $498,407 and no further debt conversion  expense.  Interest
expense for the quarter ended June 30, 2003  decreased by $18,563 as compared to
the same period last year. This was due primarily to a decrease in the valuation
of the warrants  issued in  connection  with the Company's  debt  offerings as a
result  of  the   expiration  of  the  A,  B,  and  C  warrants  in  June  2002.
Reorganization expenses for the quarter ended June 30, 2003 were $15,030.

                                       15
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

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

At June 30,  2003,  the  Company  had  $1,744,983  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 June 30, 2003, 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 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 would receive 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  would receive 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 June 30,  2003,  notes  totaling  $75,000  have  been  extended  and notes
totaling  $310,676,  including  accrued interest of $110,676 have been converted
into 837,712 shares of the Company's common stock. At December 31, 2002 and June
30,  2003,  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 $29,399,  accrued  expenses of $142,306,  short-term note obligations
totaling $123,100.  The Company's  remaining  liabilities  subject to compromise
consisted of accounts  payable of $665,352,  notes payable of $156,097,  accrued
expenses  of $301,910  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.

                                       16
<PAGE>

Since the end of fiscal year 2002  through  June 30, 2003,  the  Company's  cash
position has  decreased.  At June 30, 2003,  the Company had  available  cash of
$368, as compared to available cash of $4,688 at December 31, 2002. The decrease
in cash is a result of the Company obtaining short term equity financing through
the offering of the 2002 Units and the issuance of short term notes payable less
operating expenses paid.

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 June 30, 2003, 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.  The Company  will  require
additional  capital to finance its operating and/or legal costs through the sale
of equity and/or debt  securities.  Prior to the 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.

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 lawsuit alleges the Company breached
the contract between LGS and the Company by not paying minimum license fees. The
Plaintiff  has asked the Court for  $435,000  of such fees,  interest  and legal
costs.  The LGS lawsuit  followed the LGS claim that it cancelled the Patent and
License  agreement by LGS,  which was  subsequently  announced by In Store Media
Systems on October 10, 2002.  The Company views the license as in full force and
effect and denies that LGS has the right to terminate  the contract and contends
that the LGS lawsuit is without merit. The Company has engaged counsel to assert
claims  against all parties who may have  misappropriated  the  Company's  trade
secrets or interfered in its business.  The LGS actions  resulted in the loss by
the Company of previously arranged financing  resulting in substantial  damages.


                                       17
<PAGE>

The Company,  which was  expecting  income to be generated by the Piggly  Wiggly
contract,  was not able to pay its creditors on a timely basis.  It has deferred
executive  salaries  totaling  $403,231 as of June 30, 2003.  Consequently,  two
officers of the Company  resigned and a third was terminated.  Two of the former
officers,  James Babo and Michael  Eckerman have filed  lawsuits to collect back
pay. 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
obligation  are part of the  obligations  classified and to be discharged in the
Restructuring Proceedings.

The Board of  Directors  decided 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 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.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As of June 30, 2003,  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.

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

None.


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<PAGE>

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 June 30, 2003, options to purchase 3,066,875 shares
of the  Company's  common  stock  had been  granted  to  various  employees  and
directors of the Company. Additionally, as of June 30, 2003, options to purchase
1,766,875  shares of the Company's common stock expired and no such options were
exercised.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a) Exhibits

                  Exhibit 31.1   Certification   of  CEO  pursuant   to  Section
                                 302  of Sarbanes-Oxley

                  Exhibit 31.2   Certification of CFO   pursuant  to Section 302
                                 of Sarbanes-Oxley

                  Exhibit 32     Certification   pursuant  to  Section   906  of
                                 Sarbanes-Oxley

      (b) Reports on Form 8-K.

                  None.



                                       19
<PAGE>

                                   Signatures

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

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


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



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

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