<Page>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(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, 2005

[ ] 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 registrant as specified in its charter)


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


                                3, COMMERCE PLACE
                                    4TH FLOOR
                                MONTREAL, QUEBEC
                                 CANADA, H3E 1H7
                    (Address of principal executive offices)

                                (514) 762 -6244
                                 --------------
                         (Registrant's telephone number)

Indicate by a check mark whether the registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ___

Indicate by a check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).   Yes__ No  X
                                                 ----.

State the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: AS OF AUGUST 11, 2005,
14,827,394 SHARES OF CLASS A VOTING COMMON STOCK WERE OUTSTANDING.


<Page>

                          TOUCHTUNES MUSIC CORPORATION

                                      INDEX


<Table>
<Caption>
                                                                                                         Page
                                                                                                         ----
<S>     <C>                                                                                              <C>
PART I - FINANCIAL INFORMATION:

Item 1. Consolidated Balance Sheets (unaudited) as at June 30, 2005
        and December 31, 2004....................................................................... 1

        Consolidated Statements of Operations and Comprehensive Income (loss) (unaudited)
        for the three-month and the six-month periods ended June 30, 2005 and 2004.................. 3

        Consolidated Statements of Cash Flows (unaudited) for the three-month
        and the six-month periods ended June 30, 2005 and 2004...................................... 4

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk and Supplementary Data...........20


Item 4. Controls and Procedures ....................................................................21



PART II - OTHER INFORMATION:

Item 6. Exhibits and Reports on Form 8-K............................................................21

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

Certifications......................................................................................25
</Table>



<Page>


                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

The accompanying unaudited financial statements for the quarter ended June 30,
2005 have been prepared in accordance with the instructions to Form 10-Q 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 June 30, 2005 are not necessarily indicative of the results that can be
expected for the fiscal year ending December 31, 2005. 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-K/A, for the
fiscal year ended December 31, 2004. Note that all dollar amounts set forth in
this quarterly report on Form 10-Q 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, 2005

                           CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
      [In U.S. dollars]                                                              AS AT                   As at
                                                                             JUNE 30, 2005       December 31, 2004
                                                                                         $                       $
      -------------------------------------------------------------------------------------------------------------
      <S>                                                                    <C>                 <C>
                                                                                                           (Note*)

      ASSETS (note 5)
      CURRENT

      Cash and cash equivalents                                                    214,139                 780,897
      Trade accounts receivable, net of provision for                            6,805,440               6,597,194
      doubtful accounts of $1,384,861 (2004-$1,095,076)
      Other receivables                                                            329,376                 415,656
      Income taxes receivable                                                       47,005                      --
      Prepaid expenses and deposits                                              1,607,814               1,166,821
      Inventory                                                                  4,362,302               4,284,416
      Investment in sales-type leases                                              200,133                 619,806
      Current portion of discounted receivables                                    135,138                 125,546
      -------------------------------------------------------------------------------------------------------------
      TOTAL CURRENT ASSETS                                                      13,701,347              13,990,336
      -------------------------------------------------------------------------------------------------------------

      Discounted receivable                                                      1,674,808               1,749,784
      Property, plant and equipment, net                                         1,897,040               2,021,679
      Intangibles                                                                  174,411                 221,669
      Other assets                                                                 642,150                 579,417
      -------------------------------------------------------------------------------------------------------------
                                                                                18,089,756              18,562,885
      -------------------------------------------------------------------------------------------------------------
      -------------------------------------------------------------------------------------------------------------
</Table>


                                       1

<Page>



                          TOUCHTUNES MUSIC CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                                   [CONT'D]

<Table>
<Caption>
                                                                    AS AT                 As at
                                                            JUNE 30, 2005     December 31, 2004
                                                                        $                     $
     ------------------------------------------------------------------------------------------
     <S>                                                    <C>               <C>
                                                                                    (Note*)
     LIABILITIES AND STOCKHOLDERS' EQUITY

     CURRENT LIABILITIES

     Accounts payable and accrued liabilities                   7,230,386            6,236,795
     Income taxes payable                                              --              200,000
     Current portion of long-term debt (note 5)                   903,190              849,228
     Notes payable (note 6)                                            --              482,714
     ------------------------------------------------------------------------------------------
     TOTAL CURRENT LIABILITIES                                  8,133,576            7,768,737
     ------------------------------------------------------------------------------------------

     Long-term debt (note 5)                                      927,704              344,693
     ------------------------------------------------------------------------------------------
                                                                9,061,280            8,113,430
     ------------------------------------------------------------------------------------------


     STOCKHOLDERS' EQUITY
     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                                 9,306,910            9,306,910
     Retained earnings (deficit)
        Net of elimination totaling $82,667,696                 (437,414)            1,080,984
     Other comprehensive income                                    97,419                   --
     ------------------------------------------------------------------------------------------
     TOTAL STOCKHOLDERS' EQUITY                                 9,028,476           10,449,455
     ------------------------------------------------------------------------------------------
                                                               18,089,756           18,562,885
     ------------------------------------------------------------------------------------------
</Table>


     SEE ACCOMPANYING NOTES.

     * Note: The balance sheet as at December 31, 2004 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         SIX-MONTH      Three-month         Six-month
                                                     PERIOD ENDED      PERIOD ENDED     period ended      period ended
                                                    JUNE 30, 2005     JUNE 30, 2005    June 30, 2004     June 30, 2004
----------------------------------------------------------------------------------------------------------------------
                                                                $                 $                $                 $
<S>                                                 <C>               <C>              <C>               <C>
REVENUES

Jukebox sales revenues                                  7,593,724        13,527,705        5,193,452         9,536,496
Music service revenues                                  5,783,402        10,875,028        3,945,561         7,461,755
Jukebox leasing and financing revenues                    209,405           616,787          413,133           773,414
Gain (loss) on disposal of assets                        (13,531)          (13,531)              259             2,469
Other income                                                   --                --        2,431,502         2,431,502
----------------------------------------------------------------------------------------------------------------------
                                                       13,573,000        25,005,989       11,983,907        20,205,636
----------------------------------------------------------------------------------------------------------------------
EXPENSES

Cost of jukebox sales revenues                          7,457,876        13,442,927        3,591,170         6,882,946
Cost of music  service  revenues  (exclusive  of
amortization  of $64,339  and  $127,938,  2004 -
$58,933 and $117,258)                                   1,470,468         3,028,701        1,236,715         2,395,633
Sales and marketing                                     2,232,232         4,120,855        1,299,228         2,427,823
Research and development                                1,040,623         2,149,520          902,033         1,837,339
Investment tax credits                                         --                --         (12,500)          (65,144)
General and administrative                              1,594,123         2,770,559        2,621,440         3,849,035
Financial expenses                                         56,472            93,900          115,994           204,767
Depreciation of property, plant and equipment             326,833           642,774          341,217           612,641
Amortization of intangibles                                71,866           139,753           99,692           188,977
Foreign exchange losses (gains)                            77,950           135,398          (7,293)           134,041
----------------------------------------------------------------------------------------------------------------------
                                                       14,328,443        26,524,387       10,187,696        18,468,058
----------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE INCOME TAXES                   (755,443)       (1,518,398)        1,796,211         1,737,578
----------------------------------------------------------------------------------------------------------------------
Income taxes                                                   --                --          699,000           699,000
----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                       (755,443)       (1,518,398)        1,097,211         1,038,578
----------------------------------------------------------------------------------------------------------------------
FOREIGN EXCHANGE GAIN ON DERIVATIVE                       97,419            97,419               --                --
----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE  INCOME (LOSS)                            (658,024)       (1,420,979)        1,097,211         1,038,578
----------------------------------------------------------------------------------------------------------------------

PER COMMON STOCK AND COMMON STOCK EQUIVALENTS

Basic and diluted net loss per share  (note 4)             (0.01)            (0.02)             0.01              0.01
----------------------------------------------------------------------------------------------------------------------

WEIGHTED  AVERAGE  NUMBER  OF  COMMON  STOCK AND
  COMMON STOCK EQUIVALENTS                             93,359,274        93,359,274       93,359,274        93,359,274
----------------------------------------------------------------------------------------------------------------------
</Table>


     SEE ACCOMPANYING NOTES.

                                       3

<Page>



                          TOUCHTUNES MUSIC CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<Table>
<Caption>
[In U.S. dollars]                           THREE-MONTH         SIX-MONTH        Three-month         Six-month
                                           PERIOD ENDED      PERIOD ENDED       period ended      period ended
                                          JUNE 30, 2005     JUNE 30, 2005      June 30, 2004     June 30, 2004
                                                      $                 $                  $                 $
----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>                 <C>               <C>

OPERATING ACTIVITIES

Net income (loss)                             (755,443)       (1,518,398)          1,097,211         1,038,578

ADJUSTMENTS TO RECONCILE NET INCOME
  (LOSS) TO NET CASH USED IN
  OPERATING ACTIVITIES:

Income taxes                                         --                --            699,000           699,000

Non-cash portion of cost of
     music service revenues                      26,729            36,648             35,735            71,470
Depreciation and amortization                   398,699           782,527            440,909           801,618
(Gain) loss on disposal of
investment in sales-type lease                  (7,771)           (8,455)              1,269             1,269
Loss (gain) on disposal of assets                13,531            19,404              (259)           (2,469)

CHANGES IN OPERATING ASSETS AND
  LIABILITIES:
Accounts and other receivables                (977,556)         (121,966)            272,573         (202,695)
Discounted receivables                           35,709            65,384        (1,931,502)       (1,931,502)
Prepaid expenses and deposits                 (624,288)         (440,993)            168,369            15,263
Inventory                                   (1,624,384)          (77,886)             77,716          (36,847)
Accounts payable and accrued
  liabilities                                 1,606,931         1,091,010          (808,093)          (67,175)
Other Assets                                         --               619                 --                --
Proceeds from disposal of investment
  in sales-type leases                           19,811            40,299              6,550            29,474
Investment in sales-type leases                 235,187           387,828            180,998           417,087
Income taxes payable                           (75,000)         (247,005)                 --                --
----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED IN) BY OPERATING        (1,727,845)             9,016            240,476           833,071
ACTIVITIES
----------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Proceeds from disposition of
   property, plant and equipment                  3,500             3,500                675             4,132
Addition to intangibles                        (30,387)          (92,495)           (38,128)          (78,159)
Purchase of property, plant, and
  equipment                                   (276,653)         (378,494)          (452,713)       (1,075,812)
Increase (decrease) in deferred
  charges                                     (100,000)         (100,000)            410,916                --
----------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES             (403,540)         (567,489)           (79,250)       (1,149,839)
----------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
</Table>


                                       4

<Page>

<Table>
<Caption>
[In U.S. dollars]                           THREE-MONTH         SIX-MONTH        Three-month         Six-month
                                           PERIOD ENDED      PERIOD ENDED       period ended      period ended
                                          JUNE 30, 2005     JUNE 30, 2005      June 30, 2004     June 30, 2004
                                                      $                 $                  $                 $
----------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>                <C>               <C>

Increase (decrease) in bank
  indebtedness                                       --                --             92,321         (250,000)
Proceeds of long-term debt                      938,250           938,250            400,000         2,000,000
Repayment of long-term debt                   (242,649)         (463,821)          (258,249)       (1,035,885)
Proceeds from notes payable                          --                --            990,674         1,522,919
Repayment of notes payable                     (82,142)         (482,714)          (654,289)         (872,341)
----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING
  ACTIVITIES                                    613,459           (8,285)            570,457         1,364,693
----------------------------------------------------------------------------------------------------------------------

NET CHANGE IN CASH AND CASH
  EQUIVALENTS                               (1,517,926)         (566,758)            731,683         1,047,925
Cash and cash equivalents, beginning
  of period                                   1,732,065           780,897            654,856           338,614
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF
  PERIOD                                        214,139           214,139          1,386,539         1,386,539
----------------------------------------------------------------------------------------------------------------------

SUPPLEMENTARY INFORMATION
Interest paid                                    25,773            59,271             57,406           121,374
Income taxes paid                                75,000           247,005                 --                --
----------------------------------------------------------------------------------------------------------------------
</Table>

SEE ACCOMPANYING NOTES.

                                    5


<Page>



TOUCHTUNES MUSIC CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

June 30, 2005
[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 June 30, 2005 and for the three-month
and six-month periods ended June 30, 2005 and 2004, 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-K/A, for the
fiscal year ended December 31, 2004. The results of operations for the
three-month and six-month periods ended June 30, 2005 are not necessarily
indicative of the results for the fiscal year ending December 31, 2005 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.


                                       6

<Page>

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       SIX-MONTH    Three-month       Six-month
                                      PERIOD ENDED    PERIOD ENDED   period ended    period ended
                                     JUNE 30, 2005   JUNE 30, 2005  June 30, 2004   June 30, 2004
                                                 $               $              $               $
--------------------------------------------------------------------------------------------------
<S>                                  <C>             <C>            <C>             <C>
Balance at the beginning of the
  period                                   810,804         802,489        658,566         696,784
Charged to cost of jukeboxes               129,972         282,934        125,444         250,888
Use of provision                         (120,067)       (264,714)      (140,853)       (304,515)
--------------------------------------------------------------------------------------------------
BALANCE AT THE END OF THE PERIOD           820,709         820,709        643,157         643,157
--------------------------------------------------------------------------------------------------
</Table>



4.  BASIC AND DILUTED NET LOSS PER SHARE

The calculation of basic and diluted net loss per share for the periods ended
June 30 are as follows:

<Table>
<Caption>

                                       THREE-MONTH      SIX-MONTH       Three-month      Six-month
                                      PERIOD ENDED   PERIOD ENDED      period ended   period ended
                                     JUNE 30, 2005  JUNE 30, 2005     June 30, 2004  June 30, 2004
--------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>               <C>            <C>
Net income (loss)                        (755,443)    (1,518,398)         1,097,211      1,038,578
--------------------------------------------------------------------------------------------------
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        93,359,274     93,359,274
--------------------------------------------------------------------------------------------------
Basic and diluted net income
  (loss) per common share                   (0.01)         (0.02)              0.01           0.01
--------------------------------------------------------------------------------------------------
</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 included in the weighted average common
shares outstanding, using the as-if-converted method, to compute the basic and
diluted net loss per share because 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 as the effect
would be anti-dilutive.

5.  BANK INDEBTEDNESS AND LONG-TERM DEBT

The Company's bank indebtedness consists of an operating line of credit (the
"Line of Credit") of


                                       7

<Page>


$4,000,000. 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. base rate of the bank plus 1.50%, representing a rate of 8.00% as at
June 30, 2005 (December 31, 2004 - 7.25%). The Line of Credit is also
collateralized by a first charge on moveable property in the amount of
$5,400,000 and by a certificate of guarantee issued by Export Development Canada
covering 50 percent of the net loss risk. The Company has obtained an extension
of the Line of Credit to April 30, 2006.

Long-term debt consists of the following:

<Table>
<Caption>
                                                       MATURITY             JUNE 30, 2005     December 31, 2004
                                                                                        $                     $
                                               -----------------------------------------------------------------
<S>                                                   <C>                   <C>              <C>

Music Advance Term Loans                              2005-2007                 1,689,828             1,193,921
Vehicle loans                                              2009                   141,066                    --
                                                                 -----------------------------------------------
Total                                                                           1,830,894             1,193,921
Less:  Current portion                                                            903,190               849,228
                                                                 -----------------------------------------------
Total                                                                             927,704               344,693
                                                                 -----------------------------------------------
</Table>

Long-term debt as at June 30, 2005 consists of the music advance term loan
facilities (the "Music Advance Term Loans") with National Bank of Canada (the
"Bank") and an amount drawn under the Line of Credit of $938,250 which was
refinanced in July 2005 with the second music advance term loan. The Music
Advance Term Loans represent, in the aggregate, $4,500,000 ($2,000,000 entered
into in January 2004 and $2,500,000 entered into in June 2005) and were obtained
for purposes of financing the recoupable advances made to certain music
providers in 2003, 2004 and 2005. 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 $2,000,000 Music Advance Term Loan bears interest at the U.S. base
rate of the Bank plus 2%, representing a rate of 8.50% as at June 30, 2005
(December 31, 2004 - 7.75%). The $2,000,000 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 $2,000,000 Music Advance Term Loan is repayable over
the term of the respective music agreements financed, ranging from one year to
five years.

The $2,500,000 Music Advance Term Loan bears interest at the U.S. base rate
of the Bank plus 1.50%, representing a rate of 8% as at June 30, 2005. The
$2,500,000 Music Advance Term Loan is collateralized by a second charge on
movable property in the amount of $3,000,000 and a certificate of guarantee
issued by Export Development Canada covering 50% of the net loss risk. The
$2,500,000 Music Advance Loan is repayable over the term of the respective
music agreements financed to a maximum of five years.

The Company also had available a term loan facility ("Revolving Credit Term
Loan") in an amount of up to an aggregate of $2,000,000. During the quarter, the
Company cancelled the Revolving Credit Term Loan.

The agreements between the Company and the Bank governing the Music Advance Term
Loans 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 of 1.5 to 1. As at
June 30, 2005, the Company satisfied these covenants.

In addition the Company has entered into vehicle loans bearing interest between
0% and 2.9%, maturing in 2009, collateralized by the related property.

The principal payments of long-term debt are as follows:

                                       8

<Page>

<Table>
<Caption>
                                                                  $
                                           -------------------------
     <S>                                   <C>
     2005                                                   572,580
     2006                                                   640,094
     2007                                                   562,320
     2008                                                    41,798
     2009                                                    14,102
                                           -------------------------
     Total                                                1,830,894
                                           -------------------------
</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. These notes
were repaid in full during the quarter.

7.  STOCK OPTIONS

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
June 30, 2005, an aggregate of 1,988,606 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 issued under the Plan 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           SIX-MONTH        Three-month           Six-month
                                         PERIOD ENDED        PERIOD ENDED       period ended        period ended
                                        JUNE 30, 2005       JUNE 30, 2005      June 30, 2004       June 30, 2004
                                                    $                   $                  $                   $
                                   ------------------------------------------------------------------------------
<S>                                     <C>                 <C>                <C>                 <C>
Net income (loss)                           (755,443)         (1,518,398)          1,097,211           1,038,578
Pro Forma income (loss)                     (806,228)         (1,630,845)          1,024,470             891,882
Basic and diluted income (loss)
  per share of Common Stock                    (0.01)              (0.02)               0.01                0.01
Pro Forma basic and diluted
  income (loss) per share of
  Common Stock                                 (0.01)              (0.02)               0.01                0.01
</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.

                                       9

<Page>

<Table>
<Caption>
                                                  JUNE 30, 2005           June 30, 2004
                                         -----------------------------------------------
      <S>                                <C>                             <C>
      Average expected life (years)                        8.00                    8.00
      Risk-free interest rate                              3.83                    3.83
      Volatility                                           96.8                    96.8
      Dividend yield                                       0.00                    0.00
</Table>


8.  DERIVATE INSTRUMENTS AND CURRENCY RISK

As at June 30, 2005 other receivables include derivative assets of $97,419
representing the fair market value related to forward foreign exchange
contracts maturing at various dates until November 30, 2005 for an amount of
$5,000,000 US translated into Canadian dollars at a weighted average rate of
1.2493. These instruments were designated as cash flow hedges which were
documented as such at their inception in June 2005. The corresponding credit
has been included in other comprehensive income and will be recognized as an
adjustment of the hedged expense when the expense will be recorded.

9.  PROPOSED TRANSACTION

The Company has 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 of such proxy statement 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.

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 10K/A for the fiscal year ended
December 31, 2004. Note that all dollar amounts set forth in this quarterly
report on Form 10-Q 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


                                       10

<Page>

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, 2005, the Company had delivered a total of 12,470 Digital Jukeboxes as
compared with 8,900 Digital Jukeboxes delivered as at June 30, 2004. Management
intends to continue its development activities in applying its technologies to
other music-on-demand products and applications to other industries.

         During the quarter, the Company signed a new license agreement with
Sony-BMG which will expire in December 2007. The Company paid an advance of
$1,000,000 to Sony-BMG, 75 percent of which is financed by the new Music
Advance Term Loan. The most recent agreements signed with Warner Music Group
and Universal Music Group expired on December 31, 2004 and June 30, 2005
respectively. The Company is in negotiations with both parties on new
agreements and continues to offer to its customers music by Warner Music
Group and Universal Music Group under verbal agreements with these two record
labels.

         The Company plays over 27 million songs to an estimated audience of
approximately 5 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 $18,090,000 at June 30,
2005, a decrease of approximately $473,000 from December 31, 2004. This decrease
was primarily due to a decrease in cash and cash equivalents of approximately
$567,000 and a decrease of approximately $420,000 in investment in sales type
leases due to collections thereon. These decreases were, in part, offset by an
increase of approximately $441,000 in prepaid expenses and deposits, mainly due
to a $1 million advance made to Sony-BMG on June 30, 2005 and an increase of
approximately $208,000 in trade accounts receivable. Total liabilities of the
Company also increased as compared to December 31, 2004, from approximately
$8,113,000 to approximately $9,061,000 at June 30, 2005. This is primarily due
to an increase in current payables of approximately $994,000, borrowings on the
Company's new Music Advance term Loan for $938,000 and a new loan for the
acquisition of vehicles for an amount of approximately $141,000. This increase
is offset by repayments on the Company's Music Advance Term Loan and notes
payable totaling approximately $947,000.

RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2005 COMPARED
TO THE THREE-MONTH PERIOD ENDED JUNE 30, 2004

The Company recorded a net loss of approximately $755,000 for the three-month
("second quarter 2005") period ended June 30, 2005 as compared to a net profit
of approximately $1,097,000 for the corresponding three-month period ended June
30, 2004 ("second quarter 2004").

For the second quarter of 2005 comprehensive loss was approximately $658,000
which was attributable to a foreign exchange gain on a derivative of
approximately $97,000.

         REVENUES
         --------

         Revenues from the sale of Digital Jukeboxes increased by approximately
$2,401,000 from approximately $5,193,000 for the second quarter 2004 to
approximately $7,594,000 for the second quarter 2005. For promotional purposes
the Company has reduced the retail selling price of its Digital Jukeboxes,
including Tune Central, to $5,645 as compared to the comparative 2004 retail
selling price of $7,990 for a Rhapsody model and $7,685 for a Maestro model,
including Tune Central. The Company shipped 1,303 Digital Jukeboxes in the
second quarter of 2005 as compared to 675 for the second quarter of 2004. The
increase in revenues from the sale of Digital Jukeboxes is attributable to the
increased unit sales offset by the impact of the aforementioned retail price
reduction.

         Music service revenues grew to approximately $5,783,000 for the second
quarter 2005 as compared with approximately $3,946,000 for the second quarter
2004. 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 decreased to
approximately $209,000 for the second quarter 2005 as compared to $413,000 for
the second quarter 2004. This decrease is attributable to


                                       11

<Page>

a reduction in leasing and financing revenues on Digital Jukeboxes and Tune
Centrals as many of the Digital Jukeboxes leases reach the expiration of their
term and Tune Central leases are bought out by customers.

         COST OF JUKEBOX SALES REVENUES
         ------------------------------

         The cost of jukebox sales revenues increased by approximately
$3,867,000, or 108%, from approximately $3,591,000 in the second quarter 2004
to approximately $7,458,000 during the second quarter 2005. The increase in
cost of jukebox sales revenues is due to an increase in the number of Digital
Jukeboxes and Tune Centrals sold in the period as compared to the first
quarter 2004.

         COST OF MUSIC SERVICE REVENUES
         ------------------------------

         The cost of music service revenues increased by approximately
$233,000 or 19%, from approximately $1,237,000 for the three-month period
ended June 30, 2004 to approximately $1,470,000 for the three-month period
ended June 30, 2005. The increase in the number of Digital Jukeboxes and Tune
Centrals sold 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
$1,027,000 or 39%, from approximately $2,621,000 in the second quarter 2004 to
approximately $1,594,000 in the second quarter 2005. This decrease is
principally attributable to legal costs of $705,000 charged in the second
quarter 2004 relating to the settlement in April 2004 of litigation with Ecast
Inc., In addition, there has been a decrease in professional fees and the
recording of interest revenue on the amount receivable from Ecast, Inc. which
are offset by higher staff-related costs to support increased sales growth.

         RESEARCH AND DEVELOPMENT EXPENSES
         ---------------------------------

         Research and development expenses increased by approximately $139,000,
or 15%, from approximately $902,000 in the second quarter 2004 to approximately
$1,041,000 in the second quarter 2005. This increase in research and development
expenses is due to higher staff-related costs in connection with the ongoing
development and design of new products.

         SALES AND MARKETING EXPENSES
         ----------------------------

         Sales and marketing expenses increased by approximately $932,000, or
72%, from approximately $1,300,000 in the second quarter 2004 to approximately
$2,232,000 in the second quarter 2005. This increase is mainly due to two
factors. Firstly an increase in commissions paid to the Company's distributors
of approximately $359,000 and secondly, commissions paid to the Company's
salespeople as a result of the overall increase in unit sales of Digital
Jukeboxes and Tune Centrals. In addition, the Company spent approximately
$246,000 more in marketing and promotional costs in the second quarter 2005 as
compared to the second quarter 2004 to support its sales growth.

         FINANCIAL EXPENSE
         -----------------

         Financial expense decreased by approximately $60,000, or 52%, from
approximately $116,000 in the second quarter 2004 to approximately $56,000 in
the second quarter 2005. This decrease is primarily due to the elimination of
interest expense on the Company's Jukebox Term Loan which was repaid in March
2004 and the reduction in use of the Company's Line of Credit, offset by
interest on the Company's Music Advance Term.


                                       12


<Page>

         DEPRECIATION AND AMORTIZATION EXPENSE
         -------------------------------------

         Depreciation and amortization expense decreased by approximately
$42,000, or 10%, from approximately $441,000 in the second quarter 2004 to
approximately $399,000 in the second quarter 2005.

         FOREIGN EXCHANGE LOSSES
         -----------------------

         The Company experienced a foreign exchange loss of approximately
$78,000 during the second quarter 2005 as compared to a foreign exchange gain of
approximately $7,000 during the second quarter of 2004. 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.

RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005 COMPARED
TO THE SIX-MONTH PERIOD ENDED JUNE 30, 2004

The Company recorded a net loss of approximately $1,518,000 for the six-month
period ended June 30, 2005 as compared to a net profit of approximately
$1,039,000 for the corresponding six-month period ended June 30, 2004 .

For the six-month period ended June 30, 2005 comprehensive loss was
approximately $1,421,000 which was attributable to a foreign exchange gain on
a derivative of approximately $97,000.

         REVENUES
         --------

         Revenues from the sale of Digital Jukeboxes increased by
approximately $3,992,000 from approximately $9,536,000 for the six-month
period ended June 30, 2004 to approximately $13,528,000 for the corresponding
six-month period ended June 30, 2005. For promotional purposes the Company
has reduced the retail selling price of its Digital Jukeboxes, including Tune
Central, to $5,645 as compared to the comparative 2004 retail selling price
of $7,990 for a Rhapsody model and $7,685 for a Maestro model, including Tune
Central. The Company shipped 2,372 Digital Jukeboxes in the six-month period
ended June 30, 2005 as compared to 1,255 for the six-month period ended June
30, 2004. The increase in revenues from the sale of Digital Jukeboxes is
attributable to the increased unit sales offset by the impact of the
aforementioned retail price reduction.

         Music service revenues grew to approximately $10,875,000 for the six-
month period ended June 30, 2005 as compared with approximately $7,462,000 for
the six-month period ended June 30, 2004. 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 decreased to
approximately $617,000 for the six-month period ended June 30, 2005 as compared
to $773,000 for the six-month period ended June 30, 2004. This decrease is
attributable to a reduction in leasing and financing revenues on Digital
Jukeboxes and Tune Centrals as many of the Digital Jukebox leases reach the
expiration of their term and Tune Central leases are bought out by customers.

         COST OF JUKEBOX SALES REVENUES
         ------------------------------

         The cost of jukebox sales revenues increased by approximately
$6,560,000, or 95%, from approximately $6,883,000 in the six-month period
ended June 30, 2004 to approximately $13,443,000 during the six-month period
ended June 30, 2005. The increase in cost of jukebox sales revenues is due to
an increase in the number of Digital Jukeboxes and Tune Centrals sold in the
period as compared to the six-month period ended June 30, 2004.

         COST OF MUSIC SERVICE REVENUES
         ------------------------------

                                       13

<Page>


         The cost of music service revenues increased by approximately $633,000
or 26%, from approximately $2,396,000 for the six-month period ended June 30,
2004 to approximately $3,029,000 for the six-month period ended June 30,
2005. The increase in the number of Digital Jukeboxes and Tune Centrals sold
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
$1,078,000 or 28%, from approximately $3,849,000 in the six-month period
ended June 30, 2004 to approximately $2,771,000 in the six-month period ended
June 30, 2005. This decrease is principally attributable to legal costs of
$705,000 charged in the second quarter 2004 relating to the settlement in
April 2004 of litigation with Ecast, Inc.. In addition, there has been a
decrease in professional fees and the recording of interest revenue on the
amount receivable from Ecast, Inc. which are offset by higher staff-related
costs to support increased sales growth.

         RESEARCH AND DEVELOPMENT EXPENSES
         ---------------------------------

         Research and development expenses increased by approximately $313,000,
or 17%, from approximately $1,837,000 in the six-month period ended June 30,
2004 to approximately $2,150,000 in the six-month period ended June 30, 2005.
This increase in research and development expenses is due to higher
staff-related costs in connection with the ongoing development and design of new
products.

         SALES AND MARKETING EXPENSES
         ----------------------------

         Sales and marketing expenses increased by approximately $1,693,000, or
70%, from approximately $2,428,000 in the six-month period ended June 30, 2004
to approximately $4,121,000 in the six-month period ended June 30, 2005. This
increase is mainly due to two factors. Firstly an increase in commissions paid
to the Company's distributors of approximately $877,000 and secondly,
commissions paid to the Company's salespeople as a result of the overall
increase in unit sales of Digital Jukeboxes and Tune Centrals. In addition, the
Company spent approximately $423,000 more in marketing and promotional costs in
the six-month period ended June 30, 2005 as compared to the six-month period
ended June 30, 2004 to support its sales growth.

         FINANCIAL EXPENSE
         -----------------

         Fianacial expense decreased by approximately $111,000, or 54%, from
approximately $205,000 in the six-month period ended June 30, 2004 to
approximately $94,000 in the six-month period ended June 30, 2005. This decrease
is primarily due to the elimination of interest expense on the Company's Jukebox
Term Loan which was repaid in March 2004 and the reduction in use of the
Company's Line of Credit, offset by interest on the Company's Music Advance
Term.

         DEPRECIATION AND AMORTIZATION EXPENSE
         -------------------------------------

         Depreciation and amortization expense decreased by approximately
$19,000, or 2%, from approximately $802,000 in the six-month period ended June
30, 2004 to approximately $783,000 in the six-month period ended June 30, 2005.

         FOREIGN EXCHANGE LOSSES
         -----------------------

         The Company experienced a foreign exchange loss of approximately
$135,000 during the six-month period ended June 30, 2005 as compared to a
foreign exchange loss of approximately $134,000 during the six-month period
ended June 30, 2004. Foreign exchange gains or losses result from the Company
paying certain expenditures in currencies other than the United States dollar.
The main foreign


                                       14


<Page>

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.

                                       15



<Page>



         LIQUIDITY AND CAPITAL RESOURCES
         -------------------------------

         The following table summarizes selected financial data (amounts in
thousands):

<Table>
<Caption>
                                                  JUNE 30, 2005       December 31, 2004
                                         -----------------------------------------------
<S>                                               <C>                 <C>
Cash and cash equivalents                                  $214                    $781
Total assets                                            $18,090                 $18,563
Total current and non-current                            $1,831                  $1,677
      interest-bearing debt
Stockholders' equity                                     $8,954                 $10,450
</Table>



The Company believes that existing funds, cash generated from operations and
existing sources of and access to financing are adequate to satisfy its working
capital, capital expenditure and debt service requirements for the foreseeable
future.

         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
(the "Bank") are another significant source of funding for the Company's
operations.

         The Company has a Line of Credit available from the Bank of $4,000,000.
The interest rate on the Line of Credit is the Bank's U.S. base rate plus 1.5%.
The Line of Credit is secured by a first charge on the past, present and future
assets of the Company and is collateralized by a certificate of guarantee issued
by Export Development Canada covering 50% of the net loss risk and a charge on
moveable property in the amount of $ 5,400,000. The Company has negotiated an
extension of the Line of Credit to April 30, 2006.

         In January 2004, the Company entered into a Music Advance Term Loan
with the Bank 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 Bank's U.S. base rate of the Bank plus 2.00%, representing a
rate of 8.50% as at June 30, 2005. 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 to five years.

         During the quarter, the Company obtained a second Music Advance Term
Loan for an amount of $2,500,000 for purposes of financing the recoupable
advances made to certain music providers for 2005 and 2006. The new Music
Advance Term Loan bears interest at the U.S. base rate of the Bank plus
1.50%, representing a rate of 8.00% as at June 30, 2005. The Music Advance
Term Loan is collateralized by a second charge on movable property in the
amount of $3,000,000 and a certificate of guarantee issued by Export
Development Canada covering 50% of the net loss risk. As at June 30, 2005,
$938,000 was outstanding under the line of credit which was refinanced with
the Music Advance Term Loan in July, 2005.

         The Music Advance Term Loans are secured by a lien on the past, present
and future assets of the Company.

         The Company also had available a term loan facility ("Revolving Credit
Term Loan") in an amount of up to an aggregate of $2,000,000. During the
quarter, the Company cancelled that Facility.

         The agreements as amended between the Company and the National Bank of
Canada governing the Music Advance Term Loans and the Line of Credit contain
financial covenants including requirements


                                       16

<Page>


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
June 30, 2005, the Company satisfied all of its covenants.

         During the quarter, the Company entered into loans to finance the
acquisition of vehicles. These loans bear interest at rates between 0% and 2.9%,
mature in 2009, and are collaterized by the related property.

         The Company has contractual obligations totaling approximately
$2,784,000. These relate to payments due under the Company's long-term debt
obligations described above and operating leases. The operating leases are
primarily related to office space.

<Table>
<Caption>
      -----------------------------------------------------------------------------------------------------------
      CONTRACTUAL OBLIGATIONS                                   PAYMENTS DUE BY PERIOD

      -----------------------------------------------------------------------------------------------------------
                                            TOTAL            LESS THAN 1 YEAR(1)         MORE THAN 1 YEAR(2)
      -----------------------------------------------------------------------------------------------------------
      <S>                                   <C>              <C>                         <C>                          <C>
      LONG TERM DEBT(3)                        1,831,000                    903,000                      928,000
      -----------------------------------------------------------------------------------------------------------
      OPERATING LEASES                           953,000                    365,000                      588,000
      -----------------------------------------------------------------------------------------------------------
      TOTAL CONTRACTUAL CASH
      OBLIGATIONS                              2,784,000                  1,268,000                    1,516,000
      -----------------------------------------------------------------------------------------------------------
</Table>

      (1) Refers to "less than 1 year" from July 1, 2005.
      (2) Refers to "more than 1 year" from July 1, 2005.
      (3) Refers to the two Music Advance Term Loans.



         Cash Flows

         The following table summarizes the Company's cash flow activity
(amounts in thousands):

<Table>
<Caption>
                                                          THREE-MONTH    SIX-MONTH  Three-month    Six-month
                                                         PERIOD ENDED       PERIOD       period       period
                                                                 JUNE   ENDED JUNE   ended June   ended June
                                                                 2005         2005         2004         2004
                                                       ------------------------------------------------------
<S>                                                     <C>             <C>          <C>          <C>
Net cash provided by  (used in) operating activities          (1,728)            9          240          833
Net cash used in investing activities                           (404)        (567)         (79)      (1,150)
Net cash provided by  (used in) financing activities              613          (8)          570        1,365
</Table>


       OPERATING
       ---------


Cash flow from operations has been and is expected to be the Company's primary
recurring source of funds. The primary reason for the decrease in cash flow from
operations is due to an increase required in working capital to support the
Company's sales growth. The Company's revenues consist of jukebox sales
revenues, music service revenues and jukebox leasing and financing revenues. The
Company expects that there will be competitive pressures on the unit pricing of
jukeboxes and has reacted to this by reducing the retail sales price of its
jukeboxes to $5,645 in 2005 as compared to $7,990 for a Rhapsody model and
$7,685 for a Maestro model, including Tune Central, in 2004. Music service
revenues have demonstrated consistent growth due to the increase in the
Company's installed base of jukeboxes. The Company expects that revenue from
jukebox leasing and financing will reduce in 2005 and 2006 as the leases which
generate this revenue expire and are not replaced with new leases.


                                       17


<Page>

               INVESTING
               ---------

         The purchase of property, plant and equipment during the quarter ended
June 30, 2005 decreased from approximately $453,000 in 2004 to approximately
$277,000 in 2005.

               FINANCING
               ---------

         For the six-month period ended June 30, 2005 and 2004 the Company
repaid long-term debt and notes payable totaling approximately $947,000 and
$1,908,000 respectively. Proceeds from long-term debt and notes payable for the
six-month period ended June 30, 2005 and June 30, 2004 totaled approximately
$938,000 and $3,523,000 respectively.

The Company has available a Line of Credit of up to $4,000,000 which had not
been drawn upon as at June 30, 2005. A new Music Advance Term Loan of $2,500,000
was entered into with the Bank during the second quarter 2005.

The Company has 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 of such proxy statement 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. The Company expects the cost of acquiring the partial
shares, after the proposed reverse stock split, to be approximately $360,000.
The Company expects to finance this from its existing financial resources.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

         ALLOWANCE FOR DOUBTFUL ACCOUNTS - METHODOLOGY
        ----------------------------------------------

         The Company evaluates the collectability of accounts receivable based
on a combination of factors. In circumstances where the Company is aware of a
specific customer's inability to meet its financial obligations (e.g.,
bankruptcy filings, substantial downgrading of credit scores), the Company
records a specific reserve for bad debts against amounts due to reduce the net
recognized receivable to the amount the Company reasonably believes will be
collected. For all other customers, the Company recognizes reserves for bad
debts based on the length of time the receivables are past due based on the
Company's historical experience and the Company's specific experience with that
customer. If circumstances change (i.e., higher than expected defaults or an
unexpected material adverse change in a major customer's ability to meet its
financial obligations to the Company), the Company's estimates of the
recoverability of amounts due could be reduced by a material amount.

         WARRANTY PROVISION - METHODOLOGY
         --------------------------------

         The Company provides warranties on all jukeboxes sold or leased for a
period of 2 to 5 years. Estimated costs for warranties are provided based upon
management's best estimate. The adequacy of the warranty provision is reviewed
regularly in light of the Company's past experience and expectation of costs to
be incurred and adjusted accordingly.

         REVENUE RECOGNITION
         -------------------

         Jukebox sales are recognized when the jukebox is shipped to the
customers. The Company further provides for the estimated cost of product
warranties as described above. Shipping and handling costs are included in the
cost of jukebox revenues and direct operating costs. Revenues generated from
music service contracts and operating leases are recognized as the services are
performed.


                                       18

<Page>

         RISK FACTORS
         ------------

         The following items are representative of the risks, uncertainties and
assumptions that could affect the outcome of the forward looking statements. The
risks described below are not the only ones facing the Company. Additional risks
we are not presently aware of or that we currently believe are immaterial may
also impair our business operations.

WE HAVE HAD LOSSES, AND WE CANNOT ASSURE FUTURE PROFITABILITY.

         We reported net income for fiscal year 2004 and operating losses for
fiscal years 2000, 2001, 2002 and 2003 and the six-month period ended June 30,
2005. We cannot be assured that we will operate profitably, and if we do not, we
may not be able to meet our debt service requirements, working capital
requirements, capital expenditure plans, acquisition or other cash needs. Our
inability to meet those needs could have a material adverse effect on our
business, results of operations and financial condition.

         Our credit facilities contain certain covenants and financial tests
that limit the way we conduct business. Our credit facilities contain various
covenants limiting our ability to incur or guarantee additional indebtedness,
pay dividends and make other distributions, make investments and other
restricted payments, make capital expenditures and sell assets. These covenants
may prevent us from raising additional financing, competing effectively or
taking advantage of new business opportunities. Under our credit facilities, we
are also required to maintain specified financial ratios and satisfy certain
financial tests. If we cannot comply with these covenants or meet these ratios
and other tests, it could result in a default under our credit facility, and
unless we are able to negotiate an amendment, forbearance or waiver, we could be
required to repay all amounts then outstanding, which could have a material
adverse effect on our business, results of operations and financial condition.

         Borrowings under our credit facilities also are secured by liens on
substantially all of our assets and the assets of our subsidiary. If we are in
default under one of these credit facilities, the lender could foreclose upon
all or substantially all of our assets and the assets of our subsidiary. We
cannot assure you that we will generate sufficient cash flow to repay our
indebtedness, and we further cannot assure you that, if the need arises, we will
be able to obtain additional financing or to refinance our indebtedness on terms
acceptable to us, if at all. Any such failure to obtain financing could have a
material adverse effect on our business, results of operations and financial
condition.

         We do not own the rights to the music we offer under our music and
service agreements. These rights are obtained through license agreements with
music label companies, music publishing companies and performing rights
societies. There can be no assurances that the Company will be able to renew
existing arrangements with record label companies and publishing companies for
the use of their music. If we are unable to renew these agreements, it could
have a material adverse effect on our business results of operations and
financial condition.

         We rely on a few major distributors. A small number of distributors
account for a significant percentage of our jukebox sales revenues. We do not
have long-term agreements with any of these distributors. We cannot be assured
that we will continue to maintain favorable relationships with these
distributors or that they will not be adversely affected by economic conditions.
If any of these distributors reduces or cancels a significant order, it could
have a material adverse effect on our business, results of operations and
financial condition.

         Our revenues and results of operations are vulnerable to currency
fluctuations. We report our revenues and results of operations in US dollars,
but a significant portion of our expenses is incurred outside of the United
States. Our principal currency exposure is between Canadian and US dollars,
although this exposure is partially mitigated through the entering into
forward foreign exchange contracts. The Company has designated its forward
exchange contracts as a hedge and accordingly records the derivatives at
their fair value on the consolidated balance sheet with the corresponding
credit included in other comprehensive income and will be recognized as an
adjustment of the hedged expense when the expense will be recorded. We cannot
accurately predict the impact of future exchange rate

                                       19


<Page>

fluctuations between the Canadian dollar and the US dollar or other foreign
currencies on revenues and operating margins, and fluctuations could have a
material adverse effect on our business, results of operations and financial
condition.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS OR FAIL TO
IMPLEMENT CHANGES TO ADDRESS REPORTABLE CONDITIONS WE MAY NOT BE ABLE TO REPORT
OUR FINANCIAL RESULTS ACCURATELY.

         Effective internal controls are necessary for us to provide reliable
financial reports. We may in the future discover, areas of our internal controls
that need improvement.

PROTECTING AND DEFENDING AGAINST INTELLECTUAL PROPERTY CLAIMS MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

         Our ability to compete depends, in part, upon successful protection of
our intellectual property. We attempt to protect proprietary and intellectual
property rights through available patent and trademark laws. Despite these
precautions, existing patent and trademark laws afford only limited practical
protection in certain countries. As a result, it may be possible for
unauthorized third parties to copy our applications which could have a material
adverse effect on our business, results of operations and financial condition.

         Litigation may also be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, or to determine the
validity and scope of the proprietary rights of others or to defend against
claims or infringement or invalidity. As such, litigation could result in
substantial costs and the diversion of resources and could have a material
adverse effect on our business, results of operations and financial condition.
We cannot assure you that infringement or invalidity claims will not materially
adversely affect our business, results of operations and financial condition.
Regardless of the validity or the success of the assertion of these claims, we
could incur significant costs and diversion of resources in enforcing our
intellectual property rights or in defending against such claims, which could
have a material adverse effect on our business, results of operations and
financial condition.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND
         SUPPLEMENTARY DATA

CURRENCY RATE RISK MANAGEMENT
-----------------------------

         Market risks relating to our operations result primarily from changes
in foreign currency exchange rates. As part of our overall risk management
program, we evaluate and manage our exposure to changes in currency exchange
risks on an ongoing basis. Hedges and derivative financial instruments will be
used in the future, within guidelines approved or to be approved by the Board of
Directors for counterpart exposure, limits and hedging practices, in order to
manage our currency exposure. We have no intention of entering into financial
derivative contracts, other than to hedge a specific financial risk.

Currency Rate Risk

         We incur certain operating and manufacturing costs in Canada and are
subject to market risks resulting from fluctuations in foreign currency exchange
rates. Our principal currency exposure is between Canadian and US dollars. We
also enter into forward foreign exchange contracts. The Company has begun to
designate its forward foreign exchange contracts as a hedge. These forward
exchange contracts do not subject us to risk from exchange rate movements
because gains and losses on the contracts offset losses and gains on the
transactions being hedged. As at June 30, 2005, the Company had contracted to
sell US $2.5 million in exchange for CDN dollars over a period to August 31,
2005 at a weighted average exchange rate of CDN $1.2516 and another US $2.5
million to sell in exchange for Canadian dollars for the period September 1 to
November 30, 2005 at a weighted average exchange rate of CDN $1.247. The Company
has recorded a foreign currency gain of approximately $97,000 in respect of
these contracts in its financial results for the three-month period ended June
30, 2005. These contracts are entered into with a major financial institution as
counterparty. The Company is exposed to credit loss in the event of
nonperformance by the counterparty, which is limited to the cost of replacing
the contracts, at current market rates. The company does not require collateral
or other security to support these contracts. We


                                       20

<Page>

currently intend to continue to enter into such contracts to hedge against
future material foreign currency exchange rate risks.

ITEM 4.  CONTROLS AND PROCEDURES

         The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation as of June 30, 2005 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 weaknesses that could significantly affect these
controls subsequent to the date of their evaluation.

                          PART II - OTHER INFORMATION

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

     b.   The Company did not file any reports on Form 8-K for the three month
          period ended June 30, 2005.



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<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 15, 2005                    By: /s/ John Perrachon
                                                -----------------------
                                                John Perrachon
                                                Chief Executive Officer,
                                                President and Director

Dated:   August 15, 2005                    By: /s/ Matthew Carson
                                                ------------------
                                                Matthew Carson
                                                Vice President Finance and
                                                Chief Financial Officer
                                                (Principal Financial Officer)




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<Page>

                                  EXHIBIT INDEX
<Table>
<Caption>
   EXHIBIT  DESCRIPTION
   NUMBER
<S>         <C>
      2     Going Private Transaction Statement filed as an exhibit to 99.1 of
            the Company's Report on Form 13E-3 filed on February 12, 2004, which
            Exhibit is incorporated herein by reference.

    3.1     (1) Second Amended and Restated Articles of Incorporation. Reference
            is made to Exhibit 3.1 of Company's Quarterly Report on Form 10-QSB,
            for the quarterly period ended September 30, 2000, filed on November
            20, 2000, which Exhibit is incorporated herein by reference.

    3.1     (2) Third Amended and Restated Articles of Incorporation, Reference
            is made to Exhibit 4.1 of the Company's Report Form 8-K filed on
            June 13, 2003, which Exhibit is incorporated herein by reference.

    3.2     (1) Bylaws. Reference is made to Exhibit 3.1 of the Company's
            Registration Statement on Form SB-2, filed on June 19, 1997, which
            Exhibit is incorporated herein by reference.

    3.2     (2) Amended and Restated Bylaws. Reference is made to Exhibit 3.1 of
            the Company's Annual Report on Form 10-K (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     (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 20,
            2000, which Exhibit is incorporated herein by reference.

    4.1     (2) 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     (1) 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 20,
            2000, which Exhibit is incorporated herein by reference.

    4.2      (2) Voting Trust and Limited Stockholders Agreement dated June 9,
             2003, 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. 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     (1) 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 20, 2000, which
            Exhibit is incorporated herein by reference.

    4.3     (2) Terms of Series B 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.

    4.4     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.

    9.1     Voting Trust and Limited Stockholders Agreement, dated May 18, 2000,
            among CDP Capital Communications, Sofinov and TouchTunes Digital
            Jukebox, Inc. Reference is made to Exhibit 3 of the Company's Form
            8-K, filed on June 2, 2000, which Exhibit is incorporated herein by
            reference.

    10      Settlement agreement between the Company and Ecast, Inc. dated
            April 23, 2004, which Exhibit is incorporated herein by reference.

    10.2    Jukebox License Agreement with the American Society of Composers
            Authors and Publishers, Broadcast Music Inc. and SESAC, Inc., dated
            March 11, 1997. Reference is made to Exhibit 10.18 of Company's
            Registration Statement on Form SB-2, File No. 333-7006, which
            Exhibit is incorporated herein by reference.

    10.3    Subscription Agreement for the purchase of 100 Series A Preferred
            Shares of the Company by the selling Stockholders. Reference is made
            to Exhibit 6 of Company's Form 8-K for the month of March 1997,
            which Exhibit is incorporated herein by reference.

    10.4    Company's 2000 Long-Term Incentive Plan. Reference is made to
            Exhibit 4.3 of the Company's Form S-8 filing, filed on July 17,
            2000, which Exhibit is incorporated herein by reference.
</Table>


                                       23

<Page>


<Table>
<Caption>
   EXHIBIT  DESCRIPTION
   -------  -----------
   NUMBER
   ------
<S>         <C>
    10.5    Subscription Agreement, dated May 18, 2000, among CDP Capital
            Communications, Sofinov and TouchTunes Digital Jukebox, Inc.
            Reference is made to Exhibit 1 of the Company's From 8-K, filed on
            June 2, 2000, which Exhibit is incorporated herein by reference.

    10.6    Registration Rights Agreement, dated May 18, 2000, among CDP Capital
            Communications, Sofinov and TouchTunes Digital Jukebox, Inc.
            Reference is made to Exhibit 2 of the Company's Form 8-K, filed on
            June 2, 2000, which Exhibit is incorporated herein by reference.

    31.1    Rule 13a-14(a)/15d-14(a) CEO Certification

    31.2    Rule 13a-14(a)/15d-14(a) CFO Certification

    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.

    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.
</Table>



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