<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 JUNE 30, 2002


[ ] 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, including area code)


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: AS OF AUGUST 14, 2002, 14,758,644
SHARES OF CLASS A VOTING COMMON STOCK WERE OUTSTANDING.

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

<PAGE>

                          TOUCHTUNES MUSIC CORPORATION

                                      INDEX

                                                                           PAGE
                                                                           ----
PART I - FINANCIAL INFORMATION:

Item 1. Consolidated Balance Sheets (unaudited) as of June 30, 2002
        and December 31, 2001.............................................   1

        Consolidated Statements of Operations and Comprehensive Loss
        (unaudited) for the three-month and six-month periods ended
        June 30, 2002 and 2001............................................   3

        Consolidated Statements of Cash Flows (unaudited) for the
        three-month and six-month periods ended
        June 30, 2002 and 2001............................................   4

Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations.........................................  10

PART II - OTHER INFORMATION:

Item 1. Legal Proceedings.................................................  15

Item 2. Change in Securities..............................................  15

Item 3. Defaults Upon Senior Securities...................................  16

Item 4. Submission of Matters to a Vote of Security Holders...............  16

Item 5. Other Information.................................................  16

Item 6. Exhibits and Reports on Form 8-K..................................  16


<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

The accompanying unaudited financial statements for the quarter ended June 30,
2002 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
shareholders' 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
and the six-month period ended June 30, 2002 are not necessarily indicative of
the results that can be expected for the fiscal year ending December 31, 2002.
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, as amended, for the fiscal year ended December 31, 2001. 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)
                                  JUNE 30, 2002

                           CONSOLIDATED BALANCE SHEETS
                                    [NOTE 2]
<TABLE>
<CAPTION>

      [In U.S. dollars]                                                           AS AT              As at
                                                                               JUNE 30,       December 31,
                                                                                   2002               2001
                                                                                      $                  $
      ---------------------------------------------------------------- ----------------- ------------------
                                                                            (UNAUDITED)            (Note*)
     <S>                                                                    <C>                <C>
      ASSETS
      CURRENT
      Cash and cash equivalents                                                  20,768            317,632
      Trade accounts receivable                                               6,668,849          4,723,251
      Other receivables                                                         117,081            158,155
      Prepaid expenses and deposits                                             513,877            386,329
      Inventory                                                               2,200,745          2,706,707
      Current portion of investment in sales-type leases                      1,444,088          1,229,311
      ---------------------------------------------------------------- ----------------- ------------------
      TOTAL CURRENT ASSETS                                                   10,965,408          9,521,385
      ---------------------------------------------------------------- ----------------- ------------------

      Investment in sales-type leases                                         3,858,628          5,377,772
      Property, plant and equipment, net                                      3,311,902          4,177,612
      Intangibles, net                                                          615,438            683,695
      Other assets                                                              639,963            610,439
      Deferred charges                                                          450,098                 --
      ---------------------------------------------------------------- ----------------- ------------------
                                                                             19,841,437         20,370,903
      ================================================================ ================= ==================
</TABLE>


* Note: The balance sheet as at December 31, 2001 has been derived from the
audited 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.

                                       1
<PAGE>

     TOUCHTUNES MUSIC CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                                    [CONT'D]
                                    [NOTE 2]
<TABLE>
<CAPTION>
                                                                                 AS AT             As at
                                                                              JUNE 30,      December 31,
                                                                                  2002              2001
                                                                                     $                 $
     --------------------------------------------------------------- ------------------ -----------------
                                                                           (UNAUDITED)           (Note*)
     LIABILITIES AND STOCKHOLDERS' DEFICIENCY

    <S>                                                                    <C>               <C>
     CURRENT LIABILITIES
     Bank indebtedness (note 5)                                                850,000         1,000,000
     Accounts payable and accrued liabilities                                5,282,971         6,714,075
     Current portion of long-term debt (note 5)                              2,418,346         2,375,954
     Current portion of capital lease obligations                              104,736           114,582
     Unsecured loan from principal stockholders (note 6)                     3,840,548                --
     --------------------------------------------------------------- ------------------ -----------------
     TOTAL CURRENT LIABILITIES                                              12,496,601        10,204,611
     --------------------------------------------------------------- ------------------ -----------------

     Long-term debt (note 5)                                                 1,796,864         3,000,627
     Capital lease obligations                                                      --            45,820
     Unsecured loan from principal stockholders (note 6)                            --         1,500,000
     --------------------------------------------------------------- ------------------ -----------------
                                                                            14,293,465        14,751,058
     --------------------------------------------------------------- ------------------ -----------------

     Series B preferred stock, $0.001 par value (note 6)
     Authorized: 10,000,000 shares
     Issued and outstanding: 8,888,889 shares
     Redeemable, retractable and convertible
     Redeemable at $34,487,672                                              27,884,090        25,873,575
     --------------------------------------------------------------- ------------------ -----------------

     STOCKHOLDERS' DEFICIENCY
     Series A preferred stock, $0.001 par value
     Authorized: 15,000,000 shares
     Issued and outstanding: 12,843,960 shares                                  12,844            12,844
     Class A voting common stock, $0.001 par value
     Authorized: 50,000,000 shares
     Issued and outstanding: 14,758,644 shares (2001-14,658,644)                14,759            14,659
     Additional paid-in capital                                             18,853,631        20,763,446
     Accumulated deficit                                                   (41,217,352)      (41,044,679)
     --------------------------------------------------------------- ------------------ -----------------
     TOTAL STOCKHOLDERS' DEFICIENCY                                        (22,336,118)      (20,253,730)
     --------------------------------------------------------------- ------------------ -----------------
                                                                            19,841,437        20,370,903
     =============================================================== ================== =================
</TABLE>

     SEE ACCOMPANYING NOTES.

     * Note: The balance sheet as at December 31, 2001 has been derived from the
     audited 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.

     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, as
     amended, for the fiscal year ended December 31, 2001.

                                       2
<PAGE>

     TOUCHTUNES MUSIC CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>

   [In U.S. dollars]                           THREE MONTH PERIOD   SIX MONTH PERIOD     Three month          Six month
                                                            ENDED              ENDED          period             period
                                                         JUNE 30,           JUNE 30,           ended              ended
                                                             2002               2002   June 30, 2001       June 30,2001
                                                                $                  $               $                  $
   ------------------------------------------------ -------------- ------------------ --------------- ------------------
                                                      (UNAUDITED)        (UNAUDITED)     (unaudited)        (unaudited)
  <S>                                                 <C>                 <C>            <C>                <C>
   REVENUES
   Jukebox sales                                        3,050,163          5,999,711       3,554,076          5,775,452
   Music service                                        1,906,625          3,569,123       1,044,181          1,968,606
   Jukebox leasing and financing                          906,003          1,986,063       1,115,657          2,242,060
   Gain on disposal of Jukebox as capital
      assets and investment in sales-type leases           13,020            233,809           8,492             45,164
   ------------------------------------------------ -------------- ------------------ --------------- ------------------
                                                        5,875,811         11,788,706       5,722,406         10,031,282
   ------------------------------------------------ -------------- ------------------ --------------- ------------------
   EXPENSES
   Cost of jukebox revenues
      and direct operating costs                        3,013,646          6,045,387       3,488,617          6,285,916
   Research and development                               426,360            740,515         537,077          1,012,412
   General and administrative                             991,337          1,999,443       1,282,783          2,685,416
   Sales and marketing                                    674,356          1,428,906       1,338,295          2,798,872
   Interest                                               320,708            582,134         308,660            618,603
   Depreciation and amortization                          398,521            839,826         464,081            969,253
   Restructuring cost                                          --            262,808              --                 --
   Foreign exchange loss (gain)                            27,753             62,360          79,249           (25,042)
   ------------------------------------------------ -------------- ------------------ --------------- ------------------
                                                        5,852,681         11,961,379       7,498,762         14,345,430
   ------------------------------------------------ -------------- ------------------ --------------- ------------------

   NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)       23,130           (172,673)     (1,776,356)        (4,314,148)
   Dividends and accretion of mandatorily
      redeemable Series B preferred stock               1,007,914          2,010,515         997,260          1,983,562
   ------------------------------------------------ -------------- ------------------ --------------- ------------------
   NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS          (984,784)        (2,183,188)     (2,773,616)        (6,297,710)
   ================================================ ============== ================== =============== ==================

   Per common share
   BASIC AND DILUTED NET LOSS PER SHARE (NOTE 4)             0.07               0.15            0.19               0.43
   ================================================ ============== ================== =============== ==================
</TABLE>

          SEE ACCOMPANYING NOTES.

                                       3
<PAGE>

     TOUCHTUNES MUSIC CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

[In U.S. dollars]                                         THREE MONTH         SIX MONTH        Three month            Six month
                                                               PERIOD            PERIOD             period               period
                                                                ENDED             ENDED              ended                ended
                                                             JUNE 30,          JUNE 30,           June 30,             June 30,
                                                                 2002              2002               2001                 2001
                                                                    $                 $                  $                    $
---------------------------------------------- ----------------------- ----------------- ------------------ --------------------
                                                           (UNAUDITED)       (UNAUDITED)        (unaudited)          (unaudited)
<S>                                                         <C>             <C>              <C>                   <C>
OPERATING ACTIVITIES
Net income (loss) and comprehensive income (loss)              23,130          (172,673)        (1,776,356)          (4,314,148)
Non-cash portion of interest expense                          162,740           340,548                 --                   --

Adjustments to reconcile net loss to net cash
  used in operating activities:
     Depreciation and amortization                            398,521           839,826            464,081              969,253
     Gain on disposal of Jukebox as capital
       assets and investment in sales-type leases             (13,020)         (233,809)            (7,492)             (45,164)
Changes in operating assets and liabilities:
     Accounts and other receivables                          (776,906)       (1,904,524)          (644,057)          (2,176,407)
     Inventory                                               (168,347)          505,962          1,145,782            1,060,962
     Prepaid expenses and deposits                             44,464          (127,548)            17,050              218,868
     Other assets                                             (30,786)          (29,524)               (32)             (24,464)
     Accounts payable and accrued liabilities                 (68,439)       (1,431,104)           853,799              848,506
     Income taxes payable                                          --                --            (23,203)              34,731
     Decrease in sales-type leases                            322,068           579,234            399,252            1,708,196
     Other liabilities                                             --                --            (60,723)            (135,224)
---------------------------------------------- ----------------------- ----------------- ------------------ --------------------
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES              (106,575)       (1,633,612)           368,101           (1,854,891)
---------------------------------------------- ----------------------- ----------------- ------------------ --------------------

INVESTING ACTIVITIES
Increase in cost of intangibles                                (5,715)          (30,696)          (115,509)            (127,477)
Purchase of other property, plant, and equipment              (63,007)          (76,688)          (292,194)            (567,930)
Increase in deferred charges                                  (84,165)         (349,298)                --                   --
---------------------------------------------- ----------------------- ----------------- ------------------ --------------------
CASH USED IN INVESTING ACTIVITIES                            (152,887)         (456,682)          (407,703)            (695,407)
---------------------------------------------- ----------------------- ----------------- ------------------ --------------------

FINANCING ACTIVITIES
Proceeds from unsecured loan from principal stockholders    1,000,000         2,000,000                 --                   --
Proceeds on disposal of Jukeboxes as capital assets and
  investment in sales-type leases                             115,402         1,160,467            (59,179)              69,846
Increase (decrease) in bank indebtedness                     (429,838)         (150,000)           350,000              350,000
Repayment of long-term debt                                  (379,967)       (1,161,371)          (819,868)          (1,888,520)
Repayment of capital lease obligations                        (25,367)          (55,666)           (56,042)            (137,709)
---------------------------------------------- ----------------------- ----------------- ------------------ --------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES               280,230         1,793,430           (585,089)          (1,606,383)
---------------------------------------------- ----------------------- ----------------- ------------------ --------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS           20,768          (296,864)          (624,691)          (4,156,681)
Cash and cash equivalents, beginning of period                     --           317,632            837,266            4,369,256
CASH AND CASH EQUIVALENTS, END OF PERIOD                       20,768            20,768            212,575              212,575

SUPPLEMENTARY INFORMATION
------------------------------------------ --------------------------- ----------------- ------------------ --------------------
Interest paid                                                 135,200           261,784            304,014              660,657
------------------------------------------ --------------------------- ----------------- ------------------ --------------------
========================================== =========================== ================= ================== ====================
</TABLE>

          SEE ACCOMPANYING NOTES.

                                       4
<PAGE>

TOUCHTUNES MUSIC CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

June 30, 2002
[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 is its digital
jukeboxes (the "Digital Jukeboxes"), which utilize digitally compressed audio
technology to distribute music titles securely through a proprietary
distribution network. Revenues are derived from selling and leasing the Digital
Jukeboxes, as well as providing music services and advertising through its
network of Digital Jukeboxes. The Company is also developing its technology for
other music-on-demand applications.

2. BASIS OF FINANCIAL STATEMENT PRESENTATION AND GOING CONCERN ASSUMPTION

The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States on
a going concern basis which presumes the realization of assets and the discharge
of liabilities in the normal course of business for the foreseeable future.
Accordingly, these financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classifications of
assets or the amounts and classifications of liabilities that may be necessary
should the Company be unable to continue its business in the normal course.

Certain conditions and events cast doubt upon the validity of this going concern
assumption. Prior to the current period, the Company incurred recurring
operating losses and also generated negative cash flow from operations since the
inception of operations. In addition, the Company must comply with certain debt
covenants, as indicated below in note 5, and must obtain the continued support
of its principal stockholders. In light of the expected continued support of its
principal stockholders and management's actual plans, including forecasted
financial results and cash flows for the next twelve months, the Company expects
to remain in compliance with its debt covenants.

The Company's ability to continue as a going concern is dependent principally
upon its ability to achieve profitable operations, generate positive cash flows
from operations, maintain the continued support of its principal stockholders
and remain in compliance with its debt covenants. The outcome of these
uncertainties cannot be predicted at this time.

The consolidated financial statements at June 30, 2002, and for the three-month
and six-month periods ended June 30, 2002 and 2001, 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.

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, as amended,
for the fiscal year ended December 31, 2001.

The results of operations for the three-month and six month periods ended June
30, 2002 are not necessarily indicative of the results for the fiscal year
ending December 31, 2002 or any other future periods.

                                       5
<PAGE>

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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

During 2001, the Company recognized revenue on the sale of jukeboxes when the
product was received by the customer. As of June 30, 2002 the sale of jukeboxes
are recognized when the jukebox is shipped to reflect the evolution of the
Company's business model.


ACCOUNTING PRONOUNCEMENTS

On June 30, 2002, the Financial Accounting Standards Board Issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities.

This Statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)."

The new standard is effective for disposal activities initiated after December
31, 2002.

Effective January 1, 2002, the Company adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets.

Under the new rules, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives.

The adoption of this standard had no impact on the Company's financial position
or results of operations.

Effective January 1, 2002, the Company adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.

This statement supersedes SFAS No.121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. Although
retaining many of the fundamental recognition and measurement provisions of SFAS
No.121, the new rules modify the criteria required to classify an asset as
held-for-sale. SFAS No.144 will also supersede certain provisions of APB Opinion
30 with regard to reporting the effects of a disposal of a segment of a business
and will require expected future operating losses from discontinued operations
to be separately reported in discontinued operations during the period in which
the losses are incurred (rather than as of the measurement date as presently
required by APB 30).

The adopting of this standard had no impact on the Company's financial position
or results of operations.

On April 30, 2002, the Financial Accounting Standards Board Issued SFAS No. 145,
Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13, and Technical Corrections. SFAS No. 145 rescinds Statement 4, which required
all gains and losses from extinguishment of debt to be classified as an
extraordinary item, net of related income tax effect, if material in the
aggregate. Due to the recission of SFAS No. 4, the criteria in Opinion 30 will
now be used to classify those gains and losses.

The provisions of SFAS No. 145 related to the recission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria for classification as an

                                       6
<PAGE>

extraordinary item will be reclassified. The provisions of SFAS No. 145 related
to SFAS No. 13 are effective for transactions occurring after May 15, 2002. All
other provisions of this Statement shall be effective for financial statements
issued on or after May 15, 2002. The adoption of this standard had no impact on
the Company's financial position or results of operations.

In August 2001, the FASB issued Statement No. 143 "Accounting for Asset
Retirement Obligations" that provides accounting guidance for the costs of
retiring long-lived assets and is effective for fiscal years beginning after
June 15, 2002. The Company is currently assessing the impact adoption of this
statement will have on its financial statements.


COMPARATIVE FIGURES

Certain figures in the 2001 financial statements have been reclassified to
conform with the presentation used in 2002.


4. BASIC AND DILUTED LOSS PER SHARE

The calculation of basic and diluted net loss per share for the quarter and the
six-month period ended June 30, is as follows:

<TABLE>
<CAPTION>
                                                      THREE MONTH          SIX MONTH    THREE MONTH          SIX MONTH
                                                           PERIOD             PERIOD         PERIOD             PERIOD
                                                            ENDED              ENDED          ENDED              ENDED
                                                         JUNE 30,           JUNE 30,       JUNE 30,           JUNE 30,
                                                             2002               2002           2001               2001
                                                                $                  $              $                  $
--------------------------------------------- -------------------- ------------------ -------------- ------------------
<S>                                                  <C>                 <C>            <C>                <C>
Net loss attributable to common stockholders              984,784          2,183,188      2,773,616          6,297,710
--------------------------------------------- -------------------- ------------------ -------------- ------------------
Weighted average shares outstanding used to
  compute basic and diluted net loss
  per share                                            14,725,311         14,691,977     14,658,644         14,658,644
--------------------------------------------- -------------------- ------------------ -------------- ------------------
Basic and diluted net loss per share                         0.07               0.15           0.19               0.43
--------------------------------------------- -------------------- ------------------ -------------- ------------------
</TABLE>

The options and warrants to purchase the Company's Class A voting common stock,
were not included in the computation of the diluted loss per share, as the
effect would be anti-dilutive.

The impact of the conversion of 12,843,960 shares of the Company's Series A
preferred stock, and 8,888,889 shares of the Company's Series B preferred stock
was not included in the computation of the diluted loss per share, as the effect
would be anti-dilutive.

5. BANK INDEBTEDNESS AND LONG-TERM DEBT

The Company's bank indebtedness includes an operating line of credit (the "Line
of Credit") in the amount of $1 million, of which $850,000 was utilized at June
30, 2002. The Line of Credit is payable on demand and bears interest at the U.S.
base rate plus 1.25%, representing a rate of 6.5% at June 30, 2002 and was
renewed on April 30, 2002 for an additional year. The Line of Credit is also
collateralized by a charge on moveable property in the amount of $2,250,000.

                                       7
<PAGE>

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                           Maturity         JUNE 30,       December 31,
                                                                                2002               2001
                                                                                   $                  $
                                                  ------------------ ---------------- ------------------
<S>                                                     <C>              <C>                <C>
CED Term Loan [CDN $277,777](i)                                2004          182,869            226,759
Jukebox Term Loan (ii)                                    2002-2004        4,032,341          5,149,822
                                                                     ---------------- ------------------
Total                                                                      4,215,210          5,376,581
Less: Current portion                                                      2,418,346          2,375,954
                                                                     ---------------- ------------------
Total                                                                      1,796,864          3,000,627
                                                                     ================ ==================
</TABLE>

Long-term debt consist of term loan facilities with a major Canadian chartered
bank, which are collateralized by charges on present and future assets of the
Company. The terms of these loan facilities are as follows:

(i)  The CED term loan (the "CED Term Loan") is a term loan under the Loan
     Program for Technology Firms sponsored by Canada Economic Development. The
     loan bears interest at the Canadian prime rate plus 3.50%, representing a
     rate of 7.75% as at June 30, 2002. Principal repayment is over a thirty-six
     month period which commenced in March 2001 in equal payments of $9,142
     [CDN$13,889]. The loan is collateralized by a certificate of guarantee
     issued by Canada Economic Development covering 80% of the net loss risk and
     by a charge in the amount of $314,000 [CDN$477,000] on all moveable
     property.

(ii) The jukebox term loan facility (the "Jukebox Term Loan") represents,
     in the aggregate, $10,012,000 and was entered into for purposes of
     financing the cost of manufacturing Digital Jukeboxes. 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 Jukebox Term Loan bears
     interest at the U.S. base rate of the Bank plus 2.55%, representing a rate
     of 7.80% as at June 30, 2002. Additional compensation must be paid to the
     Bank each year in an amount equal to 0.5% of the Company's annual gross
     revenues, as defined. The Jukebox Term Loan is also collateralized by a
     certificate of guarantee issued jointly by Investissement Quebec and the
     Export Development Corporation covering 67% of the net loss risk and a
     charge on moveable property in the amount of $10,400,000. Each Jukebox Term
     Loan is granted for a maximum term of 48 months and the facility must be
     paid in full by November 2004.

The agreements between the Company and the Bank governing the CED Term Loan, the
Jukebox Term Loan and the Line of Credit contain financial covenants. As at June
30, 2002 the Company was in compliance with these financial covenants.

6. UNSECURED LOAN FROM PRINCIPAL STOCKHOLDERS

In 2001, the Company entered into an unsecured loan (the "Loan") with two
principal stockholders of the Company, namely CDP Capital Communications and CDP
Sofinov for a maximum of $5 million, bearing interest at 20% per annum and
maturing on January 3, 2003. Under the terms of the Loan, once in excess of $1.5
million has been drawn on the Loan, the rate at which all outstanding shares of
the Company's Series B Preferred Stock held entirely by CDP Capital
Communications and CDP Sofinov may be converted into Common Stock, would be
adjusted from $2.25 per share of Series B Preferred Stock (the original purchase
price for shares of Series B Preferred Stock) for each share of Common Stock to
be issued to $1.50 per share of Series B Preferred Stock for each share of
Common Stock to be issued.

On February 26, 2002, the Company drew in excess of $1.5 million on the Loan
resulting in the conversion price on Series B Preferred Stock being reduced from
$2.25 to $1.50 per share. In the event the Company defaults on repayment of the
Loan at maturity date, the amount of the Loan outstanding at the time of such
default shall be convertible, at the option of CDP Capital Communications and
CDP Sofinov, into shares of Class A voting Common Stock of the Company at a
conversion rate of $0.50 per share. Included in the balance at June 30, 2002 is
accrued interest of $340,548.

                                       8
<PAGE>

7. 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 and June 4, 2002, the Board of Directors granted stock options to
purchase an aggregate of 2,501,018 shares, 571,500 shares, 73,000 shares,
862,630 shares, 175,000 shares and 1,500,000 shares, respectively, of the
Company's Class A voting Common Stock, with vesting provisions ranging up to
four years. Options granted under the Plan are exercisable for a period of ten
years, except for options granted to shareholders beneficially owning 5% or more
of the Company's Class A voting Common Stock, which are exercisable over a
period of five years. On June 30, 2002, an aggregate of 4,250,000 shares of
Class A voting Common Stock were reserved for future issuance under the Plan.
The Plan was approved by shareholders on February 8, 2001.

8. CONTINGENCIES

a) In November 2001, a competitor filed a suit against the Company for
   non-infringement of a patent held by the Company and for unfair competition
   and interference with contractual relations. The Company believes it has
   meritorious defenses against the competitor for patent infringement. An
   estimate of the possible loss or range of loss, if any, cannot be
   determined at this time.

b) The Company is presently involved in a dispute with the American Society
   of Composers, Authors and Publishers ("ASCAP"), an organization representing
   performance rights for musical composers and authors. The dispute revolves
   around the music publishers desire for the Company to negotiate music
   licensing rights directly with ASCAP as opposed to the Company's current
   approach of negotiating such rights directly with the publishers. The
   dispute does not involve the Company's licensing rights to music but the
   Financial terms of these rights.

ASCAP has requested that a United States Federal judge review the rate
dispute. An estimate of the possible loss or range of loss, if any, cannot be
determined at this time.

9. RESTRUCTURING COSTS

During the last quarter of the year ended December 31, 2001, the Company
undertook a significant restructuring of its operations in order to reduce the
Company's ongoing operating costs. This restructuring was completed in the
quarter ended March 31, 2002, resulting in an additional charge of $262,808.

10. SHARE PURCHASE WARRANTS

In April 2002, pursuant to an exemption from registration for private
placement under Section 4(2) of the Securities Act of 1933, as amended, the
Company issued warrants to purchase 140,000 shares of Class A Common Stock at
a price of $0.42 per share to a record label company. The warrants may be
exercised, in whole or in part, no later than January 4, 2005. In exchange
for the issuance of the warrants, the record label company agreed to renew
the term of their music license agreement with the Company.

In June 2002, pursuant to an exemption from registration for private placement
under Section 4(2) of the Securities Act of 1933, as amended, the Company issued
warrants to purchase 110,000 shares of Class A Common Stock at a price of $0.32
per share to a record label company. The warrants may be exercised, in whole or
in part, no later than December 31, 2004. In exchange for the issuance of the
warrants and a cash consideration, the record label company agreed to renew the
term of their music license agreement with the Company.

The warrants have been accounted for at fair value as an addition to deferred
charges, with an offsetting credit to additional paid in capital.

11. SHARE ISSUANCE

In April 2002, pursuant to an exemption from registration for private
placement under Section 4(2) of the Securities Act of 1933, as amended, the
Company issued 100,000 shares of Class A Common Stock at a price of $0.51 per
share with a value of $51,000 and a par value of $100 to a record label
company. In exchange for the issuance of the shares, the record label company
agreed to renew the term of their music license agreement with the Company.

                                       9
<PAGE>

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. 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, 2001. 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

     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 June 30,
2002, the Company had delivered a total of approximately 5,323 Digital Jukeboxes
as compared with 3,839 Digital Jukeboxes delivered as at June 30, 2001.
Management plans to devote significant resources to continue its aggressive
sales and marketing efforts within the jukebox industry. Management also 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 eleven 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 $19,841,437 at June 30, 2002, a decrease of
$529,466 from December 31, 2001. The decrease was primarily attributable to
an increase in trade accounts receivable of approximately $1,945,000 offset
by lower inventory levels of approximately $506,000 and a reduction in
investment in sales-type leases and property, plant and equipment which was
attributable to the sale of leases during the period, as well as depreciation
and amortization charges. Total liabilities of the Company also decreased in
the last six months, from $14,751,058 at December 31, 2001 to $14,293,465 at
June 30, 2002, primarily as a result of reductions in the accounts payable
and accrued liabilities of approximately $1,432,000 and repayment of
long-term debt of approximately $1,161,000. This decrease was offset by
increased borrowings and accrued interest on the unsecured loan of
approximately $2,340,000. Cash and cash equivalents decreased to $20,768 at
June 30, 2002 from $317,632 at December 31, 2001.

RESULTS OF OPERATIONS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30,
2002 COMPARED TO THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2001

     The Company earned net income of approximately $23,000 during the
three-month period ended June 30, 2002 ("the second quarter 2002") as compared
to a net loss of approximately $1,776,000 for the corresponding three-month
period in 2001 ("the second quarter 2001").

     The Company had a net loss of approximately $173,000 during the six-month
period ended June 30, 2002 as compared to a net loss of approximately $4,314,000
for the corresponding six-month period ended June 30, 2001.

     Net loss attributable to common stockholders was approximately $985,000 for
the second quarter 2002, as compared to approximately $2,774,000 for the second
quarter 2001. The non-cash charge for dividends and accretion of the Company's
mandatorily redeemable Series B preferred stock of the Company was
approximately $1,008,000 for the second quarter 2002, as compared to $997,000
for the second quarter 2001.

                                       10
<PAGE>

     Net loss attributable to common stockholders was approximately $2,183,000
for the six-month period ended June 30, 2002, as compared to approximately
$6,298,000 for the six-month period ended June 30, 2001. The non-cash charge for
dividends and accretion of the Company's mandatorily redeemable Series B
preferred stock of the Company, was approximately $2,011,000 for the six-month
period ended June 30, 2002, as compared to $1,984,000 for the six-month period
ended June 30, 2001.


     REVENUES

     Revenues from the Digital Jukeboxes increased by approximately $154,000, or
3%, from approximately $5,722,000 in the second quarter 2001 to approximately
$5,876,000 in the second quarter 2002. While there was a decrease in revenues
from sale, leasing and financing of Digital Jukeboxes during the second quarter
2002, this decrease was, as described below, more than offset by an increase in
music service revenues during the same period. As a result, there was an overall
increase in revenues from the Digital Jukeboxes during the second quarter 2002.

     Revenues from the Digital Jukeboxes increased by approximately
$1,758,000, or 18%, from approximately $10,031,000 for the six-month period
ended June 30, 2001 to approximately $11,789,000 for the six-month period
ended June 30, 2002. This increase was offset by reduced revenues from
jukebox leasing and financing. In addition, music service revenues increased
by approximately $1,600,000 during the period. As a result, there was an
overall increase in revenues from the Digital Jukeboxes for the six-month
period ended June 30, 2002.

     More specifically, music service revenues grew to approximately $1,907,000
for the second quarter 2002 as compared with $1,044,000 for the second quarter
2001. This increase in music service revenues resulted from an increase in the
total number of Digital Jukeboxes installed on the Company's Digital Jukebox
network, which generate recurring music service revenues. Revenue from Digital
Jukebox sales amounted to approximately $3,050,000 for the second quarter 2002
as compared with approximately $3,554,000 for the second quarter 2001. The
decrease is attributable to a decrease in unit sales of Digital Jukeboxes.

     Music service revenues grew to approximately $3,569,000 for the the
six-month period ended June 30, 2002 as compared with $1,969,000 for the
six-month period ended June 30, 2001. This increase in music service revenues
resulted from an increase in the total number of Digital Jukeboxes installed on
the Company's Digital Jukebox network, which generate recurring music service
revenues. Revenue from Digital Jukebox sales amounted to approximately
$6,000,000 for the six-month period ended June 30, 2002 as compared with
approximately $5,775,000 for the six-month period ended June 30, 2001. The
increase is attributable to an overall increase in unit sales of Digital
Jukeboxes.

     Digital Jukebox leasing and financing revenues declined to approximately
$906,000 for the second quarter 2002, as compared to $1,116,000 for the second
quarter 2001. The decrease is attributed to the sale of capital leases to third
parties, including the Company's customers.

     Digital Jukebox leasing and financing revenues declined to approximately
$1,986,000 for the six-month period ended June 30, 2002, as compared to
$2,242,000 for the six-month period ended June 30, 2001. The decrease is
attributed to the sale of capital leases to third parties, including the
Company's customers.


     COST OF JUKEBOX REVENUES AND DIRECT OPERATING COSTS

     The cost of Digital Jukebox revenues and direct operating costs decreased
by approximately $475,000, or 14%, from approximately $3,489,000 in the second
quarter 2001 to approximately $3,014,000 during the second quarter 2002. The
decrease is attributable to a reduction in the number of Digital Jukeboxes sold
during second quarter 2002 as compared to second quarter 2001 and the reduction
in the cost of manufacturing the Company's Genesis floor-model during late 2001.
In addition the Company continues to reduce its communication costs as a result
of the transition by operators from the use of telephone lines to the Internet.

                                       11
<PAGE>

     The cost of Digital Jukebox revenues and direct operating costs decreased
by approximately $241,000, or 4%, from approximately $6,286,000 for the
six-month period ended June 30, 2001 to approximately $6,045,000 for the
six-month period ended June 30, 2002. The decrease is attributable to a
reduction in the number of Digital Jukeboxes sold during the first six-month
period of 2002 as compared to the first six-month period of 2001 and the
reduction in the cost of manufacturing the Company's Genesis floor-model during
late 2001. In addition the Company continues to reduce its communication costs
as a result of the transition by operators from the use of telephone lines to
the Internet.


     GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses decreased by approximately $292,000, or
23%, from approximately $1,283,000 in the second quarter 2001 to approximately
$991,000 in the second quarter 2002. This decrease principally resulted from a
reduction in the number of the Company's employees as part of its December 2001
restructuring.

     General and administrative expenses decreased by approximately $686,000, or
26%, from approximately $2,685,000 for the six-month period ended June 30, 2001
to approximately $1,999,000 for the six-month period ended June 30, 2002. This
decrease principally resulted from a reduction in the number of the Company's
employees as part of its December 2001 restructuring.


     RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses decreased by approximately $111,000, or
21%, from approximately $537,000 in the second quarter 2001 to approximately
$426,000 in the second quarter 2002. The decrease in research and development
expenses was principally due to a reduction of the Company's technical and
operational workforce as part of its December 2001 restructuring.

     Research and development expenses decreased by approximately $271,000, or
27%, from approximately $1,012,000 for the six-month period ended June 30, 2001
to approximately $741,000 for the six-month period ended June 30, 2002. The
decrease in research and development expenses was principally due to a reduction
of the Company's technical and operational workforce as part of its December
2001 restructuring.


     SALES AND MARKETING EXPENSES

     Sales and marketing expenses decreased by approximately $664,000, or 50%,
from approximately $1,338,000 in the second quarter 2001 to approximately
$674,000 in the second quarter 2002. This decrease was principally due to
reductions in the Company's sales force and support personnel, and related
costs, during the second half of the 2001 year.

     Sales and marketing expenses decreased by approximately $1,370,000, or 49%,
from approximately $2,799,000 for the six-month ended June 30, 2001 to
approximately $1,429,000 for the six-month period ended June 30, 2002. This
decrease was principally due to reductions in the Company's sales force and
support personnel, and related costs, during the second half of the 2001 year.


     INTEREST EXPENSE

     Interest expenses increased by approximately $12,000, or 4%, from
approximately $309,000 in the second quarter 2001 to approximately $321,000 in
the second quarter 2002. This increase is attributable primarily to interest
payable on the $3.5 million that the Company has drawn down on its Unsecured
Loan Facility provided by two of the Company's principal stockholders. The
Unsecured Loan Facility is described in detail below under the caption
"Liquidity and Capital Resources."

                                       12
<PAGE>

     Interest expenses decreased by approximately $37,000, or 6%, from
approximately $619,000 for the six-month period ended June 30, 2001 to
approximately $582,000 for the six-month period ended June 30, 2002. The
decrease in the Company's interest expenses is attributed to a reduction in
the principal amounts borrowed under the Jukebox Term Loan, CED Term Loan and
Line of Credit (each as defined below under the caption "Liquidity and
Capital Resources") as well as the overall decline in the interest rates
payable on such principal amounts.

     DEPRECIATION AND AMORTIZATION EXPENSES

     Depreciation and amortization expenses decreased by approximately $65,000,
or 14%, from approximately $464,000 in the second quarter 2001 to approximately
$399,000 in the second quarter 2002. This decrease in depreciation and
amortization costs resulted primarily from fewer Digital Jukeboxes held by the
Company as capital assets.

     Depreciation and amortization expenses decreased by approximately $129,000,
or 13%, from approximately $969,000 in the first half 2001 to approximately
$840,000 in the first half 2002. This decrease in depreciation and
amortization costs resulted primarily from fewer Digital Jukeboxes held by the
Company as capital assets.


     FOREIGN EXCHANGE LOSSES

     The Company experienced a foreign exchange loss of approximately $28,000
during the second quarter 2002 and $62,000 for the six-month period ended
June 30, 2002, as compared to a foreign exchange loss of approximately
$79,000 during the second quarter 2001 and a foreign exchange gain of $25,000
for the six-month period ended June 30, 2001. 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 Sofinov and CDP Capital Communications
(formerly known as Capital Communications CDPQ Inc.). Financing arrangements
with the National Bank of Canada are another significant source of liquidity for
the Company's operations.

     The Company currently has two term loan facilities with the National Bank
of Canada: (i) a term loan for an aggregate amount of CDN $500,000 under the
Loan Program for Technology Firms sponsored by the Canada Economic Development
(the "CED Term Loan") to finance the Company's equipment acquisitions, leasehold
improvements, and research and development expenditures; and (ii) a term loan
facility (the "Jukebox Term Loan") providing for loans, originally aggregating
approximately $10.4 million, to finance the cost of manufacturing the Digital
Jukeboxes. The CED Term Loan and Jukebox Term Loan are entered into with
TouchTunes Digital 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.

     The CED Term Loan bears interest at the National Bank of Canada's Canadian
prime rate plus 3.5%. Principal repayment of the loan is in equal payments of
$9,142 over a 36-month period that will end in February 2004. At June 30, 2002,
approximately $183,000 was outstanding under the CED Term Loan.

                                       13
<PAGE>

     The Jukebox Term Loan bears interest at the National Bank of Canada's U.S.
base rate, plus 2.55%. Additional compensation must be paid to the National Bank
of Canada each year in an amount equal to 0.5% of the Company's annual gross
revenues as defined. The Jukebox Term Loan must be repaid in full by November
2004. At June 30, 2002, approximately $4,032,000 was outstanding under the
Jukebox Term Loan.

     TouchTunes Digital, the Company's wholly-owned subsidiary, has an operating
line of credit (the "Line of Credit") with the National Bank of Canada in the
amount of $1 million, that bears interest at the National Bank of Canada's U.S.
base rate plus 1.25%. The Line of Credit is also secured by an interest 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. The Line of Credit is payable on demand, has a one-year term and is
renewable on April 30, 2003. At June 30, 2002, the Company had available
$150,000 on the Line of Credit.

     In July 2001, the Company's Board of Directors approved an unsecured loan
facility (the "Unsecured Loan Facility"), provided by CDP Capital Communications
and CDP Sofinov, for up to a maximum of $5 million. CDP Capital Communications
and CDP Sofinov, subsidiaries of the Caisse de depot et placement du Quebec,
Canada's largest fund manager, provided $3 million and $2 million, respectively,
to the Unsecured Loan Facility. The parties entered into a binding term sheet
with respect to the Unsecured Loan Facility and expect to enter into a
definitive agreement in the near future.

     The Unsecured Loan Facility must be repaid in full by January 3, 2003 and
all amounts drawn and outstanding on the Unsecured Loan Facility bear interest
at the rate of 20% per annum. After an initial $1.5 million has been drawn on
the Unsecured Loan Facility, the rate at which all outstanding shares of Series
B Preferred Stock held by CDP Capital Communications and CDP Sofinov may be
converted into shares of Common Stock will be adjusted from $2.25 per share of
Series B Preferred Stock (the original purchase price for shares of Series B
Preferred Stock) for each share of Common Stock to be issued to $1.50 per share
of Series B Preferred Stock for each share of Common Stock to be issued. In the
event the Company defaults on repayment of the Unsecured Loan Facility at
maturity, the amount of the Unsecured Loan Facility outstanding at the time of
such default shall be convertible, at the option of CDP Capital Communications
and CDP Sofinov, into shares of Common Stock at a conversion rate of $0.50 per
share. CDP Capital Communications and CDP Sofinov hold 6,666,667 and 2,222,222
shares of Series B Preferred Stock, respectively.

     On February 26, 2002, the Company drew down over $1.5 million on the
Unsecured Loan Facility. As a result, the rate at which the shares of Series B
Preferred Stock are convertible into Common Stock was adjusted as described
above. Based on this new rate of conversion, in the event CDP Capital
Communications and CDP Sofinov convert their shares of Series B Preferred Stock,
the Company would issue to them 13,333,334 shares of Common Stock, in the
aggregate, of which 4,444,445 shares represent the additional shares of Common
Stock that would be issued as a result of the adjustment to the rate of
conversion described above. At June 30, 2002, the Company had drawn down
principal in the amount of $3.5 million on the Unsecured Loan Facility.

     The agreements between the Company and the National Bank of Canada
governing the CED Term Loan, the Jukebox Term Loan and the Line of Credit, each
contain financial covenants that require the Company to maintain a minimum net
shareholders' equity, as defined in the agreements, of $8 million and a minimum
debt to equity ratio, as defined in the agreements, of 1.50:1.00. If the Company
fails to comply with these covenants, the National Bank of Canada has the right
to demand full repayment of the loans outstanding under the CED Term Loan and
the Jukebox Term Loan, as well as any funds drawn down on the Line of Credit.
The Company was in compliance with these covenants as at June 30, 2002.

     In light of the restructuring activities undertaken in the last quarter of
2001, the remaining amount available on the Unsecured Loan Facility, the
expected continued support of its principal stockholders and the Company's
actual plans, including forecasted financial results and cash flows for the next
twelve months, the Company's management expects to remain in compliance with its
debt covenants governing its CED Term Loan, Jukebox Term Loan and Line of Credit
with the National Bank of Canada.

                                       14
<PAGE>

     The Company has contractual obligations totaling approximately $9,451,000.
These relate to payments due under the Company's long-term debt obligations
described above, capital lease obligations, and operating leases. The capital
leases are principally for computer equipment, while the operating leases are
primarily related to office space. The chart below also indicates the
approximate amount of severance that the Company is paying in connection with
the termination of some of the executive officers of the Company.

<TABLE>
<CAPTION>
                                     ----------------------------------------------------------------------------
                                                                PAYMENTS DUE BY PERIOD
      ------------------------------ ----------------------------------------------------------------------------
                                                   TOTAL        LESS THAN 1 YEAR(1)          MORE THAN 1 YEAR(2)
      CONTRACTUAL OBLIGATIONS                          $                          $                            $
      ------------------------------ -------------------- -------------------------- ----------------------------
     <S>                                     <C>                        <C>                          <C>
      LONG TERM DEBT(3)                        8,905,758                  6,258,894                    1,796,864
      ------------------------------ -------------------- -------------------------- ----------------------------
      CAPITAL LEASE OBLIGATIONS                  104,736                    104,736                           --
      ------------------------------ -------------------- -------------------------- ----------------------------
      OPERATING LEASES                         1,081,171                    309,505                      771,665
      ------------------------------ -------------------- -------------------------- ----------------------------
      SEVERANCE PAYMENTS                         208,998                    208,998                           --
      ------------------------------ -------------------- -------------------------- ----------------------------
      TOTAL CONTRACTUAL CASH
        OBLIGATIONS                            9,450,662                  6,882,133                    2,568,529
      ------------------------------ -------------------- -------------------------- ----------------------------
</TABLE>

      (1) Refers to "less than 1 year" from June 30, 2002.
      (2) Refers to "more than 1 year" from June 30, 2002.
      (3) The long-term debt refers to the Company's obligations under the CED
          Term Loan, the Jukebox Term Loan, the Line of Credit and the
          Unsecured Loan Facility.


     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's estimated capital requirements may be
inadequate.

     The Company's ability to continue as a going concern is dependent
principally on its ability to achieve profitable operations, generate positive
cash flows from operations, maintain the continued support of its stockholders
and remain in compliance with the debt covenants under its loan agreements. The
outcome of these uncertainties cannot be predicted at this time.

                           PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

     The Company is currently in a dispute with Ecast Inc. and Rowe
International Inc., competitors of the Company, over whether Ecast and Rowe are
infringing the Company's U.S. Patent No. 6,308,204, which covers a digital
jukebox system that allows for the jukebox operating software to be updated
remotely. For a description of this litigation, please see the Company's
quarterly report on Form 10-QSB for the quarterly period ended March 31, 2002 as
filed with the Commission on May 15, 2002.

The Company is presently involved in a dispute with the American Society of
Composers, Authors and Publishers ("ASCAP"), an organization representing
performance rights for musical composers and authors.

For more information regarding this dispute, see note 8(b) of the financial
statements contained in Part I of this Form 10QSB which information is
incorporated herein by reference.

ITEM 2.    CHANGE IN SECURITIES

     Pursuant to an exemption from registration for private placements under
Section 4(2) of the Securities Act of 1933, as amended, the Company issued
warrants on June 25, 2002 to a corporation to purchase an aggregate of 110,000
shares of Common Stock as partial consideration for a commercial transaction.
The terms of the warrants generally provide for an exercise price of $0.32,
subject to certain adjustments. The warrants may be exercised, in whole or in
part, no later than December 31, 2004.


                                       15
<PAGE>

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

           Not applicable.

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

     The Annual Meeting of Stockholders of the Company was held on May 22, 2002.
Two proposals were voted upon at the meeting: the election of directors and the
ratification of Ernst & Young, LLP as the independent auditors for the Company
for the fiscal year ended December 31, 2002.

     All six nominees for Director were elected, and the votes were as follows:
<TABLE>
<CAPTION>
---------------------------- -------------------------- -------------------------- --------------------------
                                                                                    ABSTENTIONS AND BROKER
          NOMINEE                    VOTES FOR               VOTES WITHHELD               NON-VOTES 1
---------------------------- -------------------------- -------------------------- --------------------------
<S>                                <C>                      <C>                           <C>

---------------------------- -------------------------- -------------------------- --------------------------
Tony Mastronardi                    36,853,287                     --                         600
---------------------------- -------------------------- -------------------------- --------------------------
Joel Shoenfeld                      36,853,287                     --                         600
---------------------------- -------------------------- -------------------------- --------------------------
Pierre Desjardins                   36,853,287                     --                         600
---------------------------- -------------------------- -------------------------- --------------------------
Hubert Manseau                      36,853,287                     --                         600
---------------------------- -------------------------- -------------------------- --------------------------
Sophie Forest                       36,853,287                     --                         600
---------------------------- -------------------------- -------------------------- --------------------------
Roland Ribotti                      36,853,287                     --                         600
---------------------------- -------------------------- -------------------------- --------------------------
</TABLE>

     Ernst & Young LLP was ratified as the independent auditors for the Company
for the fiscal year ended December 31, 2002. There were 36,853,287 votes cast
for the ratification, no votes cast against the ratification, and 600
abstentions and broker non-votes.

ITEM 5.    OTHER INFORMATION

           Not applicable.

ITEM 6.    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 by reference to other
          filings, as specified in the Index of Exhibits.

     (b)  The Company filed a report on Form 8-K on June 14, 2002 to report the
          appointment of John Perrachon as the Company's President and CEO,
          replacing Tony Mastronardi. Mr. Mastronardi will remain as Vice
          Chairman of the Company.

--------------------
1 Note that the abstentions and broker non-votes were not counted either for or
  against this proposal, but were counted present for quorum purposes.

                                       16
<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: August 14, 2002               By: /s/ John Perrachon
                                         -----------------------
                                             John Perrachon
                                             Chief Executive Officer,
                                             President and Director

Dated: August 14, 2002               By: /s/ Matthew Carson
                                         -----------------------
                                             Matthew Carson
                                             Vice President Finance and
                                             Chief Financial Officer
                                             (Principal Financial Officer)

                                       17
<PAGE>

                                INDEX OF EXHIBITS

EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------

3.1            Second Amended and Restated Articles of Incorporation. Reference
               is made to Exhibit 3.1 of the Company's Quarterly Report on Form
               10-QSB for the quarterly period ended September 30, 2000, filed
               on November 14, 2000, which Exhibit is incorporated herein by
               reference.

3.2            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
               3.1 of the Company's Quarterly Report on Form 10-QSB, for the
               quarterly period ended September 30, 2000, filed on November 14,
               2000, which Exhibit is incorporated herein by reference.

4.2            Terms of Series A Preferred Stock, included as part of Exhibit
               3.1 of the Company's Quarterly Report on Form 10-QSB, for the
               quarterly period ended September 30, 2000, filed on November 14,
               2000, which Exhibit is incorporated herein by reference.

4.3            Terms of Series B Preferred Stock, included as part Exhibit 3.1
               of the Company's Quarterly Report on Form 10-QSB, for the
               quarterly period ended September 30, 2000, filed on November 14,
               2000, which Exhibit is incorporated herein by reference.

10.1*          Music Licensing Agreement between TouchTunes Music Corporation
               and Warner Music Group, Inc. dated as of December 22, 2001,
               which Exhibit is filed herewith.

10.2           Employment Agreement between the Company and John Perrachon,
               dated June 10, 2002, which Exhibit is filed herewith.

99.1           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).

99.2           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).

------------
*    Portions of this Exhibit have been omitted pursuant to a Confidential
     Treatment Request, which the Registrant has filed separately with the
     Securities and Exchange Commission.

                                       18