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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

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ANNUAL REPORT UNDER SECTION 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

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TRANSITION REPORT UNDER SECTION 13 AND 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to                         

Commission File No. 33-55254-447

TOUCHTUNES MUSIC CORPORATION
(Exact name of registrant as specified in its charter)

Registrant's telephone number (702) 792-7405

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Class A Voting Common Stock (par value $0.001 per share)
(Title of Class)

Indicate by 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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ý    No o

        Indicate the check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

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

        State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. The aggregate market value for the voting and non-voting common equity held by non-affiliates as of March 24, 2005 was approximately $1,330,000.

        Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of March 30, 2005, the total number of shares of Class A voting common stock outstanding was 14,827,394.

TABLE OF CONTENTS

FORWARD LOOKING STATEMENT

        All statements, other than statements of historical fact, contained within this report constitute "forward-looking attachments" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by terms such as "may", "intend", "will", "should", "could", "would", "expect", "believe", "estimate", "expect", "plan", or the negative of these terms, and similar expressions intended to identify forward-looking statement.

        These forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Also, these forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

        Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, those described in "Risk Factors" found elsewhere in this report.

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PART I

        This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (as amended, the "Securities Act") 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 that are not within the control of TouchTunes Music Corporation.

        Note that all dollar amounts set forth in this annual report on Form 10-K are in United States dollars, except where otherwise indicated, and references herein to "CDN" are to Canadian dollars.

ITEM 1.    Description of Business

(a)   Organization

        TouchTunes Music Corporation (the "Company") is a Nevada corporation formed in 1990. The Company is involved in the digital distribution of music content to music-on-demand applications. The first such music-on-demand application developed by the Company was its floor model digital jukebox, the Genesis. In November 2001, the Company commenced commercial sale of its wall-mounted digital jukebox, the Maestro. During 2003, the Company began selling the Rhapsody, a floor model digital jukebox, which is an updated version of the Genesis. The company no longer manufactures the Genesis jukebox. The Genesis, Rhapsody and Maestro models are referred to in this annual report, collectively as the "Digital Jukeboxes." Since acquiring the exclusive rights to a patented technology for its Digital Jukeboxes in December 1994, the Company has concentrated most of its efforts on the development and marketing of its Digital Jukeboxes.

        Based upon available information, the Company's management believes that it has become the leading provider of digital jukeboxes in the United States and a significant digital distributor of music content, downloading approximately 400,000 songs per month. The Company is actively developing new music-on-demand products and applications as part of its strategy to leverage its existing technology, music content, and strategic relationships.

        The Company's network of Digital Jukeboxes currently plays approximately 23 million songs to an estimated audience of approximately 5 million people each month. This makes the digital jukebox network an attractive alternative to radio for record companies and their artists.

        The Company has one wholly owned subsidiary, TouchTunes Digital Jukebox Inc. ("TouchTunes Digital"), a Canadian corporation. The Company has an arrangement with TouchTunes Digital pursuant to which TouchTunes Digital conducts, among other things, research and development in connection with the Company's digital jukebox projects. For more information about TouchTunes Digital, see the discussion under Item 1(k), "TouchTunes Digital," and Item 2, "Description of Property."

(b)   Products

        The Digital Jukeboxes combine, in a single unit, computer systems, telecommunication peripherals, and multimedia hardware. The Company's management believes that the Digital Jukeboxes are capable of replacing the loading mechanisms, the laser and the high-maintenance parts employed by conventional jukeboxes, with its low-maintenance computer system, which is capable of storing and reproducing, in digital format (MP3: 128 kbs; 44.1 KHz), any music selection at its original level of quality. All music files are protected from unauthorized usage by using multi-media protection protocol encryption (128 bit) algorithm.

        The core of the digital jukebox technology is a proprietary operating system, optimized for high-speed sound reproduction and video animation. Each Digital Jukebox is capable of storing, in compressed digital format, 2,000 songs, upgradeable to virtually unlimited capacity. The Digital Jukeboxes are also equipped with a telecommunication protocol allowing the secure downloading of music to each individual Digital Jukebox from a remote central music library. The result is a high-performance, low-maintenance, remotely configurable,

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computer-controlled unit using state-of-the-art technology standards. In the opinion of the Company's management, with its integrated and proprietary software program, the Digital Jukeboxes outperform any conventional jukebox on the market today for simultaneous sound reproduction, graphics display, video animation, music management, and telecommunication services.

        The operating software employed by the Digital Jukeboxes accounts for all songs played and automatically generates detailed pay-for-play statements, indicating royalty amounts owing to each record label and publishing company. This feature has helped the Company obtain performance, recording, and publishing rights for the Digital Jukeboxes from performance rights societies, various record label companies, and various publishing companies, authorizing the Company to reproduce and play copyrighted music on its Digital Jukeboxes. The statistics generated by Digital Jukeboxes can be used to determine the popularity of artists and titles, together with music preferences and trends. This information on musical tastes is critical to the music industry and can be made available by the Company to record labels. Furthermore, these data-mining capabilities can be used to test market new songs, monitor consumer preference and geographic trends, promote record labels and their artists, as well as provide other useful information.

(c)   Industry

        The Digital Jukeboxes were primarily developed for the jukebox industry. Based upon available information, the Company's management believes that approximately 250,000 conventional jukeboxes are in operation in the United States and approximately 4,000 new units were sold in 2004. There are approximately 2,300 jukebox operators who own these conventional jukebox units, which are placed in restaurants, bars, and other similar business venues. Annual gross coinage jukebox revenue in the industry amounts to approximately $2 billion, of which, on average, approximately 50% is retained by location owners and 50% is retained by jukebox operators. The previous significant technological change in the industry occurred in 1987 when CD jukeboxes were introduced; older vinyl jukeboxes were no longer being manufactured by 1991. The Company expects the industry to shift to digital technology.

(d)   Patents

        To protect its technology, the Company has filed a total of 30 international patent applications in the United States, Europe, Canada, and Japan.

        Generally, the patent applications cover the Company's downloading network configuration, operating system technology, graphic user interface, system control methodology, music copyrights protection processes, advertising methodology, interactive music gaming methodology and remote software upgrade methodology, as it applies to the jukebox sector. Other patent applications cover the use of the Company's technology in potential markets outside the coin-operated jukebox industry (residential and other markets), which can be serviced by the same network configuration.

        As of March 26, 2005, 12 patents have been granted in Europe and 9 patents have been granted in the United States. Generally, the patents will expire sometime between 2020 and 2025.

        There can be no assurances as to the scope, validity, or value of such patents and patent applications, nor as to their freedom from infringement by others.

(e)   Promotion and Marketing

        The Company promotes the Digital Jukeboxes through advertising, its web site, spotlight shows, on-site demonstrations, direct mailings, banner ads, and on-premise promotional items. The Company also attends most major and selected minor industry trade shows and exhibitions. The major trade show in which the Company participates each year is the Amusement & Music Operators Association held September each year. This event attracts most major participants in the coin-operated industry and generates orders from jukebox operators for the Digital Jukeboxes.

        The Company also participates in various conferences and trade shows relating to music licensing and downloading, as well as conferences and shows concerning business interests related to the Company's future operations.

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        The Company's marketing and distribution strategies are aimed at penetrating the jukebox industry through individualized arrangements with existing jukebox operators. The Company manufactures and sells the Digital Jukeboxes to the jukebox operators and provides additional music services. The Company arranges for (i) the renewal and payment of licensing fees to the performing rights societies, (ii) the accountability and disbursement of royalty payments to the record label companies and publishing companies, and (iii) the ongoing provision of music selections to jukebox operators. The Company presently sells its Maestro and Rhapsody models at a retail price of $6,295. Also, the Company provides music services to the jukebox operators under three types of agreements: (i) the elite music and service agreement for which the Company charges a minimum fee of $29.95 per week, which increases to a maximum of $59.95 per week based on the level of revenues derived from the operation of the Digital Jukeboxes and, (ii) the fixed-rate music and service agreement which provides for a fixed weekly fee of $12.95, and a fee of $0.04 per song played, (iii) the Ultra 16 program charges a base fee of $12.95 per week and 16% of total revenues to a maximum of $79.95 per week. For those Digital Jukeboxes equipped with Tune Central, the Company charges an additional $0.18 per song played under the Elite and Fixed Rate Music and Service Agreement.

        In addition, the Company has a remaining portfolio of approximately 500 Digital Jukebox leases with jukebox operators, which each have a term of five years. These lease agreements provide for an additional $40 per week which is attributed to the capital cost of the Digital Jukebox. The Company has sales and lease agreements with approximately 130 jukebox operators. Therefore, the loss of any one operator would not have a material impact on the Company's business.

        As at December 31, 2004, the Company had delivered 10,124 Digital Jukeboxes to jukebox operators and distributors, of which approximately 9,700 units had been installed in various locations in the United States.

(f)    Customer Service and Technical Support

        The Company has established customer service and technical support departments focused on providing the Company's customers with value beyond the purchase or lease of the Company's Digital Jukeboxes. The customer service and technical support is accessed through a toll-free telephone number. The Company also conducts jukebox installation training sessions, providing education and insight into the use of the Company's Digital Jukeboxes.

(g)   Manufacturing, Assembling and Distribution

        The Company offers music owned by four major record label companies (Universal Music Group, Warner Music Group, EMI Music Group and Sony/BMG Music), as well as Univision, which is the largest Latin label, and many other independent record labels. The rights obtained are based on a pay-per-play royalty fee structure.

        The Company has agreements in place with EMI Music Group, which expires on March 25, 2007, Sony Music, which expires on September 14, 2006, and Universal Music Group, which expires on June 30, 2005. The most recent agreements signed with Warner Music Group and BMG North America expired on December 31, 2004. The Company is presently in final contract drafting stage with Warner Music Group on a new three-year agreement. The Company is also in negotiation with Sony/BMG Music for a new agreement which will cover the rights for both of these recently merged companies. The Company continues to offer to its customers music by Warner Music Group and BMG North America under verbal agreement with these two record labels.

        The Company has also obtained publishing rights from the five major publishing companies (Warner Chappell, Sony/ATV/Music Publishing, Universal Music Publishing, Careers — BMG Music Publishing Inc. and EMI Entertainment World Inc.), which generally have a term ranging from one to five years and expiration dates ranging from January 1, 2005 to December 31, 2006 as well as rights from over 300 other independent publishing companies. The agreements with the independent publishing companies have terms ranging from one to three years and expiration dates ranging from 2005 to 2008. The publishing rights obtained are based on a royalty payable, determined either each time a song is digitally reproduced or downloaded on a Digital Jukebox or on a pay-per-play fee structure. The Company continues to negotiate with publishing companies for the right to play music owned by them on the Digital Jukeboxes.

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        In March 2004, the Company entered into license agreements, which expire June 30, 2008, with the American Society of Composers, Authors and Publishers ("ASCAP") and Broadcast Music Inc. ("BMI"), organizations representing performance rights for musical composers and authors. Under these agreements, which were effective July 1, 2003, the Company licensed the rights to perform all music in the licensed repertory of ASCAP and BMI for a fixed annual fee per jukebox operated by the Company.

        The Company has entered into an agreement with Bose Corporation ("Bose")for the commercial manufacturing of the Rhapsody jukebox. The Company has also entered into an agreement with 146473 Canada Inc. to supply assembled and tested computer units for installation in Digital Jukebox units manufactured by Bose. The Company has arrangements with various telecommunication companies to obtain access into their TCP/IP networks, enabling the digital downloading of music content to its Digital Jukeboxes.

        As part of its sales and market penetration strategy, the Company has arrangements with 12 key distributors to distribute the Digital Jukeboxes throughout the United States.

        There can be no assurances that the Company will be able to (i) renew existing agreements with record label companies and publishing companies for the use of their music, (ii) conclude sufficient arrangements with jukebox operators for the acquisition and use of the Digital Jukeboxes, (iii) renegotiate key supplier contracts on terms favorable to the Company, or (iv) finance the substantial costs needed to manufacture, assemble, distribute and operate such Digital Jukeboxes on a commercially profitable basis. The Company's failure to renegotiate these agreements and/or arrangements or to finance the costs associated with the manufacture and operation of the Digital Jukeboxes could have a material adverse effect on the Company's business and operations.

(h)   Product Development

        The Company plans to leverage its existing expertise in the secure digital distribution of music through TCP/IP networks, its established relationships with record label companies, publishers and performing rights societies as well as its strategic partnerships with Bose and other key suppliers, to develop other music-on-demand products and applications. The Company's current product development efforts are focused on utilizing its core technologies to expand its music-on-demand products and applications.

        During 2003, the Company launched two new products. The first product, the Rhapsody floor model digital jukebox, was launched in November 2003. The Rhapsody model is an updated version of the Genesis model jukebox. The Genesis jukebox is no longer manufactured by the Company.

        The second new product launched by the Company during 2003 was Tune Central. Tune Central allows the Company's customers to select and instantly download a song from a library of over 120,000 songs.

        The Company's growth will be dependent upon the rate of market penetration of the Digital Jukeboxes, revenues generated from sales, leasing, music services, and advertising on the Digital Jukeboxes, enhancements to the Digital Jukeboxes, as well as the introduction of new products and applications. There can be no assurance that any such market penetration and revenue growth will be achieved, or such new products, applications or enhancements will achieve market acceptance. If the Company was unable, due to resource or technological constraints or other reasons, to develop and introduce such products in a timely manner, this inability could have a material adverse effect on the Company's business, operating results, cash flows, and financial condition.

        The Company's research and development expenses were approximately $3,917,000 in 2004, $3,044,000 in 2003 and $2,347,000 in 2002.

(i)    Competition

        Competition in the manufacture, distribution, and use of digital jukeboxes is intense. All of these manufacturers have far greater experience in the jukebox industry than the Company because they were previously manufacturers of conventional jukeboxes and some have other lines of equipment, which they produce in addition to digital jukeboxes, within the amusement/entertainment industry. Through their distribution network, manufacturers sell their equipment, usually in bulk quantities, to local distributors.

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        The Company's competitors design, develop and market units similar to the Digital Jukeboxes for use in the jukebox industry, with comparable or superior features, technologies and advances. The Company will face intense competition in commercializing any new music-on-demand products and applications from companies that may have longer operating histories and significantly greater financial, management, technology, development, sales, marketing and other resources than the Company.

        While the Company believes its Digital Jukeboxes are currently superior to any jukebox on the market, there can be no assurance that other technologically-advanced jukeboxes will not be designed and marketed by existing manufacturers or others, in competition with the Company's Digital Jukeboxes.

(j)    Employees

        As at December 31, 2004, the Company and its wholly-owned subsidiary, TouchTunes Digital, had a total of 105 employees, which includes 58 in sales, marketing, customer service and customer support, 19 in development, quality assurance and network operations, and 28 in music-related activities, general and administration. All employees are engaged on a full-time basis. See also Item 11 (c), "Employment Agreements".

(k)   TouchTunes Digital

        Through a series of investments made from 1997 to 1999, Societe Innovatech du Grand Montreal and Caisse de Depot et Placement du Quebec ("CDPQ") acquired an aggregate of: (i) debentures of TouchTunes Digital in the principal amount of $20,330,579 and (ii) equity of TouchTunes Digital in the principal amount of $4,000,000 CDN. In December 1999, pursuant to a share exchange agreement and an amended debenture put right agreement with the Company, Societe Innovatech du Grand Montreal and CDPQ exchanged their shares and debentures of TouchTunes Digital for, in the aggregate, 12,843,960 shares of the Company's Series A preferred stock, par value $0.001 per share ("Series A Preferred Stock").

        As a result of this exchange, the Company became the sole stockholder of TouchTunes Digital. Pursuant to an arrangement dated January 1, 1998, between the Company and TouchTunes Digital, TouchTunes Digital performs research and development with respect to the Company's digital jukebox project and provides the Company with additional services, such as consulting services, as the Company reasonably requests in connection with the implementation of the digital jukebox project.

RISK FACTORS

        You should carefully consider the following discussion of risks and the other information included in this report in evaluating the Company and its business. 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 have reported net income for fiscal year 2004 and operating losses for fiscal years 2000, 2001, 2002 and 2003. 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

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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 not designated its forward foreign exchange contracts as a hedge and accordingly records the derivatives at their fair value on the consolidated balance sheet with the corresponding gains or losses included with foreign exchange losses in the consolidated statement of operations. We cannot accurately predict the impact of future exchange rate 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

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in defending against such claims, which could have a material adverse effect on our business, results of operations and financial condition.

ITEM 2.    Description of Property

        The Company owns no real estate. TouchTunes Digital's principal executive offices are located at 3 Commerce Place, 4^th Floor, Nun's Island, Verdun, Quebec, Canada. Effective March 1, 1998, TouchTunes Digital entered into a new lease with the existing landlord for a term of 10 years with respect to these executive offices, which are comprised of 13,724 square feet of office space. The annual rent is $240,170 CDN. Any renovations and improvements to the leased premises in Quebec are the responsibility of the landlord.

        Effective December 1, 2002, the Company entered into a three year lease for 11,130 square feet of office space at 180 Lexington Drive, Buffalo Grove, Illinois at an annual rental of $83,475 for use as a sales and marketing office as well as warehouse space and, effective July 2004, the Company entered into a 16 month lease for additional space at an annual rate of $31,263. Effective November 1, 2004, the Company also leases office space at 275 Commerce Drive, Suite 210, Fort Washington, Pennsylvania, under a 3 year lease ending November 30, 2007 at an annual rental of $15,288 for the year 2006 and $15,652 for the year 2007 and at 1800 East Sahara, Suite 107, Las Vegas, Nevada, on a month-to-month basis at a nominal annual rental.

        In the opinion of the Company's management, the above-mentioned properties are adequately insured.

ITEM 3.    Legal Proceedings

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

        The discounted amount of these payments has been recorded as a gain in the second quarter of 2004. Management has applied a discount rate of 15% for purposes of discounting these payments. Legal costs of approximately $720,000 incurred in 2004 relating to this settlement in April 2004 have been charged to general and administrative expenses.

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

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

ITEM 4.    Submission of Matters to a Vote of Security Holders

        No matters were submitted to a vote of security holders of the Company during the fiscal year 2004.

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PART II

ITEM 5.    Market for Common Equity and Related Stockholder Matters

(a)   Market for Common Stock

        The Company's Class A voting common stock, par value $.001 per share (the "Common Stock"), has traded on the over-the-counter market on the "OTC Bulletin Board" since June 7, 1995. Until December 1998, the symbol was TCMN. The symbol is now TTMC. The quotations below from the National Quotation Bureau, Inc. represent the high and low closing bid and asked prices by quarters for the last two fiscal years. These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions.

        On March 24, 2005, closing bid and asked prices of the Common Stock on the OTC Bulletin Board were $0.31 per share and $0.40 per share, respectively. On that date, there were 457 holders of record of Common Stock.

        No cash dividends were declared or paid by the Company to its stockholders in the last two fiscal years. The agreements governing the Company's term loans and line of credit with the National Bank of Canada, described below in Item 6(k), "Liquidity and Capital Resources," require the Company to obtain written consent from the National Bank of Canada prior to the distribution of any dividends.

(b)   Recent Sales of Unregistered Securities

        In the past three years, the Company has made the following five private placements of unregistered securities pursuant to an exemption from registration under Section 4(2) of the Securities Act:

(1)

the issuance of convertible debentures to CDP Capital Technologies and CDP Capital Communications in December 2002 as described below in Item 6 (k), "Liquidity and Capital Resources"

(2)

the issuance of warrants to purchase 140,000 shares of Class A Common Stock at a price of $0.42 per share to a record label company in April 2002. These warrants have expired

(3)

the issuance of warrants to purchase 110,000 shares of Class A Common Stock at a price of $0.32 per share to a record label company in June 2002. These warrants have expired

(4)

the issuance of 100,000 shares of Class A Common Stock, par value $0.001 per share, to a record label company in April 2002

(5)

the issuance of 68,750 shares of Class A Common Stock, par value $0.001 per share, to John Perrachon, the President and Chief Executive Officer of the Company, in December 2003.

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ITEM 6.    Selected Financial Data

        Note that all dollar amounts set forth below are in thousands of US dollars.

BALANCE SHEET DATA:

STATEMENT OF OPERATIONS DATA:

CASH FLOW DATA:

SELECTED QUARTERLY FINANCIAL DATA:

2004:

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2003:

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ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The discussion and analysis below contain trend analysis and other forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of 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 that are not within the Company's control.

        The following discussion and analysis should be read in conjunction with the Company's Audited Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this annual report. Reference is also made to the risk factors and other business information described above in Item 1, "Description of Business," which information is incorporated herein by reference.

(a)   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. Revenues, since September 1998, have been generated from the sale and leasing 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 December 31, 2004, the Company had delivered 10,124 Digital Jukeboxes, as compared with 7,723 units delivered as at December 31, 2003. Management plans to devote significant resources to continuing its aggressive sales and marketing efforts within the jukebox industry. Management also intends to continue its development activities to apply its technology to other music-on-demand products and applications in other industries.

        The Company plays approximately 23 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 Jukebox as a significant promotional medium for record labels and their artists. These factors should assist the Company in obtaining and/or renewing agreements with various record companies.

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

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE YEAR ENDED DECEMBER 31, 2003.

        The Company recorded net income and comprehensive income of approximately $1.6 million in 2004 as compared to a loss of approximately $1.7 million for the year ended December 31, 2003. Net income attributable to common stockholders and holders of common stock equivalents was approximately $1.6 million for the year ended December 31, 2004 as compared to a loss of approximately $42 million in 2003. In 2003, there were two non-cash charges totaling approximately $40.3 million, which did not recur in 2004. The first charge, in the amount of approximately $1.1 million was for dividends and accretion of mandatory redeemable Series B preferred stock. In June 2003, as part of the Company's capital restructuring, the rights of the holders of Series B preferred stock to receive a cumulative dividend and to demand redemption by the Company were ended. The second charge, in the amount of approximately $39.3 million was attributable to the beneficial conversion of the Series A and B preferred stock as a result of the capital restructuring.

11

(b)   Revenues and Other Income

        Revenues from the sale of Digital Jukeboxes increased by approximately $3.7 million from approximately $15.0 million in 2003 to $18.7 million in 2004. This increase is attributable to increased unit sales of the Company's Digital Jukeboxes and sales of Tune Centrals, a product which was introduced in late 2003.

        Music service revenues grew to approximately $16.6 million in 2004 as compared with approximately $11.4 million in 2003. This increase in music service revenues resulted from an increase in the total number of Digital Jukeboxes and the installation of Tune Centrals on the Company's network, which generate recurring music service revenues.

        Digital jukebox leasing and financing revenues decreased to approximately $1.2 million in 2004 as compared to approximately $1.6 million in 2003. This decrease is attributable a reduction of leasing and financing revenues on digital jukeboxes as many of these leases reach the expiration of their term and is offset by the sale of Tune Centrals, some of which the Company has leased to customers.

        During the second quarter of 2004, the Company recorded other income of approximately $2,432,000, representing the discounted amount of payments, at a discount rate of 15%, to be received under a litigation settlement agreement entered into on April 23, 2004 with Ecast, Inc..

(c)   Cost of Digital Jukebox Revenues and Direct Operating Costs

        The cost of Digital Jukebox Revenues and direct operating costs increased by approximately $4.3 million from approximately $12.3 million for the year ended December 31, 2003 to approximately $16.6 million for the year ended December 31, 2004. The overall increase in the unit sales of Digital Jukeboxes and Tune Centrals in 2004 resulted in an increase in the cost of jukebox revenues. The commissions paid to the Company's distributors also increased as a consequence of the increase in the unit sales of Digital Jukeboxes and Tune Centrals.

        The cost of music service revenues and direct operating costs increased by approximately $0.4 million from approximately $4.2 million for the year ended December 31, 2003 to approximately $4.6 million for the year ended December 31, 2004. Due to the increased number of Digital Jukeboxes installed in the Company's digital jukebox network, the number of songs played over the Company's digital jukebox network increased thereby increasing the royalties paid to record labels, publishers and performing rights societies.

(d)   Research and Development Costs

        Research and development expenses increased by approximately $0.9 million or 30% from approximately $3 million for the year ended December 31, 2003 to approximately $3.9 million for the year ended December 31, 2004. This increase in research and development expenses was principally due to an increase in research and development effort for new products and releases.

        During 2004, the Company recorded as a reduction of expenses $155,000 of Canadian Investment Tax Credits ("ITC") for certain eligible research and development expenditures as compared to $362,000 during 2003.

(e)   General and Administrative Expenses

        General and administrative expenses increased by approximately $0.5 million or 9% from approximately $5.3 million for the year ended December 31, 2003 to $5.8 million for the year ended December 31, 2003. This increase is attributable to increased personnel costs and professional costs incurred to date with respect to the Company's privatization initiatives offset by reduced legal fees associated with the settlement of the Ecast litigation.

(f)    Sales and Marketing Expenses

        Sales and marketing costs increased by approximately $0.2 million or 7% from approximately $3.0 million for the year ended December 31, 2003 to approximately $3.2 million for the year ended December 31, 2004. This increase is mainly attributable to increased personnel costs and increased commissions paid to the Company's

12

sales personnel due to the increased volume of Digital Jukebox sold in 2004. In addition, advertising and promotional costs increased due to the Company's introduction of new products in 2004.

(g)   Interest Expense

        Interest expense decreased by approximately $0.4 million or 47% from approximately $0.8 million for the year ended December 31, 2003 to $0.4 million for the year ended December 31, 2004. The main sources of funding were the Line of Credit and Music Advance Term Loan and the Jukebox Term Loan (as these are defined in Item 6(k) below) with the National Bank of Canada.

        Interest expense on the Jukebox Term Loan decreased from approximately $122,000 in 2003 to approximately $8,000 in 2004 as the Company reimbursed in full the principal on the loan.

        In June 2003, the Company completed a capital restructuring providing for the conversion of its Unsecured Loan Facility and Debentures (as these are defined in Item 6(k) below) with Caisse de Depot et Placement du Quebec into Series C preferred stock (as defined below). As a result no interest was incurred on these debts subsequent to March 31, 2003. Interest expense for the year on the Unsecured Loan Facility and Debentures was approximately $254,000 in 2003.

        Interest expense on the Music Advance Term Loan was approximately $108,000 in 2004 as compared to nil in 2003.

        Interest expense on the Company's notes payable was approximately $104,000 as compared to approximately $5,000 in 2003.

        For more information regarding the Jukebox Term Loan and Line of Credit with the National Bank of Canada and the Unsecured Loan Facility and Convertible Debentures with Caisse de Depot et Placement du Quebec, see the discussion below under Item 6(k), "Liquidity and Capital Resources."

(h)   Depreciation and Amortization Expenses

        Depreciation and amortization expenses increased by approximately $0.3 million or 21% from approximately $1.4 million for the year ended December 31, 2003 to approximately $1.7 million for the year ended December 31, 2004. This increase is primarily attributable to an increase in depreciation expense due to the Tune Centrals held by the Company as capital assets.

(i)    Foreign Exchange

        The Company experienced a foreign exchange loss of approximately $254,000 for 2004 as compared to approximately $182,000 for 2003. Foreign exchange gains or losses result from the Company paying certain expenditures in currencies other than the United States dollar. The main foreign currency in which the Company's wholly owned subsidiary, TouchTunes Digital Jukebox Inc. transacts is the Canadian dollar.

(j)    Income Taxes

        During 2004, the Company recorded income tax expense of $1,086,000. Of this amount, a recovery of income taxes of $886,000 has been credited directly to additional paid-in capital in stockholders' equity as a result of the Company's use of previously unrecorded loss carried forwards.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

(a)   Revenues

        Revenues from the sale of Digital Jukeboxes amounted to approximately $15.0 million for the year ended December 31, 2003, as compared with approximately $12.1 million for the year ended December 31, 2002 was primarily a result of increased unit sales of Digital Jukeboxes in 2003 as compared to 2002.    Music services revenues grew to approximately $11.4 in 2003 as compared with approximately $7.7 million in 2002. This

13

increase is attributable to increased unit sales of the Company's Digital Jukeboxes and sales of Tune Centrals, a product which was introduced in late 2003.

(b)   Cost of Digital Jukebox Revenues and Direct Operating Costs

        The cost of Digital Jukebox revenues and direct operating costs increased by approximately $2.4 million from $9.9 million for the year ended December 31, 2002 to $12.3 million for the year ended December 31, 2003. The overall increase in the unit sales of Digital Jukeboxes in 2003 resulted in an increase in the cost of Digital Jukebox revenues. The commissions paid to the Company's distributors also increased as a consequence of the increase in the unit sales of Digital Jukeboxes.

        The cost of music service revenues and direct operating costs increased by approximately $0.9 million from $3.3 million for the year ended December 31, 2002 to approximately $4.2 million for the year ended December 31, 2003. Due to the increased number of Digital Jukeboxes installed in the Company's digital jukebox network, the number of songs played over the company's digital jukebox network increased, thereby increasing the royalties paid to record labels, publishers and performing rights societies.

(c)   Research and Development Costs

        Research and development expenses increased by approximately $0.7 million or 30% from approximately $2.3 million for the year ended December 31, 2002 to approximately $3.0 million for the year ended December 31, 2003. This increase in research and development expenses was principally due to an increase in research and development effort, including the hiring of new employees, for new products and releases such as Tune Central and Rhapsody.

        During 2003, the Company recorded as a reduction of expenses $362,000 of Canadian Investment Tax Credits ("ITC") for certain eligible research and development expenditures. During the period 1998 through 2001, the Company did not record the benefit of such ITC's in its financial statements due to management's inability to estimate the amount of ITC to be ultimately received. During the third quarter of 2002, the Company underwent an audit by the relevant taxing authority, which, although not yet completed, provided management with a reasonable basis to estimate a portion of the ITC's, which should be approved for payment. As a result of the audit, the company recorded $525,000 in ITC's as at December 31, 2002.

(d)   General and Administrative Expenses

        General and administrative expenses increased by approximately $0.7 million or 15% from approximately $4.6 million for the year ended December 31, 2002 to $5.3 million for the year ended December 31, 2003. This increase is in part attributable an increase in legal and professional fees incurred with respect to the Company's legal proceedings with E-Cast Inc. and Rowe International Inc. described in more detail in Item 3, "Legal Proceedings".

(e)   Sales and Marketing Expenses

        Sales and marketing costs increased by approximately $0.8 million or 35% from approximately $2.3 million for the year ended December 31, 2002 to approximately $3.1 million for the year ended December 31, 2003. This increase is mainly attributable to the hiring of new employees and increases in commissions paid to the Company's sales personnel due to the increased volume of Digital jukeboxes sold in 2003. In addition, advertising and promotional costs increased due to the Company's introduction of new products in 2003.

(f)    Interest Expense

        Interest expense decreased by approximately $0.47 million or 38% from approximately $1.2 million for the year ended December 31, 2002 to $0.77 million for the year ended December 31, 2003. The main sources of funding were the Line of Credit and Jukebox Term Loan (as defined in Item 6(k) below) with the National Bank of Canada.

        In June 2003, the Company completed a capital restructuring providing for the conversion of its Unsecured Loan Facility and Debentures (as these are defined in Item 6(k) below) with Caisse de Depot et Placement du

14

Quebec into Series C Preferred Stock (as defined below). As a result no interest was incurred on these debts subsequent to March 31, 2003.

        Interest expense for the year on the Unsecured Loan Facility and Debentures decreased from approximately $679,000 in 2002 to approximately $254,000 in 2003.

        Interest expense on the Jukebox Term Loan decreased from approximately $308,000 in 2002 to approximately $122,000 in 2003 as the Company reimbursed approximately $1.9 million of principle on the loan.

        For more information regarding the Jukebox Term Loan and Line of Credit with the National Bank of Canada and the Unsecured Loan Facility and Convertible Debentures with Caisse de Depot et Placement du Quebec, see the discussion below under Item 6(k), "Liquidity and Capital Resources."

(g)   Depreciation and Amortization Expenses

        Depreciation and amortization expenses decreased by approximately $0.2 million or 11% from approximately $1.6 million for the year ended December 31, 2002 to approximately $1.4 million for the year ended December 31, 2003. This decrease is primarily attributable to fewer Digital Jukeboxes held by the Company as capital assets as these assets were sold to third parties.

(h)   Restructuring Costs

        During the first quarter of the year ended December 31, 2002, the company completed the second and final phase of the restructuring of its operations (which began in the last quarter of 2001). Included in the restructuring costs are $183,000 of severance costs plus $80,000 for the closing of an office.    No restructuring costs were incurred during fiscal year ended December 31, 2003.

(i)    Disclosure of Critical Accounting Policies

Allowance for Doubtful Accounts — Methodology

        The Company evaluates the collectibility 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.

15

Research and Development Investment Tax Credit

        The Company recognizes the benefit of Canadian Research and Development Investment Tax Credits as a reduction of expenses when there is reasonable assurance that the claim will be recovered.

(j)    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 may have material adverse effects on its financial condition.

(k)   Liquidity and Capital Resources

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

        In January 1999, TouchTunes Digital entered into the following loan facilities with the National Bank of Canada to finance the Company's equipment acquisitions, leasehold improvements, and research and development expenditures: (1) a small business loan under the Small Business Loans Program sponsored by the Government of Canada; (2) a general term loan; and (3) a term loan under the Loan Program for Technology Firms sponsored by the Canada Economic Development (the "CED Term Loan"). In August 2001, the Company repaid in full the total amount owed under the small business loan and the general term loan. The CED Term Loan was repaid in February 2004.

        In April 1999, TouchTunes Digital entered into a jukebox term loan facility (the "Jukebox Term Loan") providing for loans aggregating approximately $10.4 million with the National Bank of Canada to finance the cost of manufacturing the Digital Jukeboxes. The Jukebox Term Loan was repaid in full in March 2004.

        In May 2001, TouchTunes Digital obtained an operating line of credit (the "Line of Credit") from the National Bank of Canada in the amount of $500,000 bearing interest at the National Bank of Canada's U.S. prime rate plus 1.25%, which was subsequently increased in September 2001 to $1 million and in May 2003 to $2 million.

        On October 21, 2004, the Company accepted an offer letter from the bank providing for an increase in the Line of Credit from $2,000,000 to $4,000,000.

        In January 2004, TouchTunes Digital entered into the Music Advance Term Loan with the National Bank of Canada for an aggregate $2,000,000 for purposes of financing the recoupable advances made to certain music providers. The Term Loan bears interest at the U.S. base rate of the Bank plus 3%, representing a rate of 8.75% as at December 31, 2004. The Term Loan is also collateralized by a certificate of guarantee issued by La Financiere du Quebec covering 50% of the net loss risk and a charge on moveable property in the amount of $2,400,000. The Music Advance Term Loan is repayable over the term of the respective music agreements financed, ranging from one to five years.

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

        The Company also has available a new term loan facility ("Revolving Credit Term Loan") in an amount of up to an aggregate of $2,000,000. The Revolving Credit Term Loan was entered into in December 2004 for purposes of financing certain of the Company's products sold to its customers. 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 Revolving Credit Term Loan bears interest at the US base rate of the Bank plus 4.5%, representing a rate of 10.25% as at December 31, 2004. The Revolving Credit Term Loan is also collateralized by a certificate of guarantee issued by

16

Export Development Canada covering 50% of the net loss risk and a second charge on moveable property in the amount of $2,400,000. At December 31, 2004 the Company had not drawn any funds on this loan.

        In May 2000, the Company issued an aggregate of 8,888,889 shares of Series B preferred stock par value $0.001, ("Series B Preferred Stock") to CDP Capital Technologies and CDP Capital Communications. Specifically, the Company issued 2,222,222 shares of Series B Preferred Stock to CDP Capital Technologies in exchange for the conversion of $5.0 million in prior advances to the Company. The remaining 6,666,667 shares of Series B Preferred Stock were issued to CDP Capital Communications in exchange for proceeds consisting of (i) $14.0 million in cash and (ii) $1.0 million previously advanced by CDP Capital Communications to the Company.

        In July 2001, the Company's Board of Directors approved the terms of an unsecured loan facility (the "Unsecured Loan Facility"), from CDP Capital Communications and CDP Capital Technologies, for up to a maximum of $5 million. Under these terms, CDP Capital Communications and CDP Capital Technologies committed to lend up to $3 million and $2 million, respectively. As at March 31, 2003, $3.5 million had been advanced by CDP Capital Communications and CDP Capital Technologies in the form of promissory notes ("CDP Notes") excluding accrued interest of $0.8 million thereon, bearing interest at the rate of 20% per annum, repayable 30 days after issuance unless exchanged earlier for debentures issuable under the Unsecured Loan Facility.

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

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

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

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

(1)

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

(2)

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

(3)

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

(4)

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

(5)

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

(6)

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

17

(7)

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

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

        The agreements as amended between the Company and the National Bank of Canada governing the Music Advance Term Loan, the Revolving Credit Term Loan and the Line of Credit, contain financial covenants including requirements that the Company maintains a minimum net stockholders' equity, as defined in the agreement, of $8,000,000 and a minimum debt to equity ratio of 1.5 to 1. As at December 31, 2004, the Company satisfied all of its financial covenants.

        The Company has contractual obligations totaling approximately $2,768,000. These relate to payments due under the Company's long-term debt obligations described above, notes payable and operating leases. The operating leases are primarily related to office space.

(1)

Refers to "less than 1 year" from January 1, 2005.

(2)

Refers to "more than 1 year" from January 1, 2005.

(3)

The long-term debt refers to the Company's obligations under the Music Advance Term Loan.

        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 than expected and its development plans or projections change or prove to be inaccurate. If any of the Company's material assumptions prove to be wrong, or if management has failed to account for material contingencies, the Company may not be able to satisfy these capital requirements.

ITEM 7a    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 not designated its forward foreign exchange contracts as a hedge and accordingly records the derivatives at their fair value on the consolidated balance sheet with the corresponding gains or losses included with foreign exchange loss in the consolidated statement of operations. 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

18

hedged. As at December 31, 2004 the Company had contracts to sell US $5 million in exchange for CDN dollars over a period to June 1, 2005 at a weighted average exchange rate of CDN $1.1734. The Company has recorded a foreign currency loss of approximately $100,000 in respect of these contracts in its financial results for 2004. During the year ended December 31, 2004, the Company completed foreign exchange contracts denominated in Canadian dollars. The net gains resulting from contracts amounted to $68,000. 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 currently intend to continue to enter into such contracts to hedge against future material foreign currency exchange rate risks.

ITEM 8.    Financial Statements and Supplementary Data

        The following documents are filed as part of this annual report, beginning on page F-1.

•

Report of Ernst & Young, LLP, Independent Registered Public Accounting Firm.



•

Audited Consolidated Balance Sheets as of December 31, 2004 and 2003.



•

Audited Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2004, 2003 and 2002.



•

Audited Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 2004, 2003 and 2002..



•

Audited Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003 and 2002..

ITEM 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        Not applicable.

ITEM 9A    Control and Procedures

        Within the 90 day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer (CFO") of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in the Company's internal controls or in other factors that could significantly affect the disclosure controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART III

ITEM 10.    Directors and Executive Officers of the Registrant

Directors and Officers

        Set forth below is certain information as of March 25, 2005 regarding the Company's current directors and executive officers. There are no family relationships among any of the directors and executive officers of the Company. Each director serves for a term of one year or until their successors are elected.

        JOHN PERRACHON, 50, was appointed President and Chief Executive Officer of the Company on June 10, 2002 and has served on the Board of Directors since June 10, 2002. Previously, Mr. Perrachon spent ten years, from 1986 to 1996, with BMG Entertainment, where he held a series of progressively responsible management roles. He was Senior Vice President, Operations and Chief Financial Officer for BMG Direct Marketing, Inc., a leading music club with approximately $0.8 billion annual sales and 3,000 employees. He was also President of BMG Direct, Ltd., BMG Direct's Canadian subsidiary.

        From 1996 to 2001, Mr. Perrachon was employed by De Agostini Atlas Editions, a $400-million/400-employee direct marketing company specializing in children's entertainment and educational products, where he served as President and CEO, from 1999 to 2001 and was responsible for six international operating subsidiaries.

        Mr. Perrachon earned a Master of Science in Engineering from the University of Pennsylvania in 1978 and an MBA from the Wharton School of Business in 1983.

        TONY MASTRONARDI, 45, has served as a director of the Company since December 1994. On February 8, 2001, Mr. Mastronardi was appointed Chairman of the Board of Directors and on March 15, 2002, Mr. Mastronardi was relieved of his position as Chairman of the Board of Directors and was appointed Vice-Chairman of the Board of Directors.

        From December 1994 to June 10, 2002 Mr. Mastronardi was Chief Executive Officer of the Company. Effective June 10, 2002 Mr. Mastronardi was named Executive Vice President, Business Development and Marketing of the Company. Mr. Mastronardi resigned from his position as an officer of the Company on June 7, 2004.

        Mr. Mastronardi has 16 years of diverse business experience, holding senior management positions in various industries. Mr. Mastronardi has had hands-on involvement in the Company's jukeboxes since its conception.

20

        GUY NATHAN, 61, has been a director of the Company since December 1994. On March 15, 2002, Mr. Nathan's employment as Senior Vice President with the Company was terminated. Mr. Nathan served as a consultant to the Company until December 31, 2002 when he was rehired as Executive Vice President Technology.

        Mr. Nathan is a recognized inventor, having patented over 100 intellectual property inventions since 1965. He has founded numerous research and development companies, specializing in a variety of highly innovative products, such as micro radars for military use, videodiscs using laser and CD technology, high efficiency DC motors, and interactive cable TV. He was directly involved in the creation of photovoltaic-powered television transmitters and repeaters and microwave links; created a photovoltaic-powered modular television set for communal and educational TV use in third world countries; acted as consultant for numerous African countries in matters of telecommunications, more particularly in setting-up radio and television networks by satellite; developed satellite dish antennas for direct television reception in KU band; and developed and patented an interactive cable TV system.

        WILLIAM MEDER, 62, was appointed Chairman of the Board on September 17, 2004. Mr. Meder has been since 2001 Chairman and Chief Executive Officer of Fleetmind Solutions Inc. and is a director of several other companies. From August 2002 until October 2004, Mr. Meder was a venture advisor to CDP Capital Technologies. From 2000 to 2001, Mr. Meder was the President of Dolphin Software Services Inc. and Vice President of Business Development for Terion. From 1994 to 2000, Mr. Meder was President of ORBCOMM Enterprises and Principal of ORBCOMM Canada Inc..

        JAMES GRANT, 67, was appointed to the Board on September 17, 2004. Mr. Grant has held the position of President and Chief Executive Officer of C.G. James and Associates since 1992.

        HUBERT MANSEAU, 58, previously served as a director of the Company from February 2001 to January 2004. Mr. Manseau was reappointed to the Board of Directors to fill the seat vacated by Sophie Forest in December 2004. Since 1997, Mr. Manseau has been the President and Chief Executive Officer of Societe Innovatech du Grand Montreal, a high-tech venture capital firm in Canada.

        ROBERT JAMIESON, 59, has served as a Director of the Company since June 1, 2004. Mr. Jamieson has served as Chairman and CEO of RCA Music Group, BMG North America since 2001 prior to which he served as President and CEO from 2000 to 2001. Prior to that, Mr. Jamieson held the position of Chairman and CEO of RCA Music Group from 1997 to 2000.

        MATTHEW CARSON, 46, is a Chartered Accountant and has served as the Company's Vice President Finance and Chief Financial Officer since June 2001. From November 1998 to May 2001, Mr. Carson was employed by MDP Worldwide Entertainment Inc., a film production and distribution company, where he held the position of Vice President, Finance, and Chief Financial Officer.

        From November 1997 to November 1998, Mr. Carson was Vice President, Business Development, for BHVR Communications Inc., a communications company, where his responsibilities included identifying and coordinating merger and acquisition opportunities. Prior to 1997, Mr. Carson worked with Ernst & Young LLP, where he was appointed to Partner of its Corporate Finance Group in 1993.

        LAURIE HUGHES, 49, is an attorney and was named Vice President, Business Affairs and Licensing of the Company in January 2004. Prior to that she was employed by ASCAP where she held the position of Assistant Vice President, Business Affairs from September 2003 to December 2003 and was Director of Business Affairs from September 1995 to August 2003.

        DAN MCALLISTER, 40, has served as Vice President, Coin-Operated Sales since March 15, 2002. Mr. McAllister had previously served as the Director of Sales for the Company since August of 1997. In this position he was responsible for developing and implementing a field sales and sales support team.

        Mr. McAllister received his BS from Babson College in Wellesley, Massachusetts.

        CHRIS MARCOLEFAS, 37, has served as the Company's Director of Finance from January 1998 to February 2001, Vice President, Business Development for the Company from March 2001 to March 2002 and

21

consultant to the Company from April 2002 to June 2004. He currently holds the position of Vice President, Operations for the Company.

        DOMINIQUE DION, 30, has served as the Company's Vice President, Research and Development since June 2003. Mr. Dion had previously served as a research and development director for the Company from January 1998 to May 2003.

(b)   Section 16(a) Beneficial Ownership Reporting Compliance

        The reporting persons, James Grant, William Meder and Robert Jamieson did not file Form 3 upon becoming a reporting person of the Company. The Form 3's of these reporting persons will be filed in April 2005.

        The members of the Company's audit committee are William Meder and James Grant. Mr. Grant is "independent," as such term is defined in Rule 4200(A)(15) of the NASD listing standards. Both members of the audit committee qualify as an "audit committee financial expert," as such term is defined in Item 401(e)(2) of Regulation S-B under the Exchange Act.

        The Company has not yet adopted a code of ethics for its senior financial officers or principal executive officer. The Company originally expected that the proposed going private transaction would be completed by March 31, 2004, thereby relieving the Company of its reporting obligations as a public company before this annual report (the first with respect to which disclosure regarding the existence of a code of ethics is required of the Company) was due. Since that time the Company determined that it would not, in fact, complete the proposed going private transaction before this annual report was required to be filed, it has not had sufficient time to prepare, consider, and adopt a code of ethics. If the Company ultimately abandons the proposed going private transaction, it intends to adopt a suitable code of ethics as soon as possible thereafter.

ITEM 11.    Executive Compensation

(a)   Summary Compensation Table

        The Summary Compensation Table below shows, for the years 2002 through 2004 (except as otherwise noted), the compensation paid or awarded to Mr. Perrachon, President and Chief Executive Officer, the four other executive officers of the Company who were employed by the Company as of December 31, and whose total annual salary and bonus for the fiscal year ended December 31, 2004 exceeded $100,000 (collectively, the

22

"Named Executives") and the two highest paid employees who were not executives whose annual salary and bonus for the fiscal year ended December 31, 2004 exceeded $100,000.

*

Options originally granted in 1998 and 1999 were cancelled and reissued on April 19, 2000 under the 2000 Plan. The exercise price and terms of the options granted under the 2000 Plan are the same as the exercise price and terms of the options cancelled.

**

Other compensation relates to automobile benefits and /or insurance for executives.

(1)

Mr. Perrachon's employment with the Company began on June 10, 2002

(2)

Mr. Perrachon was issued 68,750 shares of Class A Common stock of the Company in lieu of a salary increase for 2003

23

Stock Options

        The following table summarizes certain information regarding outstanding options held by the Named Executives as of December 31, 2004.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES

(1)

Value is calculated as the difference between the fair market value of a share of Common Stock on December 31, 2004 ($0.36 per share) and the exercise price of the options.

**

None of the unexercised options were in-the-money.

(b)   Compensation of Directors

        Executive officers of the Company who are directors or members of committees of the Board of Directors of the Company receive no compensation for serving in such positions. Other directors who are not employees of CDPQ or Innovatech Montreal receive attendance fees of $1,500 for each Board of Directors meeting attended in person, $750 for each committee meeting attended in person and $750 and $375 respectively for each Board or committee meeting attended by phone. The Chairman of the Board of Directors receives $2,000 per meeting attended in person and $1,000 per meeting attended by phone and chairmen of committees receive $1,000 per meeting attended in person and $500 per meeting attended by phone.

        Members of the Board of Directors also receive an hourly fee of $250 for work performed for the Company which is pre-approved by the Board of Directors or the Chief Executive Officer.

(c)   Employment Agreements

John Perrachon

        On June 10, 2002, the Company entered into an employment agreement with Mr. Perrachon as the Company's President and Chief Executive Officer.

        The employment agreement provides for a base salary of $275,000. Depending upon his performance and that of the Company, Mr. Perrachon will be eligible for an annual bonus of up to 100% of his base salary. In addition, Mr. Perrachon was granted options to purchase an aggregate of 1,500,000 shares of Common Stock at $0.40 per share (subject to certain antidilution provisions) with 500,000 vesting at June 10, 2003 and the balance vesting at the rate of 125,000 options quarterly over the subsequent two years. Mr. Perrachon's employment is terminable at any time by either party upon three months prior written notice. In the event of termination by the Company without cause, the Company shall pay Mr. Perrachon severance equal to 12 months of his base salary.

Guy Nathan

        Effective January 1, 2003, the Company entered into an employment agreement with Mr. Nathan as the Company's Executive Vice President, Technology.

        The employment agreement provides for a base salary of $170,000 CDN. Depending upon his performance and that of the Company, Mr. Nathan will be eligible for an annual bonus of up to 45% of his base salary.

24

Mr. Nathan's employment is terminable at any time by either party upon three months prior written notice. In the event of termination by the Company without cause, the Company shall pay Mr. Nathan severance equal to 12 months of his base salary.

Laurie Hughes

        On January 5, 2004, the Company entered into an employment agreement with Ms. Hughes as the Company's Vice President, Business Affairs and Licensing.

        The employment agreement provides for a base salary of $162,000. Depending upon her performance and that of the Company, Ms. Hughes will be eligible for an annual bonus of up to 45% of her base salary. Ms. Hughes' employment is terminable at any time by either party upon three months prior written notice. In the event of termination by the Company without cause, the Company shall pay Ms. Hughes severance equal to 6 months of her base salary.

Matthew Carson

        On June 1, 2001, the Company entered into an employment agreement with Mr. Carson as the Company's Vice President and Chief Financial Officer.

        The employment agreement provides for a base salary of $175,000 CDN. Depending upon his performance and that of the Company, Mr. Carson will be eligible for an annual bonus of up to 50% of his base salary. In addition, Mr. Carson was granted options to purchase an aggregate of 175,000 shares of Common Stock at $1.15 per share vesting at the rate of 43,750 shares on June 1 of each of the four years commencing in the year 2002. Mr. Carson's employment is terminable at any time by either party upon three months prior written notice. In the event of termination by the Company without cause, the Company shall pay Mr. Carson severance equal to 9 months of his base salary.

Dan McAllister

        On May 24, 2002, the Company entered into an employment agreement with Mr. McAllister as the Company's Vice President Coin-Operated Sales.

        The employment agreement provides for a base salary of $100,000. Depending upon his performance and that of the Company, Mr. McAllister will be eligible for monthly, quarterly and annual bonuses. Mr. McAllister's employment is terminable at any time by either party upon three months prior written notice. In the event of termination by the Company without cause, the Company shall pay Mr. McAllister severance equal to 6 months of his base salary.

Chris Marcolefas

        On June 14, 2004, the Company entered into an employment agreement with Mr. Marcolefas as the Company's Vice President, Operations.

        The employment agreement provides for a base salary of $135,000 CDN. Depending upon his performance and that of the Company, Mr. Marcolefas will be eligible for an annual bonus of up to 25% of his base salary. Mr. Marcolefas' employment is terminable at any time by either party upon three months prior written notice. In the event of termination by the Company without cause, the Company shall pay Mr. Marcolefas severance equal to 6 months of his base salary.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management

        The Executive Compensation plan table from Item 11 of this Annual Report is incorporated herein by reference. The following table sets forth information as of March 26, 2005 (except as otherwise noted in the footnotes) regarding the beneficial ownership of the Company's voting securities of: (i) each of the Company's directors; (ii) each person known by the Company to own beneficially more than 5% of the outstanding Common Stock or the Voting Preferred Stock (as defined below); (iii) each of the Named Executives; (iv) two highest paid employees who were not executives; and (v) all current directors, executive officers and two highest

25

paid employees who are not executives of the Company as a group. Except as otherwise specified, the named beneficial owner has the sole voting and investment power over the shares listed.

26

*

The Common Stock and Voting Preferred Stock vote together as a single class. Percentage amounts based on all outstanding Common Stock, Series A Preferred Stock, Series B Preferred Stock, and options to purchase Common Stock which are exercisable within 60 days of March 26, 2005.

**

Less than 1%.

(1)

Voting Preferred Stock includes both Series A Preferred Stock and Series B Preferred Stock ("Voting Preferred Stock"). The holders of each share of Voting Preferred Stock are entitled to one vote per share held.

(2)

Messrs. Mastronardi, Nathan, and Lattanzi each own 33% of the capital stock of Techno Expres, SA, a French corporation with offices at 36, rue du Marche, Alfortville 94140 France, which owns 10,001,920 shares of Common Stock, which represents approximately 67.5% of the total number of shares of Common Stock outstanding, and approximately 25% of the total number of the Company's outstanding voting securities. These 10,001,920 shares of Common Stock are subject to the Voting Trust and Limited Stockholders Agreement, dated June 10, 2003, discussed below in footnote 13 to this beneficial ownership table and in Item 13, "Certain Relationships and Related Transactions."

27

(3)

Messrs. Mastronardi, Nathan, and Lattanzi own 50%, 16.67% and 33.33%, respectively, of the capital stock of TouchTunes Juke Box Inc., a Canadian corporation, with offices at 4973 Felix-McLearnan, Pierrefonds, Quebec, H8Y 3L2. TouchTunes Juke Box Inc. holds 195,274 shares of Common Stock, which represent approximately 1.3% of the total number of shares of Common Stock outstanding, and approximately 0.5% of the total number of the Company's outstanding voting securities.

(4)

Includes options to purchase 50,000 shares of Common Stock that are exercisable within 60 days of March 26, 2005.

(5)

Includes options to purchase 100,000 shares of Common Stock that are exercisable within 60 days of March 26, 2005.

(6)

Mr. Lattanzi indirectly owns Neturba SRL, an Italian corporation with offices at via Bonafica 26 63040 Malitignano, Italy. Neturba SRL holds 14,666 shares of Common Stock.

(7)

Represents 9,235,774 shares of Series A Preferred Stock and 8,888,889 shares of Series B Preferred Stock held by Caisse de Depot et Placement du Quebec. The Series A Preferred Stock is convertible into 27,707,322 shares of Common Stock, at the option of the holder, within 60 days of March 26, 2005. The Series B Preferred Stock is convertible into 40,000,000 shares of Common Stock, within 60 days of March 26, 2005.

(8)

Represents 3,608,186 shares of Series A Preferred Stock held by Lothian Partners 27 SARL that are convertible into 10,824,558 shares of Common Stock, at the option of the holder, within 60 days of March 26, 2005.

(9)

Represents options to purchase 3,515,182 shares of Common Stock that are exercisable within 60 days of March 26, 2005 and 68,750 shares of Common Stock held directly by Mr. Perrachon.

(10)

Other than John B. Perrachon, Tony Mastronardi, and Guy Nathan, who are listed in the chart as Directors or 5% Beneficial Owners, respectively.

(11)

Includes options to purchase 175,000 shares of Common Stock that are exercisable within 60 days of March 26, 2005.

(12)

Includes options to purchase 124,550 shares of Common Stock that are exercisable within 60 days of March 26, 2005.

(13)

These shares of Common Stock, Series A Preferred Stock and Series B Preferred Stock are subject to a Voting Trust and Limited Stockholders Agreement, dated June 10, 2003, among Techno Expres, Caisse de Depot et Placement du Quebec, Societe Innovatech du Grand Montreal and the Company. For more information regarding this Voting Trust and Limited Stockholders Agreement, see the discussion below in Item 12, "Certain Relationships and Related Transactions." The beneficial ownership interests noted in the chart above for Tony Mastronardi, Guy Nathan and Tonino Lattanzi, the three controlling stockholders of Techno Expres and Touchtunes Jukebox Inc. include all of the 10,001,920 and 195,274 shares of Common Stock held by these two companies respectively.

(14)

Includes options to purchase 66,320 shares of Common Stock that are exercisable within 60 days of March 26, 2005.

(15)

Includes options to purchase 41,660 shares of Common Stock that are exercisable within 60 days of March 26, 2005.

ITEM 13.    Certain Relationships and Related Transactions

Transactions with 5% Beneficial Owners

        The Company entered into a new Voting Trust and Limited Stockholders Agreement, dated June 10, 2003 (which replaced the original agreement dated May 18, 2000) (the "Voting Agreement"), with Techno Expres, Caisse de Depot et Placement du Quebec and Societe Innovatech du Grand Montreal (collectively, the "STOCKHOLDERS"). Caisse de Depot et Placement du Quebec and Societe Innovatech du Grand Montreal (collectively the "INVESTORS") collectively hold 21,732,849 shares of the Voting Preferred Stock, which represent approximately 59.4% of the voting power of the Company's capital stock. Lothian Partners 27 SARL, as successor in interest to Societe Innovatech du Grand Montreal, has agreed to abide by the terms of the Voting Agreement.

        The voting rights and powers of the Stockholders under the Voting Agreement include, but are not limited to, the following:

•

Selection of Directors:  Pursuant to the terms of the Voting Agreement, the Stockholders shall vote their shares of Common Stock and Voting Preferred Stock to ensure that at least eight directors are elected to the Board of Directors of the Company. Generally, of the eight directors: (i) four shall be nominees of Caisse de Depot et Placement du Quebec; (ii) one shall be a nominee of Societe Innovatech du Grand Montreal; (iii) two shall be nominees of Techno Expres; and (iv) the other one will be the Company's Chief Executive Officer



•

Matters Subject to the Approval of Caisse de Depot et Placement du Quebec:  Until the Company completes its next public offering, or for so long as Caisse de Depot et Placement du Quebec owns at least 15% of the voting securities of the Company, the Stockholders agree to cause the Company to submit certain

28

corporate actions for the prior approval of Caisse de Depot et Placement du Quebec. Such actions include: (i) establishing the annual budget; (ii) hiring and firing any senior officers or employees; (iii) amending the Articles of Incorporation or Bylaws; (iv) entering into loan agreements, asset agreements, acquisition agreements, or other transactions not in the ordinary course of business; (v) creating subsidiaries; and (vi) settling any legal proceedings.

•

Matters Subject to the Approval of Caisse de Depot et Placement du Quebec and Societe Innovatech du Grand Montreal:  Until the Company completes its next public offering, or for so long as the Investors collectively own at least 15% of the voting securities of the Company, the parties to the Voting Agreement agree to cause the Company to submit for the prior approval of the Investors any corporate action that would result in: (i) any change in the capital stock of the Company; (ii) a merger, consolidation, or sale of all or a substantial part of the assets of the Company; or (iii) a declaration of dividends or the redemption of the Company's capital stock, other than in conformity with its Articles of Incorporation.

        The Voting Agreement terminates upon the happening of one of the following: (i) all of the issued and outstanding shares of the Company are owned by one person; (ii) the bankruptcy of dissolution (whether voluntary or involuntary) of the Company; or (iii) by written consent of all of the parties to the Voting Agreement.

        Also, as described above, under Item 1(k), "TouchTunes Digital," and Item 6(k), "Liquidity and Capital Resources," the Company entered into investment transactions with Caisse de Depot et Placement du Quebec and Societe Innovatech du Grand Montreal. Note that based upon the number of shares of Common Stock outstanding as of March 26, 2005, upon the exchange (i) by Caisse de Depot et Placement du Quebec and Lothian Partners 27 SARL of their 12,843,960 shares of Series A Preferred Stock into 38,531,880 shares of Common Stock and (ii) by Caisse de Depot et Placement du Quebec of their 8,888,889 shares of Series B Preferred Stock into 40,000,000 shares of Common Stock, Caisse de Depot et Placement du Quebec and Lothian Partners 27 SARL, will collectively own approximately 84% of the outstanding shares of Common Stock.

Transactions with the Company's Executives

        As described above in Item 11(c), "Employment Agreements," the Company has entered into employment agreements with the Named Executives.

        In December 2003, the Company issued 68,750 shares of Class A Common Stock to John Perrachon, the Company's President and Chief Executive Officer, in lieu of a salary increase for 2003.

ITEM 14.    Principal Accountant Fees and Services

        Ernst & Young, LLP billed the Company and its subsidiary approximately $212,000 (2003 — $195,125) for the following professional services: audit of the annual consolidated financial statements of the Company for the fiscal year ended December 31, 2004 and review of the interim financial statements included in quarterly reports on Form 10-QSB for the periods ended March 31, June 30 and September 30, 2004.

        Ernst & Young, LLP also billed the Company and its subsidiary approximately $90,000 (2003 — $106,833) for other services rendered during the year ended December 31, 2004.

ITEM 15.    Exhibits and Reports on Form 8-K

(a)

The exhibits listed on the Index of Exhibits of this annual report are filed herewith or incorporated herein by reference to other filings, as specified in the Exhibit Index.



(b)

On November 15, 2004, the Company filed a Form 8-K announcing the resignation of Sophie Forest from her position as a member of the Company's Board of Directors.

29

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

30

POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that each of the Directors and/or executive officers of TouchTunes Music Corporation (the "Registrant"), a Nevada corporation, hereby names, constitutes and appoints each of John Perrachon and Matthew Carson, with full power of substitution and resubstitution, such person's true and lawful attorney-in-fact and agent, each acting alone, to execute in such person's name, place and stead, in any and all capacities, the Registrant's Annual Report on Form 10-K for the year ended December 31, 2004, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission. Such persons hereby ratify and confirm all that each of said attorneys-in-fact and agents, or any substitute, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Form 10-K has been signed below by the following persons on the 30^th day of March 2005 on behalf of the Registrant and in the capacities indicated.

31

CERTIFICATIONS

I, John Perrachon, certify that:

1.

I have reviewed this annual report on Form 10-K of TouchTunes Music Corporation;

2.

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

3.

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

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 30, 2005

/s/ JOHN PERRACHON

John Perrachon
Chief Executive Officer, President and Director

32

        I, Matthew Carson, certify that:

1.

I have reviewed this annual report on Form 10-K of TouchTunes Music Corporation;

2.

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

3.

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

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 30, 2005

/s/ MATTHEW CARSON

Matthew Carson
Vice President, Finance and Chief Financial Officer

33

EXHIBIT INDEX

34

*

Portions of this Exhibit have been omitted pursuant to a Confidential Treatment Request, which the Securities and Exchange Commission has granted.

35

CONSOLIDATED FINANCIAL STATEMENTS

TOUCHTUNES MUSIC CORPORATION

DECEMBER 31, 2004

TOUCHTUNES MUSIC CORPORATION

FINANCIAL STATEMENTS

INDEX

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of TouchTunes Music Corporation

        We have audited the accompanying consolidated balance sheets of TouchTunes Music Corporation (the "Company") as at December 31, 2004 and 2003, and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States.

F-2

CONSOLIDATED BALANCE SHEETS

As at December 31
(In U.S. dollars)

F-3

Commitments (note 19)

See accompanying notes

F-4

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

Years ended December 31
(In U.S. dollars)

See accompanying notes

F-5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years ended December 31
(In U.S. dollars)