<Page>

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

                                   FORM 10-QSB

(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

                For the quarterly period ended SEPTEMBER 30, 2004

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
                          For the transition period from ________ to ___________

                        Commission File No.: 33-55254-447


                          TOUCHTUNES MUSIC CORPORATION
                          ----------------------------
        (Exact name of small business issuer as specified in its charter)


             NEVADA                                    87-0485304
             ------                                    ----------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)


                              1800 E. SAHARA AVENUE
                                    SUITE 107
                             LAS VEGAS, NEVADA 89104
                             -----------------------
                    (Address of principal executive offices)

                                (702) 792 -7405
                                ---------------
                           (Issuer's telephone number)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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  X     No
                                                                  ---       ---

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: AS OF NOVEMBER 15, 2004, 14,827,394
SHARES OF CLASS A VOTING COMMON STOCK WERE OUTSTANDING.

Transitional Small Business Disclosure Format (check one):    Yes        No  X
                                                                  ---       ---


<Page>

                          TOUCHTUNES MUSIC CORPORATION

                                      INDEX

[NOTE: PRINTER TO ADD PAGE NUMBERS]
<Table>
<Caption>
                                                                                                              PAGE
                                                                                                              ----
<S>                                                                                                           <C>
PART I - FINANCIAL INFORMATION:

Item 1. Consolidated Balance Sheets (unaudited) as at September 30, 2004
         and December 31, 2003.......................................................................            1

         Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)
         for the three-month and nine-month periods ended September 30, 2004 and 2003................            3

         Consolidated Statements of Retained Earnings (Deficit) (unaudited) as
         at September 30, 2004 and December 31, 2003.................................................            4

         Consolidated Statements of Cash Flows (unaudited) for the three-month and nine-month
         periods ended September 30, 2004 and 2003...................................................            5

Item 2. Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................................................           13

Item 3. Controls and Procedures .....................................................................           20



PART II - OTHER INFORMATION:

Item 1. Legal Proceedings............................................................................           20

Item 2. Exhibits and Reports on Form 8-K.............................................................           21

Signatures...........................................................................................           22

Certifications.......................................................................................           23
</Table>


<Page>

                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

The accompanying unaudited financial statements for the quarter ended September
30, 2004 have been prepared in accordance with the instructions to Form 10-QSB
and, therefore, do not include all information and notes necessary for a
complete presentation of financial position, results of operations, cash flows
and stockholders' equity for the quarter then ended, in conformity with
generally accepted accounting principles in the United States. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the quarter
ended September 30, 2004 are not necessarily indicative of the results that can
be expected for the fiscal year ending December 31, 2004. For further
information, refer to the financial statements and the notes thereto included in
the Annual Report for TouchTunes Music Corporation (the "Company") on Form
10-KSB, for the fiscal year ended December 31, 2003. Note that all dollar
amounts set forth in this quarterly report on Form 10-QSB are in United States
dollars, except where otherwise indicated, and references herein to "dollars" or
"$" are to United States dollars and references to "CDN" are to Canadian
dollars.


                          TOUCHTUNES MUSIC CORPORATION
                              FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 2004

                           CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>


      [In U.S. dollars]                                                             AS AT                    As at
                                                                       SEPTEMBER 30, 2004        December 31, 2003
                                                                                        $                        $
      -------------------------------------------------------------------------------------------------------------
                                                                                                           (Note*)
      <S>                                                                      <C>                      <C>
      ASSETS (note 5)
      CURRENT
      Cash and cash equivalents                                                   661,819                  338,614
      Trade accounts receivable                                                 7,591,856                6,640,992
      Other receivables                                                           308,036                  454,192
      Current portion of discounted receivable (note 10)                          121,008                       --
      Prepaid expenses and deposits                                             1,304,670                1,392,572
      Inventory                                                                 3,666,686                2,671,917
      Current portion of investment in sales-type leases                        1,313,736                1,121,219
      -------------------------------------------------------------------------------------------------------------
      TOTAL CURRENT ASSETS                                                     14,967,811               12,619,506
      -------------------------------------------------------------------------------------------------------------

      Investment in sales-type leases                                                  --                  834,941
      Property, plant and equipment, net                                        2,301,321                2,040,302
      Intangibles                                                                 309,941                  438,557
      Discounted receivable (note 10)                                           1,782,926                       --
      Other assets                                                                636,816                  821,970
      -------------------------------------------------------------------------------------------------------------
                                                                               19,998,815               16,755,276
      -------------------------------------------------------------------------------------------------------------
      -------------------------------------------------------------------------------------------------------------
</Table>

                                       1

<Page>

                          TOUCHTUNES MUSIC CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                                    [CONT'D]
<Table>
<Caption>
                                                                                        AS AT                  As at
                                                                           SEPTEMBER 30, 2004      December 31, 2003
                                                                                            $                      $
     ----------------------------------------------------------------------------------------------------------------
                                                                                                             (Note*)
     <S>                                                                          <C>                      <C>
     LIABILITIES AND STOCKHOLDERS' EQUITY
     CURRENT LIABILITIES
     Bank indebtedness (note 5)                                                       900,000              1,900,000
     Accounts payable and accrued liabilities                                       6,439,636              5,454,544
     Current portion of long-term debt (note 5)                                     1,009,685                777,636
     Notes payable (note 6)                                                         1,001,577                652,535
     ----------------------------------------------------------------------------------------------------------------
     TOTAL CURRENT LIABILITIES                                                      9,350,898              8,784,715
     ----------------------------------------------------------------------------------------------------------------

     Long-term debt (note 5)                                                          467,907                     --
     ----------------------------------------------------------------------------------------------------------------
                                                                                    9,818,805              8,784,715
     ----------------------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------------------

     STOCKHOLDERS' EQUITY (NOTE 7)
     Series A preferred stock, voting and participating, $0.001 par
     value
       Authorized: 15,000,000 shares
       Issued and outstanding: 12,843,960 shares                                       12,844                 12,844
     Series B preferred stock, voting and participating, $0.001 par
     value
       Authorized: 10,000,000 shares
       Issued and outstanding: 8,888,889 shares                                         8,889                  8,889
     Series C preferred stock, $0.001 par value
       Authorized: 30,000,000 shares
       Issued and outstanding: 25,000,000 shares                                       25,000                 25,000
     Class A voting common stock, $0.001 par value
       Authorized: 100,000,000 shares
       Issued and outstanding: 14,827,394 shares                                       14,828                 14,828
     Additional paid-in capital (note 7)                                            8,420,910              8,420,910
     Retained earnings (accumulated deficit) (notes 7 and 9)
        Net of elimination totaling $82,667,696                                     1,697,539              (511,910)
     ----------------------------------------------------------------------------------------------------------------
     TOTAL STOCKHOLDERS' EQUITY                                                    10,180,010              7,970,561
     ----------------------------------------------------------------------------------------------------------------
                                                                                   19,998,815             16,755,276
     ----------------------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------------------
</Table>

     SEE ACCOMPANYING NOTES.

     * Note: The balance sheet as at December 31, 2003 has been derived from the
     financial statements at that date but does not include all of the
     information and notes required by generally accepted accounting principles
     in the United States for complete financial statements.


                                       2

<Page>

                          TOUCHTUNES MUSIC CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)
<Table>
<Caption>
[In U.S. dollars]                                              THREE MONTH        NINE MONTH      Three month        Nine month
                                                              PERIOD ENDED      PERIOD ENDED     period ended      period ended
                                                             SEPTEMBER 30,     SEPTEMBER 30,    September 30,     September 30,
                                                                      2004              2004             2003              2003
                                                                         $                 $                $                 $
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>               <C>              <C>
REVENUES AND OTHER INCOME
Jukebox sales and music service revenues                        10,489,825        27,488,076        7,691,260        18,893,124
Jukebox leasing and financing  revenues                            407,767         1,181,181          354,616         1,288,608
Other income (note 10)                                                  --         2,431,502               --                --
Gain on disposal of assets and investment
   in sales-type leases                                                 --             2,469           64,611           224,504
--------------------------------------------------------------------------------------------------------------------------------
                                                                10,897,592        31,103,228        8,110,487        20,406,236
--------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Cost of jukebox revenues
   and direct operating costs                                    7,057,289        17,212,981        4,899,897        12,133,790
Research and development                                           846,167         2,683,506          765,801         2,197,682
Investment tax credits                                                  --          (65,144)        (160,000)         (324,000)
General and administrative (note 10)                             1,175,441         5,024,478        1,535,218         3,982,185
Sales and marketing                                                845,994         2,396,702          764,037         2,068,621
Interest expense                                                    97,887           302,654          147,497           640,576
Depreciation and amortization                                      455,717         1,257,335          319,019         1,047,283
Foreign exchange losses (gains)                                   (52,774)            81,267           36,579            35,479
--------------------------------------------------------------------------------------------------------------------------------
                                                                10,425,721        28,893,779        8,308,048        21,781,616
--------------------------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
  BEFORE INCOME TAXES                                              471,871         2,209,449        (197,561)       (1,375,380)
  Income taxes (note 9)                                            188,750           887,750               --                --
--------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)                  283,121         1,321,699        (197,561)       (1,375,380)
  Dividends and accretion of mandatory redeemable
  Series B preferred stock (note 7)                                     --                --               --         1,049,490
  Beneficial conversion (note 7)                                        --                --               --        39,265,940
--------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
AND HOLDERS OF COMMON STOCK EQUIVALENTS                             283,121         1,321,699        (197,561)      (41,690,810)
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------

PER COMMON STOCK AND COMMON STOCK EQUIVALENTS
Basic and diluted net income (loss) per share (note 4)                0.00              0.01           (0.01)            (1.76)
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------

WEIGHTED AVERAGE NUMBER OF COMMON STOCK AND COMMON
  STOCK EQUIVALENTS                                             93,359,274        93,359,274       36,491,493        23,754,292
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
</Table>

     SEE ACCOMPANYING NOTES.

                                       3

<Page>

                          TOUCHTUNES MUSIC CORPORATION

                           CONSOLIDATED STATEMENTS OF
                      RETAINED EARNINGS (DEFICIT) (NOTE 7)
                                   (UNAUDITED)
<Table>
<Caption>

[In U.S. dollars]                                     PERIODS ENDED DECEMBER 31, 2003 AND
                                                                       SEPTEMBER 30, 2004
                                                                                        $
------------------------------------------------------------------------------------------
<S>                                                                          <C>
Balance, December 31, 2002                                                   (42,223,937)
Net loss 2003                                                                 (1,689,729)
Beneficial conversion                                                        (39,265,940)
Elimination of deficit against paid-in capital
on quasi-reorganization                                                        82,667,696
                                                   ---------------------------------------
BALANCE, DECEMBER 31, 2003                                                      (511,910)
NET INCOME                                                                      1,321,699
INCOME TAX RECOVERY (NOTE 9)                                                      887,750
                                                   ---------------------------------------
BALANCE, SEPTEMBER 30, 2004                                                     1,697,539
                                                   =======================================

</Table>
SEE ACCOMPANYING NOTES.


                                       4


<Page>

                          TOUCHTUNES MUSIC CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<Table>
<Caption>
[In U.S. dollars]                              THREE MONTH           NINE MONTH          Three month           Nine month
                                              PERIOD ENDED         PERIOD ENDED         period ended         period ended
                                        SEPTEMBER 30, 2004   SEPTEMBER 30, 2004   September 30, 2003   September 30, 2003
                                                         $                    $                    $                    $
--------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                <C>                  <C>                <C>
OPERATING ACTIVITIES
Net income (loss) and comprehensive
income (loss)                                      283,121            1,321,699            (197,561)          (1,375,380)
ADJUSTMENTS TO RECONCILE NET INCOME
  TO NET CASH USED IN OPERATING
  ACTIVITIES:
Income taxes                                       188,750              887,750                   --                   --
Non-cash portion of cost of
  jukebox revenues and direct operating costs       35,735              107,205               35,735              107,205
Unpaid interest charge on  unsecured
  loans from principal stockholders                     --                   --                   --              254,203
Depreciation and amortization                      455,717            1,257,335              319,019            1,047,283
Gain on disposal of assets                              --              (2,469)             (56,146)            (168,605)
Non-cash portion of jukebox
  financing revenues                                    --                   --                   --             (74,868)
(Gain) loss on disposal of
  investment in sales-type leases                    1,599                2,868              (8,466)             (55,900)
CHANGES IN OPERATING ASSETS AND
  LIABILITIES:
Accounts and other receivables                   (546,170)            (804,708)          (1,430,397)          (1,306,630)
Discounted receivables                              27,568          (1,903,934)                   --                   --
Prepaid expenses and deposits                       72,639               87,902             (40,417)              145,463
Inventory                                        (957,922)            (994,769)              447,890            (161,613)
Other assets                                        22,106               77,949              (2,219)             (85,600)
Accounts payable and accrued
  liabilities                                    1,052,267              985,092              829,194              549,034
Proceeds from disposal of investment
  in sales-type leases                               8,524               37,998              221,106            1,202,835
Investment in sales-type leases                    184,471              601,558              253,720              922,652
--------------------------------------------------------------------------------------------------------------------------------

CASH PROVIDED BY OPERATING ACTIVITIES              828,405            1,661,476              371,458            1,000,079
--------------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Proceeds from disposition of
   property, plant and equipment                        --                4,132              104,501              407,127
Addition to intangibles                           (79,787)            (157,946)             (99,059)            (121,530)
Purchase of property, plant, and
  equipment                                      (157,643)          (1,233,455)            (226,774)            (417,132)
--------------------------------------------------------------------------------------------------------------------------------

CASH USED IN INVESTING ACTIVITIES                (237,430)          (1,387,269)            (221,332)            (131,535)
--------------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Increase (decrease) in bank
  indebtedness                                   (750,000)          (1,000,000)              100,000            (150,000)
</Table>


                                       5

<Page>

<Table>
<Caption>

<S>                                                <C>                <C>                  <C>                <C>
Repayment of capital lease
  obligations                                           --                   --              (4,109)             (46,183)
Proceeds of long-term debt                              --            2,000,000                   --                   --
Repayment of long-term debt                      (264,159)          (1,300,044)            (501,067)          (1,616,391)
Share issue costs                                       --                   --                   --            (220,000)
Proceeds from notes payable                        337,276            1,860,195                   --                   --
Repayment of notes payable                       (638,812)          (1,511,153)                   --                   --
--------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES                                   (1,315,695)               48,998            (405,176)          (2,032,574)
--------------------------------------------------------------------------------------------------------------------------------

NET CHANGE IN CASH AND CASH
  EQUIVALENTS                                    (724,720)              323,205            (255,050)          (1,164,030)
Cash and cash equivalents, beginning
  of period                                      1,386,539              338,614              549,114            1,458,094
--------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF
  PERIOD                                           661,819              661,819              294,064              294,064
--------------------------------------------------------------------------------------------------------------------------------

NON-CASH INVESTING AND FINANCING
  ACTIVITIES
THE FOLLOWING WERE CONVERTED INTO
  SERIES C PREFERRED STOCK:
Unsecured loans from
    Principal stockholders                              --                  --                    --           5,325,153
--------------------------------------------------------------------------------------------------------------------------------
Dividends and accretion due on                          --                  --
    Series B preferred stock                                                                      --          11,145,759
--------------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTARY INFORMATION
Interest paid                                      201,823             399,174               174,641             412,314
--------------------------------------------------------------------------------------------------------------------------------
</Table>

SEE ACCOMPANYING NOTES.

                                       6


<Page>

                          TOUCHTUNES MUSIC CORPORATION


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

September 30, 2004
[In U.S. dollars]

1.       ORGANIZATION AND OPERATIONS OF THE COMPANY

TouchTunes Music Corporation (the "Company") is involved in the digital
distribution of interactive music to music-on-demand applications. The first
such music-on-demand application developed by the Company were its digital
jukeboxes (the "Digital Jukeboxes"), which utilize digitally compressed audio
technology to distribute music titles through a proprietary distribution
network. The Company is also developing its technology for other music-on-demand
applications.

2.       BASIS OF FINANCIAL STATEMENT PRESENTATION

The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States.

The consolidated financial statements at September 30, 2004, and for the
three-month and nine-month periods ended September 30, 2004 and 2003, are
unaudited and reflect all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the Company's financial position and operating results for the
interim periods in accordance with accounting principles generally accepted in
the U.S. for interim financial statements. Accordingly, these interim
consolidated financial statements do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements.

These consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report on Form 10-KSB, for the
fiscal year ended December 31, 2003. The results of operations for the
three-month and nine-month periods ended September 30, 2004 are not necessarily
indicative of the results for the fiscal year ending December 31, 2004 or any
other future periods.

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary TouchTunes Digital Jukebox, Inc. ("TouchTunes
Digital"). All significant inter-company balances and transactions since
acquisition of control have been eliminated on consolidation.


3.       WARRANTY PROVISION

The change in the warranty provision recorded in the Company's balance sheet for
the relevant periods was as follows:
<Table>
<Caption>

                                              THREE MONTH          NINE MONTH           Three month         Nine month
                                             PERIOD ENDED        PERIOD ENDED          period ended       period ended
                                            SEPTEMBER 30,       SEPTEMBER 30,         September 30,      September 30,
                                                     2004                2004                  2003               2003
                                                        $                   $                     $                  $
-----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                 <C>                   <C>                <C>
Balance at the beginning of the                   643,156             696,784               599,170            450,000
</Table>


                                       7

<Page>

<Table>
<Caption>

<S>                                               <C>                 <C>                   <C>                <C>
  Period
Charged to cost of jukeboxes                      125,444             376,330               109,631            328,894
Use of provision                                (198,607)            (503,121)              (55,424)          (125,517)
-----------------------------------------------------------------------------------------------------------------------
BALANCE AT THE END OF THE PERIOD                  569,993             569,993               653,377            653,377
-----------------------------------------------------------------------------------------------------------------------
</Table>


4.       BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

The calculation of basic and diluted net income (loss) per share for the
periods ended September 30, are as follows:
<Table>
<Caption>
                                               THREE MONTH           NINE MONTH          Three month           Nine month
                                              PERIOD ENDED         PERIOD ENDED         period ended         period ended
                                             SEPTEMBER 30,        SEPTEMBER 30,        September 30,        September 30,
                                                      2004                 2004                 2003                 2003
---------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                   <C>                <C>
Net income (loss) attributable to
   common stockholders and holders
   of common stock equivalents                     283,121            1,321,699            (197,561)         (41,690,810)
---------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and common
   share equivalents outstanding used to
   compute basic and diluted net income
   (loss) per common share                      93,359,274           93,359,274           36,491,493           23,754,292
---------------------------------------------------------------------------------------------------------------------------
Basic and diluted  net income  (loss)
  per common share                                    0.00                 0.01               (0.01)               (1.76)
---------------------------------------------------------------------------------------------------------------------------
</Table>

The impact of the conversion of 12,843,960 shares of Series A preferred stock,
voting and participating ("Series A Preferred Stock"), into 38,531,880 shares of
Class A voting common stock ("Common Stock") and 8,888,889 shares of Series B
preferred stock, voting and participating ("Series B Preferred Stock"), into
40,000,000 shares of Common Stock are being included in the weighted average
common shares outstanding, using the as-if-converted method, to compute the
basic and diluted net loss per share since June 10, 2003, the date of the
capital restructuring (see note 7), because since that date they have
characteristics similar to the Common Stock.

The options and warrants to purchase the Company's Common Stock, were not
included in the computation of the diluted net loss per share for 2003, as the
effect would be anti-dilutive. For 2004, the strike price for outstanding
options is above market price and accordingly was not considered in the
calculation of diluted net income per share.


5.       BANK INDEBTEDNESS AND LONG-TERM DEBT

The Company's bank indebtedness consists of an operating line of credit (the
"Line of Credit") of $2,000,000 (December 31, 2003 - $2,000,000) (see note 12).
The collateralization provided to the bank by the Company on the Line of Credit
and the loans described below is in the form of charges on past, present and
future assets of the Company. The Line of Credit bears interest at the U.S.
prime rate of the bank plus 1.25%, representing a rate of 6.50% as at September
30, 2004 (December 31, 2003 - 5.75%). The Company obtained an extension of the
Line of Credit until April 30, 2005. The Line of Credit is also collateralized
by a first charge on accounts receivable and inventories of $1,050,000 and a
charge on moveable property in the amount of $2,050,000.


                                       8

<Page>

Long-term debt consists of the following:

<Table>
<Caption>
                                                        MATURITY   SEPTEMBER 30, 2004     December 31, 2003
                                                                                    $                     $
                                                 -----------------------------------------------------------
<S>                                                   <C>                   <C>                    <C>
CED Term Loan                                               2004                   --                21,494
Jukebox Term Loan                                      2003-2004                   --               756,142
Music Advance Term Loan                                2004-2007            1,477,592                    --
                                                 -----------------------------------------------------------
Total                                                                       1,477,592               777,636
Less:  Current portion                                                      1,009,685               777,636
                                                 -----------------------------------------------------------
Total                                                                         467,907                    --
                                                 -----------------------------------------------------------
                                                 -----------------------------------------------------------
</Table>

Long-term debt as at September 30, 2004 consists of a music advance term loan
facility (the "Music Advance Term Loan") with National Bank of Canada (the
"Bank"). The Music Advance Term Loan represents, in the aggregate, $2,000,000
and was entered into in January 2004 for purposes of financing the recoupable
advances made to certain music providers. The security provided to the Bank by
the Company was in the form of charges on past, present and future assets of the
Company. The Music Advance Term Loan bears interest at the U.S. base rate of the
Bank plus 2%, representing a rate of 7.25% as at September 30, 2004. The Music
Advance Term Loan is also collateralized by a certificate of guarantee issued by
La Financiere du Quebec covering 50% of the net loss risk and a charge on
moveable property in the amount of $ 2,400,000. The Music Advance Term Loan is
repayable over the term of the respective music agreements financed, ranging
from one year to five years.

The agreements between the Company and the Bank governing the Music Advance Term
Loan and the Line of Credit contain financial covenants including requirements
that the Company maintain a minimum stockholders' equity, as defined in the
agreement, of $7,500,000, and a minimum debt to equity ratio as defined therein.
As at September 30, 2004, the Company satisfied these covenants.

The principal payments of long-term debt are as follows:
<Table>
<Caption>
                                                                  $
                                           -------------------------
   <S>                                                    <C>
   2004                                                   1,009,685
   2005                                                     467,907
                                           -------------------------
                                                          1,477,592
                                           -------------------------
</Table>

6.       NOTES PAYABLE

In October 2003, the Company entered into a loan facility with a lender under
which the Company could borrow up to a maximum of $1,500,000 for purposes of
financing the sale of one of the Company's products, Tune Central. The security
provided to the lender is a first ranking security in the Tune Centrals financed
by the lender. The loan bears interest at the rate of 9.5% and must be repaid
over a period of twelve months.

7.       CAPITAL RESTRUCTURING

In July 2001, the Company's Board of Directors approved the terms of an
unsecured loan facility (the "Unsecured Loan Facility"), from CDP Capital
Communications and CDP Capital Technologies, for up to a


                                       9

<Page>

maximum of $5,000,000. Under these terms, CDP Capital Communications and CDP
Capital Technologies committed to lend up to $3,000,000 and $2,000,000,
respectively. As at March 31, 2003, $3,500,000 had been advanced by CDP
Capital Communications and CDP Capital Technologies in the form of promissory
notes ("CDP Notes") excluding accrued interest of $1,000,000 thereon, bearing
interest at the rate of 20% per annum, repayable 30 days after issuance
unless exchanged earlier for debentures issuable under the Unsecured Loan
Facility.

On December 20, 2002, the Company issued convertible debentures ("Debentures")
to two principal stockholders, namely CDP Capital Communications and CDP Capital
Technologies, for a principal amount of $400,000 each, bearing interest at 20%
per annum and maturing on June 30, 2003.

 On June 10, 2003 the Company completed a capital restructuring providing for
the conversion of the Unsecured Loan Facility and the Debentures and accrued
dividends and accretion on Series B Preferred Stock into a new series of
preferred stock.

As a result of this transaction, the Unsecured Loan Facility totaling $5,325,153
and dividends and accretion due on Series B Preferred Stock totaling $10,981,663
were converted into 25,000,000 Class C non-voting Preferred Stock with an
issuance price and liquidation value of $12,500,000.

The Company's Board of Directors and the requisite number of stockholders of the
Company also approved amendments to the Company's Second Amended and Restated
Articles of Incorporation necessary to effect this capital restructuring. These
amendments were to:

(1)  increase the aggregate number of authorized shares of Common Stock from
     50,000,000 shares to 100,000,000 shares;

(2)  create a new class of authorized preferred stock, consisting of 30,000,000
     authorized shares of Series C non-voting Preferred Stock, par value $0.001
     ("Series C Preferred Stock"). The Series C Preferred Stock has an issuance
     price of $0.50 per share and a liquidation preference over the Series A
     Preferred Stock, Series B Preferred Stock and Common Stock (as may be
     adjusted for stock splits, dividends, combinations or other
     recapitalizations with respect to such shares). The Series C Preferred
     Stock shall not be entitled to voting rights, dividend rights or redemption
     rights;

(3)  provide that the issuance of Series C Preferred Stock at a conversion price
     lower than that of Series A Preferred Stock or Series B Preferred Stock
     would trigger a reduction to such lower price of the exercise price of the
     Series A Preferred Stock and Series B Preferred Stock;

(4)  remove the right of holders of Series B Preferred Stock to receive a
     cumulative and preferred dividend;

(5)  remove the right of holders of Series B Preferred Stock to demand
     redemption by the Company and remove the Company's right to redeem the
     Series B Preferred Stock at its option;

(6)  reduce the voting rights of the Series A Preferred Stock and Series B
     Preferred Stock to one vote per each outstanding share of preferred stock,
     in lieu of one vote per share of Common Stock into which a holder's
     Preferred Stock could be converted; and

(7)  require that dividends declared or any distribution even upon or on any
     liquidation, dissolution or winding-up be shared among Series A Preferred
     Stock, Series B Preferred Stock and Common holders without any distinction
     as to classes, as on an as-if-converted to Common Stock.

This capital restructuring had the following impact on the financial statements:

o      Net loss attributable to Common Stock shareholders for the second quarter
       of 2003 was increased by $39,265,940 with a corresponding increase to
       additional paid-in capital representing the effect of the beneficial
       conversion of the Series A Preferred Stock and Class B Preferred Stock;


                                       10

<Page>

o      As provided for in the conversion agreement, no interest on the Unsecured
       Loan Facility and no dividends and accretion on the Series B Preferred
       Stock were recorded subsequent to September 30, 2003;

o      The Series B Preferred Stock are now presented as part of shareholders'
       equity because of the elimination of the rights of holders to demand
       redemption and to receive a cumulative and preferred dividend. In
       addition, these shares are presented at their par value which increased
       the additional paid-in capital by $19,991,111.

Finally, in addition to the above capital restructuring, the Company's Board of
Directors voted to eliminate the accumulated deficit as of September 30, 2003 by
a corresponding decrease of the additional paid-in capital, in accordance with
the quasi-reorganization rules. In addition, the Company reviewed the fair
values of its assets and liabilities and determined that no adjustments were
required to the recorded amounts.


8.       STOCK OPTIONS

On April 19, 2000, the Company's Board of Directors authorized a Long-Term
Incentive Plan (the "Plan"), which provides for the grant to employees,
officers, consultants, and outside contractors of various types of stock
options and Common Stock.

On April 19, 2000, September 12, 2000, December 12, 2000, March 16, 2001, May
10, 2001, June 4, 2002 and September 17, 2004, the Board of Directors granted
stock options to purchase an aggregate of 2,510,018 shares, 571,500 shares,
73,000 shares, 862,630 shares, 175,000 shares, 1,500,000 shares and 300,000
shares respectively, of the Company's Common Stock, with vesting provisions
ranging up to four years. In June 2003 , additional stock options to purchase
2,334,744 shares of Common Stock were issued. Options granted under the Plan
are exercisable for a period of ten years, except for options granted to
stockholders beneficially owning 5% or more of the Company's Common Stock,
which are exercisable over a period of five years. On September 30, 2004, an
aggregate of 1,649,256 shares of Common Stock were reserved for future
issuance under the Plan. The Plan was approved by stockholders on February 8,
2001. On September 17, 2004, the Board of Directors voted unanimously to
amend the exercise price on all outstanding stock options issued under the
Plan to $0.40 therefore these stock options will be subject to variable stock
option plan accounting.

The Company accounts for options granted to employees and directors under the
Plan using APB No.25, under which no compensation cost has been recognized for
stock options granted. Had compensation cost for these stock options been
determined consistent with SFAS No. 123, the Company's pro forma income (loss)
per common share would have been as follows:

<Table>
<Caption>
                                               THREE MONTH         NINE MONTH         Three month       Nine month
                                              PERIOD ENDED       PERIOD ENDED        period ended     period ended
                                             SEPTEMBER 30,      SEPTEMBER 30,       September 30,    September 30,
                                                      2004               2004                2003             2003
                                                         $                  $                   $                $
                                        ---------------------------------------------------------------------------
<S>                                                <C>              <C>                <C>            <C>
Net income (loss) attributable to
  holders of Common Stock and Common
  Stock equivalents                                283,121          1,321,699          (197,561)      (41,690,810)
Pro Forma income (loss)                            156,380          1,048,262          (280,519)      (41,942,403)
Basic and diluted income (loss) per
  share of Common Stock                               0.00               0.01             (0.01)            (1.76)
</Table>

                                       11

<Page>

<Table>

<S>                                                <C>              <C>                <C>            <C>
Pro Forma basic and diluted income
             (loss) per share of
             Common Stock                             0.00               0.01             (0.01)            (1.77)
</Table>

The fair value of options at the date of grant was estimated using the
Black-Scholes pricing model with the following weighted average assumptions.
<Table>
<Caption>
                                                              SEPTEMBER 30, 2004     September 30, 2003
                                                          ----------------------------------------------
      <S>                                                                   <C>                    <C>
      Average expected life (years)                                         8.00                   8.00
      Risk-free interest rate                                               4.30                   3.00
      Volatility                                                            96.8                   96.8
      Dividend yield                                                        0.00                   0.00
</Table>



9.   INCOME TAXES

The Company has net operating losses carry forward of approximately $34,550,000
for U.S. federal income tax purposes. Realization of deferred tax assets is
dependent on future earnings, the timing and amount of which are uncertain.
Accordingly, the net deferred tax assets have been fully offset by a valuation
allowance.

During the three-month and nine-month periods ended September 30, 2004, the
Company recorded income tax expense of $188,750 and $887,750 respectively. A
corresponding recovery has been credited directly to retained earnings instead
of to the income statement for the Company's use of previously unrecorded loss
carryforwards due to its quasi-reorganization in June 2003.

10.   LITIGATION

On April 23, 2004, the Company and Ecast, Inc., entered into a settlement
agreement (the "Agreement") with respect to the litigation between them.
Pursuant to the Agreement, the Company and Ecast, Inc. agreed, amongst other
things to cause the litigation to be terminated with prejudice, and to
cross-license the patents that were the subject of the litigation. In addition,
Ecast, Inc. agreed to pay to the Company, a total of $4,000,000 (the "Settlement
Amount"). An initial payment of $500,000 was made in respect of the Settlement
Amount on April 23, 2004. The remainder of the Settlement Amount is payable
quarterly in an amount equal to the greater of: (i) $0.005 per play of any song
on any digital jukebox or other device powered by Ecast, Inc. during such
quarter; and (ii) $100,000. Such future payments are secured by a pledge of
substantially all of Ecast, Inc.'s assets.

The discounted amount of these payments was recorded as a gain in the second
quarter of 2004. Management has applied a discount rate of 15% for purposes of
discounting these payments. Legal costs of $411,000 incurred for the period
January 1, 2004 through March 31, 2004, which had been deferred and additional
legal costs totaling $294,000 relating to this settlement in April 2004 have
been charged to general and administrative expenses in the second quarter of
2004.

In March 2004 the Company entered into agreements, effective July 1, 2003, with
the American Society of Composers, Authors and Publishers ("ASCAP") and
Broadcast Music Inc. ("BMI"), organizations representing performance rights for
musical composers and authors. The Company also entered in settlement agreements
with ASCAP and BMI for the periods prior to July 1, 2003. These settlements had
no impact on the Company's reported financial results.


                                       12

<Page>

The Company remains in a dispute with the Society of European Stage Authors and
Composers ("SESAC"). An estimate of the possible loss or range of loss, if any,
cannot be determined at this time.


11.   PROPOSED TRANSACTION


The Company filed with the Securities and Exchange Commission a preliminary
Schedule 13E-3 Transaction Statement with respect to a going private transaction
(the "Proposed Transaction") and a preliminary Schedule 14A Proxy Statement
soliciting a stockholders vote on the Proposed Transaction. In connection with
the Proposed Transaction, the Company intends to effect a reverse stock split of
Common Stock at a ratio of one to 2,000. Once the Schedule 13E-3 Transaction
Statement and Schedule 14A Proxy Statement are approved by the SEC and are in
definitive form, the Company will mail copies to all of its stockholders,
describing all of the material terms of the Proposed Transaction, and currently
intends to effect the Proposed Transaction as soon as possible thereafter.


12.   SUBSEQUENT EVENT


On October 21, 2004 the Company accepted an offer letter from its bank
providing for an increase in the Line of Credit from $2,000,000 to $4,000,000
and a new term loan facility of $2,000,000 for purposes of providing
financing for certain of its products. These facilities will be available to
the Company upon completion of final documentation.

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

THE DISCUSSION AND ANALYSIS BELOW CONTAINS TREND ANALYSIS AND OTHER
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED (THE "EXCHANGE ACT"). WORDS SUCH AS "ANTICIPATES", "EXPECTS",
"INTENDS", "PLANS", "BELIEVES", "SEEKS", "ESTIMATES", VARIATIONS OF SUCH WORDS
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE
SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO
PREDICT. THEREFORE, ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED
OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF
FACTORS, WHICH ARE NOT WITHIN THE COMPANY'S CONTROL.

The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements, including the notes thereto,
contained in the Company's Annual Report on Form 10-KSB, as amended, for the
fiscal year ended December 31, 2003. Note that all dollar amounts set forth in
this quarterly report on Form 10-QSB are in United States dollars, except where
otherwise indicated, and references herein to "dollars" or "$" are to United
States dollars and references to "CDN" are to Canadian dollars.



BACKGROUND AND OVERVIEW

                                       13

<Page>

         The Company was a development-stage company until September 1998. Prior
to September 1998, the Company's financial resources were used to finance the
development of its digital jukeboxes (the "Digital Jukeboxes"), which utilize
digitally compressed audio technology to distribute music titles securely
through a proprietary distribution network. Revenues since September 1998 have
been generated from sales and leases of the Digital Jukeboxes to jukebox
operators in the United States, as well as from the music service contracts
associated with such sales and leases of the Digital Jukeboxes. As at September
30, 2004, the Company had delivered a total of approximately 9,745 Digital
Jukeboxes as compared with 6,700 Digital Jukeboxes delivered as at September 30,
2003. Management intends to continue its development activities in applying its
technologies to other music-on-demand products and applications to other
industries.


         The Company plays over 20 million songs to an estimated audience of
approximately three million people each month. Management expects the base of
installed Digital Jukeboxes to continue to grow, thereby increasing the number
of plays and the audience exposure. This growth is expected to establish the
Digital Jukeboxes as a significant promotional medium for record labels and
their artists.

         Total assets of the Company were approximately $20,000,000 at September
30, 2004, an increase of approximately $3,245,000 from December 31, 2003. The
increase was primarily due to an increase in trade accounts receivable of
approximately $951,000 and an increase in inventory of approximately $995,000 as
a result of an increase in jukebox sales. In addition, the Company recorded an
asset totaling approximately $1,904,000 representing the discounted amount of
payments to be received under a litigation settlement agreement entered into on
April 23, 2004. These increases were in part offset by the reduction of
investment in sales type leases, which was primarily attributable to the
collection of lease payments on these leases. Total liabilities of the Company
also increased as compared to December 31, 2003, from approximately $8,785,000
to $9,819,000 at September 30, 2004. This is primarily due to amounts drawn down
on the Company's new Music Advance Term Loan offset by the repayment of the CED
Term Loan and Jukebox Term Loan as these terms are defined under "Results of
Operations for the Three-Month and Nine-month periods Ended September 30, 2004
Compared to the Three-Month and Nine-month periods ended September 30, 2003 --
Liquidity and Capital Resources" below) during the first quarter of 2004 and
amounts drawn down on the new financing agreement entered into with Firestone
Financial Corp. to finance the company's Tune Centrals. In addition the Company
recorded an increase in accounts payable and accrued liabilities which is offset
by a decrease in bank indebtedness.



RESULTS OF OPERATIONS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER
30, 2004 COMPARED TO THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30,
2003

The Company recorded net income after tax of approximately $283,000 and
$1,322,000 for the three-month ("third quarter 2004") and nine-month periods
ended September 30, 2004 as compared to a net loss of approximately $198,000
and $1,375,000 for the corresponding three-month ("third quarter 2003") and
nine-month periods in 2003.

Net income attributable to common stockholders and holders of common stock
equivalents was approximately $283,000 and $1,322,000 respectively for the
three-month and nine-month periods ended September 30, 2004 as compared to net
losses of approximately $198,000 and $41,691,000 for the comparative periods in
2003. There was no non-cash charge for dividends and accretion of the Company's
mandatorily redeemable Series B Preferred Stock for either period of 2004, as
compared to approximately $39,266,000 for the comparative nine month period in
2003 as the rights of the holders of Series B Preferred Stock to receive a
cumulative dividend and to demand redemption by the Company were ended in June
2003.

         REVENUES AND OTHER INCOME

         Revenues and other income increased by approximately $2,787,000 or 34%,
from approximately $8,110,000 in the third quarter 2003 to approximately
$10,898,000 in the third quarter 2004.


                                       14

<Page>

         Revenues and other income increased by approximately $10,697,000 or
52%, from approximately $20,406,000 for the nine-month period ended September
30, 2003 to approximately $31,103,000 for the nine-month period ended September
30, 2004.

         Revenues from the sale of Digital Jukeboxes increased by approximately
$1,294,000 from approximately $4,786,000 for the third quarter 2003 to
$6,080,000 for the third quarter 2004. This increase is attributable to
increased unit sales of the Company's Digital Jukeboxes and sales of Tune
Centrals, which is a new product not sold during the comparative period of 2003.

         Music service revenues grew to approximately $4,410,000 for the third
quarter 2004 as compared with approximately $2,905,000 for the third quarter
2003. This increase in music service revenues resulted from an increase in the
total number of Digital Jukeboxes and the installation of Tune Centrals on the
Company's network, which generate recurring music service revenues.

         Digital Jukebox leasing and financing revenues increased to
approximately $408,000 for the third quarter 2004 as compared to $355,000 for
the third quarter 2003. This increase is attributable to the sale of Tune
Central, which the Company has leased to customers offset by a reduction in
leasing and financing revenues on Digital Jukeboxes as many of these leases
reach the expiration of their term.

         Revenues from the sale of Digital Jukeboxes increased by approximately
$ 4,899,000 from approximately $10,717,000 for the nine-month period ended
September 30, 2003 to $15,616,000 for the corresponding period of 2004. This
increase is attributable to increased unit sales of the Company's Digital
Jukeboxes and the sale of Tune Centrals, which is a new product not sold during
the comparative period of 2003.

         Music service revenues grew to approximately $11,872,000 for the
nine-month period ended September 30, 2004 as compared with approximately
$8,176,000 for the comparative period of 2003. This increase in music service
revenues resulted from an increase in the total number of Digital Jukeboxes and
the installation of Tune Centrals on the Company's network, which generate
recurring music service fees.

         Digital Jukebox leasing and financing revenues declined to
approximately $1,181,000 for the nine-month period ended September 30, 2004 as
compared to $1,289,000 for the nine-month period ended September 30, 2003. This
decrease is attributable to the decreased number of Digital Jukeboxes under
capital lease and is offset by revenues recorded on Tune Centrals which the
Company has leased to customers.

         During the second quarter of 2004, the Company recorded other income
totaling approximately $2,480,000, representing the discounted amount of
payments, at a discount rate of 15%, to be received under a litigation
settlement agreement entered into on April 23, 2004 with Ecast, Inc.


         COST OF JUKEBOX REVENUES AND DIRECT OPERATING COSTS

         The cost of jukebox revenues and direct operating costs increased by
approximately $2,157,000, or 44%, from approximately $4,900,000 in the third
quarter 2003 to approximately $7,057,000 during the third quarter 2004. The
increase in cost of jukebox revenues is due to an increase in the number of
Digital Jukeboxes sold in the period and the sale of Tune Centrals, which had
not been available for sale in the comparative period of 2003. The increase in
direct operating costs is attributable to increased commissions paid to
distributors and other variable costs directly related to the increased volume
of Digital Jukebox and Tune Central sales. In addition, the increase in the
number of Digital Jukeboxes sold and the sale of Tune Centrals has resulted in
an increase in the number of plays on the Company's network, thereby resulting
in an increase in the royalties paid to music labels and publishers.

         The cost of jukebox revenues and direct operating costs increased by
approximately $5,079,000 or 42%, from approximately $12,134,000 for the
nine-month period ended September 30, 2003 to approximately $17,213,000 for the
nine-month period ended September 30, 2004. The increase in cost of


                                       15

<Page>

jukebox revenues is due to an increase in the number of Digital Jukeboxes sold
in the period and the sale of Tune Centrals, which had not been available for
sale in the comparative period of 2003. The increase in direct operating costs
is attributable to increased commissions paid to distributors and other variable
costs directly related to the increased volume of Digital Jukebox and Tune
Central sales. In addition, the increase in the number of Digital Jukeboxes sold
and the sale of Tune Centrals has resulted in an increase in the number of plays
on the Company's network, thereby resulting in an increase in the royalties paid
to music labels and publishers.



         GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative expenses decreased by approximately $360,000
or 23%, from approximately $1,535,000 in the third quarter 2003 to approximately
$1,175,000 in the third quarter 2004. This decrease is principally attributable
to the reduction in legal fees associated with the settlement of the Ecast, Inc.
and Rowe International, Inc. litigation.

         General and administrative expenses increased by approximately
$1,042,000 or 26%, from approximately $3,982,000 for the nine-month period ended
September 30, 2003 to approximately $5,024,000 for the nine-month period ended
September 30, 2004. This increase is principally attributable to legal costs
totaling approximately $214,000 associated with the Company's privatization
efforts and incurred severance payments of approximately $167,000 to an
executive who left the Company in June 2004. The Company also charged to expense
for the period an estimate for bonuses for employees totaling $675,000.

         RESEARCH AND DEVELOPMENT EXPENSES

         Research and development expenses increased by approximately $80,000,
or 10%, from approximately $766,000 in the third quarter 2003 to approximately
$846,000 in the third quarter 2004. This increase in research and development
expenses is in large part due to costs incurred in respect of the ongoing
development and design of new products.

         Research and development expenses increased by approximately $486,000,
or 22%, from approximately $2,198,000 for the nine-month period ended September
30, 2003 to approximately $2,684,000 for the nine-month period ended September
30, 2004. This increase in research and development expenses is in large part
due to costs incurred in respect of ongoing development and design of new
products.

         The Company recorded as a reduction of expenses, approximately $65,000
of ITC for the nine-month period ended September 30, 2004 as compared with
$324,000 for the nine-month period ended September 30, 2003.


         SALES AND MARKETING EXPENSES

         Sales and marketing expenses increased by approximately $82,000, or
11%, from approximately $764,000 in the third quarter 2003 to approximately
$846,000 in the third quarter 2004. This increase is mainly due to an increase
in commissions paid to the Company's salespeople as a result of the overall
increase in unit sales of Digital Jukeboxes and the sale of Tune Centrals.

         Sales and marketing expenses increased by approximately $328,000 or
16%, from approximately $2,069,000 for the nine-month period ended September 30,
2003 to approximately $2,397,000 for the nine-month period ended September 30,
2004. This increase is mainly due to an increase in commissions paid to the
Company's salespeople as a result of the overall increase in unit sales of
Digital Jukeboxes and the sale of Tune Centrals.


         INTEREST EXPENSE

                                       16

<Page>

         Interest expense decreased by approximately $49,000, or 34%, from
approximately $147,000 in the third quarter 2003 to approximately $98,000 in the
third quarter 2004. This decrease is primarily due to the repayment of the
Jukebox Term Loan in March 2004. This was partially offset by interest paid on
the Company's Music Advance Term Loan and Notes Payable

         Interest expense decreased by approximately $338,000 or 53%, from
approximately $641,000 for the nine-month period ended September 30, 2003 to
approximately $303,000 for the nine-month period ended September 30, 2004. This
decrease in the Company's interest expense is mainly attributable to
approximately $254,000 of interest charged in the first quarter of 2003 in
respect of the Company's unsecured loan from stockholders which was converted in
June 2003. This was partially offset by interest paid on the Company's Music
Advance Term Loan and the notes payable.


         DEPRECIATION AND AMORTIZATION EXPENSE

         Depreciation and amortization expense increased by approximately
$137,000, or 43%, from approximately $319,000 in the third quarter 2003 to
approximately $456,000 in the third quarter 2004. Depreciation and amortization
expense increased by approximately $210,000 from approximately $1,047,000 in the
nine-month period ended September 30, 2003 to approximately $1,257,000 for the
nine-month period ended September 30, 2004. Fewer Digital Jukeboxes are being
held by the Company as capital assets, which result in a decrease in
depreciation. However, this is more than offset by amortization charges relating
to equipment accounted for as capital assets under the Company's Tune Central
leasing program.


         FOREIGN EXCHANGE LOSSES

         The Company experienced a foreign exchange gain of approximately
$53,000 during the third quarter 2004, and a foreign exchange loss of $81,000
for the nine-month period ended September 30, 2004, as compared to a foreign
exchange loss of approximately $37,000 during the third quarter of 2003 and
$35,000 for the nine-month period ended September 30, 2003. Foreign exchange
gains or losses result from the Company paying certain expenditures in
currencies other than the United States dollar. The main foreign currency in
which the Company's wholly-owned subsidiary, TouchTunes Digital Jukebox, Inc.,
transacts is the Canadian dollar.


         SEASONALITY

         The Company has experienced lower sales volume during the summer
vacation period of June, July and August, as well as during national holiday
periods. These seasonal fluctuations may result in significant decreases in the
Company's results of operations and have material adverse effects on its
financial condition.


         LIQUIDITY AND CAPITAL RESOURCES

         The Company's funding has come principally from a group of three
investors: Societe Innovatech du Grand Montreal, CDP Capital Technologies
(formerly known as CDP Sofinov) and CDP Capital Communications (formerly known
as Capital Communications CDPQ Inc.). To date, they have collectively invested
approximately $43,000,000 in the Company, which has provided the Company with
sufficient capital resources to finance its start-up activities and to commence
commercial operations. Financing arrangements with the National Bank of Canada
are another significant source of funding for the Company's operations.

         In January 1999, TouchTunes Digital entered into the following loan
facilities with the National Bank of Canada to finance the Company's equipment
acquisitions, leasehold improvements, and research and development expenditures:
(1) a small business loan under the Small Business Loans Program sponsored by
the Government of Canada; (2) a general term loan; and (3) a term loan under the
Loan

                                       17

<Page>

Program for Technology Firms sponsored by the Canada Economic Development (the
"CED TERM LOAN"). In August 2001, the Company repaid in full the total amount
owed under the small business loan and the general term loan. The CED Term Loan
was repaid in full in February 2004.

         In April 1999, TouchTunes Digital entered into a jukebox term loan
facility (the "JUKEBOX TERM LOAN") providing for loans aggregating approximately
$10,400,000 with the National Bank of Canada to finance the cost of
manufacturing the Digital Jukeboxes. The Jukebox Term Loan was repaid in full in
March 2004.


         In May 2001, TouchTunes Digital obtained an operating line of credit
(the "LINE OF CREDIT") from the National Bank of Canada in the amount of
$500,000 bearing interest at the National Bank of Canada's U.S. prime rate plus
1.25%, which was subsequently increased in September 2001 to $1,000,000 The Line
of Credit is also secured with a lien on the past, present and future assets of
TouchTunes Digital and the Company as well as a guarantee from the Company for
the entire amount drawn down on the Line of Credit.

         In May 2003, the Line of Credit was increased from $1,000,000 to
$2,000,000.

         In January 2004, TouchTunes Digital entered into the Music Advance
Term Loan with the National Bank of Canada for an aggregate $2,000,000 for
purposes of financing the recoupable advances made to certain music
providers. The Term Loan bears interest at the U.S. base rate of the Bank
plus 3%, representing a rate of 7.5% as at September 30, 2004. The Term Loan
is also collateralized by a certificate of guarantee issued by La Financiere
du Quebec covering 50% of the net loss risk and a charge on moveable property
in the amount of $2,400,000. The Music Advance Term Loan is repayable over
the term of the respective music agreements financed, ranging from one to
five years.

         The Music Advance Term Loan is secured by a lien on the past, present
and future assets of TouchTunes Digital and the Company and a guarantee from the
Company for the entire amount due under each of these financing arrangements.

On October 21, 2004 the Company accepted an offer letter from its bank
providing for an increase in the Line of Credit from $2,000,000 to $4,000,000
and a new term loan facility of $2,000,000 for purposes of providing
financing for certain of its products. These facilities will be available to
the Company upon completion of final documentation.

         In May 2000, the Company issued an aggregate of 8,888,889 shares of
Series B Preferred Stock to CDP Capital Technologies and CDP Capital
Communications. Specifically, the Company issued 2,222,222 shares of Series B
Preferred Stock to CDP Capital Technologies in exchange for the conversion of
$5,000,000 in prior advances to the Company. The remaining 6,666,667 shares of
Series B Preferred Stock were issued to CDP Capital Communications in exchange
for proceeds consisting of (i) $14,000,000 in cash and (ii) $1,000,000
previously advanced by CDP Capital Communications to the Company.

         In July 2001, the Company's Board of Directors approved the terms of an
unsecured loan facility (the "Unsecured Loan Facility"), from CDP Capital
Communications and CDP Capital Technologies, for up to a maximum of $5,000,000.
Under these terms, CDP Capital Communications and CDP Capital Technologies
committed to lend up to $3,000,000 and $2,000,000, respectively. As at March 31,
2003, $3,500,000 had been advanced by CDP Capital Communications and CDP Capital
Technologies in the form of promissory notes ("CDP Notes") excluding accrued
interest of approximately $1,000,000 thereon, bearing interest at the rate of
20% per annum, repayable 30 days after issuance unless exchanged earlier for
debentures issuable under the Unsecured Loan Facility.

         On December 20, 2002, the Company issued convertible debentures
("Debentures") to two principal stockholders, namely CDP Capital Communications
and CDP Capital Technologies, for a principal amount of $400,000 each, bearing
interest at 20% per annum and maturing on June 30, 2003.


                                       18

<Page>

         On June 10, 2003 the Company completed a capital restructuring
providing for the conversion of the Unsecured Loan Facility and the Debentures
and accrued dividends and accretion on Series B Preferred Stock into a new
series of preferred stock.

         As a result of this transaction, the Unsecured Loan Facility totaling
$5,325,000 and dividends and accretion due on Series B Preferred Stock totaling
$10,981,663 were converted into 25,000,000 Series C Preferred Stock with an
issuance price of $12,500,000.

         The Company's Board of Directors and the requisite number of
stockholders of the Company also approved amendments to the Company's Second
Amended and Restated Articles of Incorporation necessary to effect this capital
restructuring. These amendments were to:

(1)  increase the aggregate number of authorized shares of Common Stock from
     50,000,000 shares to 100,000,000 shares;

(2)  create a new class of authorized preferred stock, consisting of 30,000,000
     authorized shares of Series C non-voting Preferred Stock, par value $0.001.
     The Series C Preferred Stock has an issuance price of $0.50 per share and a
     liquidation preference over the Series A Preferred Stock, Series B
     Preferred Stock and Common Stock (as may be adjusted for stock splits,
     dividends, combinations or other recapitalizations with respect to such
     shares). The Series C Preferred Stock shall not be entitled to voting
     rights, dividend rights or redemption rights.

(3)  provide that the issuance of Series C Preferred Stock at a conversion price
     lower than that of Series A Preferred Stock or Series B Preferred Stock
     would trigger a reduction to such lower price of the exercise price of the
     Series A Preferred Stock and Series B Preferred Stock;

(4)  remove the right of holders of Series B Preferred Stock to receive a
     cumulative and preferred dividend;

(5)  remove the right of holders of Series B Preferred Stock to demand
     redemption by the Company and remove the Company's right to redeem the
     Series B Preferred Stock at its option;

(6)  reduce the voting rights of the Series A Preferred Stock and Series B
     Preferred Stock to one vote per each outstanding share of preferred stock,
     in lieu of one vote per share of Common Stock into which a holder's
     Preferred Stock could be converted; and

(7)  require that dividends declared or any distribution even upon or on any
     liquidation, dissolution or winding-up be shared among Series A Preferred
     Stock, Series B Preferred Stock and Common Stock holders without any
     distinction as to classes, as on an as-if-converted to Common Stock.

         In addition to the above capital restructuring, the Company's Board of
Directors voted to eliminate the Company's accumulated deficit as of June 30,
2003 by a corresponding decrease of the additional paid-in capital.

         The agreements as amended between the Company and the National Bank of
Canada governing the Music Advance Term Loan and the Line of Credit contain
financial covenants including requirements that the Company maintains a minimum
net stockholders' equity, as defined in the agreement, of $7,500,000 and a
minimum debt to equity ratio of 1.5 to 1. As at September 30, 2004, the Company
satisfied both of these covenants.

         The Company has contractual obligations totaling approximately
$4,220,000. These relate to payments due under the Company's long-term debt
obligations described above, notes payable and operating leases. The operating
leases are primarily related to office space.

<Table>
<Caption>

      -----------------------------------------------------------------------------------------------------------
      CONTRACTUAL OBLIGATIONS                                   PAYMENTS DUE BY PERIOD
      -----------------------------------------------------------------------------------------------------------
      <S>                                      <C>                        <C>                            <C>
</Table>


                                       19

<Page>

<Table>
<Caption>
      -----------------------------------------------------------------------------------------------------------
                                            TOTAL            LESS THAN 1 YEAR(1)         MORE THAN 1 YEAR(2)
      -----------------------------------------------------------------------------------------------------------
      <S>                                      <C>                        <C>                            <C>
      BANK INDEBTEDNESS                          900,000                    900,000                           --
      -----------------------------------------------------------------------------------------------------------
      LONG TERM DEBT(3)                        1,477,592                  1,009,685                      467,907
      -----------------------------------------------------------------------------------------------------------
      NOTES PAYABLE (4)                        1,001,577                  1,001,577                           --
      -----------------------------------------------------------------------------------------------------------
      OPERATING LEASES                           841,788                    319,580                      522,207
      -----------------------------------------------------------------------------------------------------------
      TOTAL CONTRACTUAL CASH
      OBLIGATIONS                              4,220,956                  3,230,842                      990,114
      -----------------------------------------------------------------------------------------------------------
</Table>
      (1) Refers to "less than 1 year" from October 1, 2004.
      (2) Refers to "more than 1 year" from October 1, 2004.
      (3) Refers to Music Advance Term Loan.
      (4) Refers to Firestone Financing.


         The Company's capital requirements may vary based upon the success of
its Digital Jukeboxes, competitive developments or if its anticipated cash flow
from operations is less or more than expected and its development plans or
projections change or prove to be inaccurate. If any of the Company's material
assumptions prove to be wrong, or if management has failed to account for
material contingencies, the Company may not be able to satisfy these capital
requirements.


ITEM 3.  CONTROLS AND PROCEDURES

         The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation as of September 30, 2004, that the
Company's disclosure controls and procedures (as defined in Rule 13a-15 of the
Exchange Act) are effective in ensuring that all material information required
to be disclosed in this quarterly report has been made known to them in a timely
fashion. There have been no significant changes in the Company's internal
controls or in other factors, or any corrective actions with regard to
significant deficiencies and material weaknesses that could significantly affect
these controls subsequent to the date of their evaluation.


                           PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

         In November 2001, Ecast, Inc. filed a suit against the Company for
non-infringement of a patent (U.S. Patent No. 6,308,204 ("the '204 patent"))
held by the Company and for unfair competition and interference with contractual
relations. Rowe, Inc. was joined in the suit as an alleged infringer of the '204
patent. Rowe, Inc. made the same claims against the Company as Ecast, Inc. The
suit further involved the competitors' allegations that the '204 patent is
invalid, as well as a requested declaration from the Court that the '204 patent
is unenforceable. Ecast, Inc. and Rowe, Inc. dismissed with prejudice their
unfair competition and intentional interference with contract claims against the
Company in October 2003. In December 2003, the U.S. District Court for the
Northern District of California found that Ecast, Inc. infringed the '204
patent, at least through August 18, 2003. The patent claims with respect to
Rowe, Inc. have been stayed as a result of Rowe, Inc.'s bankruptcy proceedings.

         In December 2003, Ecast, Inc. filed a second suit against the Company,
alleging that the Company infringes U.S. Patent No. 5,341,350 ("the '350
patent"). The Company responded with affirmative defenses and counterclaims that
the Company does not infringe the '350 patent and that, if read to cover the
Company's activities, the claims of the '350 patent are invalid. The Company
also asserted counterclaims against Ecast, Inc. and Rock-Ola Manufacturing
Corporation for infringement of the '204 patent. Those competitors have
responded with affirmative defenses and counterclaims that the '204 patent is
not infringed, invalid and unenforceable. Ecast, Inc. responded with additional
state-law counterclaims based upon statements allegedly made by the Company.


                                       20

<Page>

         On April 23, 2004, the Company and Ecast, Inc. entered into a
settlement agreement (the "Agreement") with respect to the litigation between
them. Pursuant to the Agreement, the Company and Ecast, Inc. agreed, amongst
other things to cause the litigation to be terminated with prejudice, and to
cross-license the patents that were the subject of the litigation. In addition,
Ecast, Inc. agreed to pay to the Company, a total of $4,000,000 (the "Settlement
Amount"). An initial payment of $500,000 was made in respect of the Settlement
Amount on April 23, 2004. The remainder of the Settlement Amount is payable
quarterly in amounts equal to the greater of: (i) $0.005 per play of any song on
any digital jukebox or other device powered by Ecast, Inc. during such quarter;
and (ii) $100,000. Such future payments are secured by a pledge of substantially
all of Ecast, Inc.'s assets.

         In March 2004 the Company entered into agreements, effective
July 1, 2003 with the American Society of Composers, Authors and Publishers
("ASCAP") and Broadcast Music Inc. ("BMI"), organizations representing
performance rights for musical composers and authors. The Company also entered
in settlement agreements with ASCAP and BMI for the periods prior to July 1,
2003. These settlements had no impact on the Company's reported financial
results.

         The Company remains in a dispute with the Society of European Stage
Authors and Composers ("SESAC").





ITEM 2.   EXHIBITS AND REPORTS ON FORM 8-K

          a.   The exhibits listed on the Index of Exhibits of this quarterly
               report are included in this filing or incorporated herein by
               reference to other filings, as specified in the Index of
               Exhibits.

          b.   The Company has filed the following reports on Form 8-K for the
               three month period ended September 30, 2004:

                    o    Form 8-K dated August 23, 2004, announcing the
                         resignation of Pierre Desjardins, from his position as
                         a Director of the Company and as Chairman of the Board
                         of the Company, the Audit Committee and the
                         Compensation Committee. The Company also announced the
                         resignation of Didier Benchimol as a Director of the
                         Company.

                    o    Form 8-K dated September 23, 2004, announcing the
                         appointment of William Meder as Chairman of the Board
                         of Directors of the Company and Marc Ferland, James
                         Grant and Robert Jamieson as Directors of the Company.


                                       21

<Page>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                 TOUCHTUNES MUSIC CORPORATION


Dated: November 15, 2004              By: /s/ John Perrachon
                                          ----------------------------
                                 John Perrachon
                                 Chief Executive Officer, President and Director


Dated: November 15, 2004              By: /s/ Matthew Carson
                                          ----------------------------
                                 Matthew Carson
                                 Vice President Finance and
                                 Chief Financial Officer (Principal Financial
                                 Officer)




                                       22



<Page>

                                 CERTIFICATIONS

I, John Perrachon, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of TouchTunes Music
     Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

              (a) Designed such disclosure controls and procedures, or caused
              such disclosure controls and procedures to be designed under our
              supervision, to ensure that material information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others within those entities, particularly during the
              period in which this report is being prepared;

              (b) Evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

              (c) Disclosed in this report any change in the registrant's
              internal control over financial reporting that occurred during the
              registrant's most recent fiscal quarter (the registrant's fourth
              fiscal quarter in the case of an annual report) that has
              materially affected, or is reasonably likely to materially affect,
              the registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

              (a) All significant deficiencies and material weaknesses in the
              design or operation of internal control over financial reporting
              which are reasonably likely to adversely affect the registrant's
              ability to record, process, summarize and report financial
              information; and

              (b) Any fraud, whether or not material, that involves management
              or other employees who have a significant role in the registrant's
              internal control over financial reporting.



Date: November 15, 2004
                                    /s/ John Perrachon
                                    -------------------------------
                                    John Perrachon
                                    Chief Executive Officer, President
                                    and Director


                                       23

<Page>

                                 CERTIFICATIONS

I, Matthew Carson, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of TouchTunes Music
     Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

              (a) Designed such disclosure controls and procedures, or caused
              such disclosure controls and procedures to be designed under our
              supervision, to ensure that material information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others within those entities, particularly during the
              period in which this report is being prepared;

              (b) Evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

              (c) Disclosed in this report any change in the registrant's
              internal control over financial reporting that occurred during the
              registrant's most recent fiscal quarter (the registrant's fourth
              fiscal quarter in the case of an annual report) that has
              materially affected, or is reasonably likely to materially affect,
              the registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

              (a) All significant deficiencies and material weaknesses in the
              design or operation of internal control over financial reporting
              which are reasonably likely to adversely affect the registrant's
              ability to record, process, summarize and report financial
              information; and

              (b) Any fraud, whether or not material, that involves management
              or other employees who have a significant role in the registrant's
              internal control over financial reporting.



Date: November 15, 2004

                                    /s/ Matthew Carson
                                    -------------------------------
                                    Matthew Carson
                                    Vice President Finance and Chief Financial
                                    Officer


                                       23

<Page>

                                INDEX OF EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER                              DESCRIPTION
------                              -----------
<S>      <C>
3(i)     Third Amended and Restated Articles of Incorporation. Reference is made to Exhibit 4.1 of the Company's Report on
         Form 8-K filed on June 13, 2003, which Exhibit is incorporated herein by reference.

3(ii)    Amended and Restated Bylaws. Reference is made to Exhibit 3.1 of the Company's Annual Report on Form 10-KSB
         (Amendment No. 1) for the fiscal year ending December 31, 2001, filed on April 16, 2002, which Exhibit is
         incorporated herein by reference.

4.1      Terms of Class A Voting Common Stock, included as part of Exhibit 4.1 of the Company's  Report on Form  8-K filed on
         June 13, 2003, which Exhibit is incorporated herein by reference.

4.2      Terms of Series A Preferred Stock, included as part of Exhibit 4.1 of the Company's Report on Form 8-K filed on June
         13, 2003, which Exhibit is incorporated herein by reference.

4.3      Terms of Series B Preferred Stock, included as part Exhibit 4.1 of the Company's Report on Form 8-K filed on June 13, 2003,
         which Exhibit is incorporated herein by reference.

4.4      Terms of Series C Preferred Stock, included as part of Exhibit 4.1 of the Company's Report on Form 8-K filed on June 13,
         2003, which Exhibit is incorporated herein by reference.

31.1     Certification of John Perrachon pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002 (filed herewith).

31.2     Certification of Matthew Carson pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002 (filed herewith).

32.1     CEO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
         (included herewith solely for the purposes of Section 906).

32.2     CFO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
         (included herewith solely for the purposes of Section 906).

</Table>

                                       25