MOOD MEDIA CORPORATION: 2012 and Fourth Quarter Financial Results

MOOD MEDIA CORPORATION: 2012 and Fourth Quarter Financial Results
For Immediate Release 
Mood Media Reports 2012 Revenues of $444 million and EBITDA of $112 million 
TORONTO, Ontario, March 28, 2013 - Mood Media Corporation (ISIN: CA61534J1057) 
(TSX:MM / LSE AIM:MM), one of the world's largest integrated providers of
in-store customer solutions and experiences,  today reported its 2012 and
fourth quarter financial results for the period ended December 31, 2012. 
The Company reported revenues of $132 million in the fourth quarter, a 51%
increase versus the prior year's quarter, driven by acquisitions, improvements
in recurring revenues in the North America and International reporting
segments, growth in equipment revenues and rising blended ARPU. For 2012, 
revenues reached $444 million. 
EBITDA in the fourth quarter remained flat relative to the prior year's quarter 
at 
$28 million reflecting acquisitions, improvements in recurring subscription and 
equipment
revenues, offset by higher content expenses as well as lower equipment margins.
In 2012, EBITDA increased 35% to $112 million.  
The Company also announced it is implementing immediately a comprehensive
operating and productivity program aimed at delivering improved business
results. The program is designed to enhance the Company's efficiency,
flexibility and innovation. It will be customer facing and will produce
streamlined operating capabilities. 
"We are incredibly proud of the organization we have built over the last two
years," said Lorne Abony, Chairman and CEO of Mood Media. We have all the
capabilities to deliver truly outstanding customer experiences across a broad
range of solutions for our leading clients.  The strength of our Company's
solutions is clearly evident in the continuing positive momentum in our
customer base in Q4." 
“While we have made great strides so far, there is room for improvement. We 
are 
focused on realizing the full potential of the opportunities ahead by 
continuing 
to accelerate our solutions offering and by successfully implementing our 
operational 
plans.”  
Selected Financial Information         


                                 Three months ended         Year ended             
      


                                                                    
______________________________________________________________________________   


                                                                            
                               December December December  December  December 


                           31, 2012 31, 2011 31, 2012  31, 2011  31, 2010 
______________________________________________________________________________ 
                                                                          
Continuing operations                                                         
_____________________                                                            


                   
                                                                              


                                                                          
Revenue                        $131,946 $87,676  $443,823  $274,771  $79,009   
                                                                          
Expenses:                                                                      
                                                                          
Cost of sales (excludes                                                 
depreciation and amortization)   61,045  29,263   183,759    95,091   24,220     
                                                                             
Operating expenses               42,924  29,998   148,404    96,967   32,642    
                                                                          
Depreciation and amortization    17,839  13,764    57,856    42,047   10,164    
                                                                          
Share-based compensation            866   1,215     3,758     3,175      732     
                                                                             
Other expenses                   15,444   3,699    39,812    22,790   14,601    
                                                                          
Foreign exchange (gain) loss                                           
on financing transactions        (4,195)  6,519    (1,428)    5,067   (8,153)    
   
                                                                   
Finance costs, net                9,529   8,408    51,045    61,350   28,481   
_____________________________________________________________________________ 
                                                                          
Loss for the period before                                          
taxes                           (11,506) (5,190)  (42,383)  (51,716) (23,678) 
_____________________________________________________________________________    
                                                                            
                                                                          
Income tax charge (credit)        2,438   2,391   (14,219)      545   (2,063)  
_____________________________________________________________________________    
                                                                       
Loss for the year from                                                        
continuing operations           (13,944) (7,581)  (25,164)  (52,261)  (21,615) 
_____________________________________________________________________________ 


                                                                              
                                                                              


                                                                          
Discontinued operations                                                       
_______________________                                                          


                     
                                                                              


                                                                
Profit (loss) after tax from                                                
discontinued operations        (13,203)     (23)  (54,067)   (7,644)       22    


      
                                                                              


                                                                          
______________________________________________________________________________   
                                                                        
Loss for the year              (27,147)  (7,604)  (79,231)  (59,905)  (21,593)
______________________________________________________________________________  


                                                                              
                                                                              


                                                                          
Attributable to:                                                               
                                                                          
Owners of the parent           (27,291)  (7,605)  (79,502)  (59,951)  (21,706)  
                                                                          
Non-controlling interests          144        1       271        46       113 
______________________________________________________________________________   
                                                                               
                           (27,147) $(7,604)  (79,231) $(59,905) $(21,593)
______________________________________________________________________________ 
                                                                          
Net earnings (loss) per share:                                                 
                                                                          
Basic and diluted               $(0.16)  $(0.06)   $(0.50)   $(0.48)   $(0.24)   
                                                                          
Basic and diluted from                                                  
continuing operations            (0.08)   (0.06)    (0.16)    (0.42)    (0.24)   
   
                                                                          
Basic and diluted from                                               
 discontinued operations         (0.08)    0.00     (0.34)    (0.06)     0.00
______________________________________________________________________________ 
______________________________________________________________________________   


                                                                                  
                                         December 31,  December 31,  December 31, 
                                               2012         2011          2010  

______________________________________________________________________________  
     


                                                                           
Total assets                               $947,781      $722,109      $367,347  
                                                                           
Total non-current liabilities               657,320       548,801       191,331  
 
______________________________________________________________________________   


                                                                             


Pro Forma Key Performance Indicators - 2012
________________________________________________________________________________
                              Q1.12      Q2.12      Q3.12      Q4.12       2012 


 
________________________________________________________________________________ 
                                                                             
Subscriber locations        432,428    431,527    430,874    434,501    434,501  
(Company owned)                                                                  
________________________________________________________________________________ 
                                                                             
Visual gross subscriber         710      1,134      1,380      4,196      7,420  

additions                                                                        
________________________________________________________________________________ 
                                                                             
Blended ARPU                 $59.22     $59.94     $59.37     $60.29     $59.70  
________________________________________________________________________________ 
                                                                             
Blended Churn                 0.72%      0.87%      0.70%      0.68%      0.74%  

________________________________________________________________________________ 
                                                                             


     


Pro Forma Key Performance Indicators - 2011
________________________________________________________________________________
                              Q1.11      Q2.11      Q3.11      Q4.11       2011 


 
________________________________________________________________________________ 
                                                                             
Subscriber locations        420,075    420,421    425,635    431,759    431,759  
(Company owned)                                                                  
________________________________________________________________________________ 
                                                                             
Visual gross subscriber         339        462        524        715      2,040  

additions                                                                        
________________________________________________________________________________ 
                                                                             
Blended ARPU                 $58.18     $58.52     $57.39     $57.97     $58.01  
________________________________________________________________________________ 
                                                                             
Blended Churn                 0.82%      0.78%      0.59%      0.63%      0.70%  

________________________________________________________________________________ 
                                                                             


     

Pro forma key performance indicators express the results of all ongoing
businesses presently owned and reflected as if ownership had occurred on
January 1, 2011.


This earnings release, which is current as of March 28, 2013, is a summary of
our 2012 annual and fourth quarter results, and should be read in conjunction
with our 2012 MD&A and our 2012 Audited Annual Consolidated Financial
Statements and Notes thereto and our other recent filings with securities
regulatory authorities in Canada and the United Kingdom.

The financial information presented herein has been prepared on the basis of
IFRS for interim financial statements and is expressed in United States dollars
unless otherwise stated.

This news release includes certain non-IFRS financial measures. Mood Media uses
these non-IFRS financial measures as supplemental indicators of its operating
performance and financial position. These measures do not have any standardized
meanings prescribed by IFRS and therefore may not be comparable to the
calculation of similar measures used by other companies, and should not be
viewed as alternatives to measures of financial performance calculated in
accordance with IFRS.

In this earnings release, the terms "we", "us", "our", "Mood Media" and "the
Company" refer to Mood Media Corporation and our subsidiaries.

About Mood Media Corporation 

Mood Media Corporation (TSX:MM/ LSE AIM:MM), is one of the world's largest
designers of in-store consumer experiences, including audio, visual,
interactive, scent, voice and advertising solutions. Mood Media's solutions
reach over 150 million consumers each day through 570,000 subscriber locations
in over 40 countries throughout North America, Europe, Asia and Australia.

Mood Media Corporation's client base includes more than 850 U.S. and
international brands in diverse market sectors that include: retail, from
fashion to financial services; hospitality, from hotels to health spas; and
food retail, including restaurants, bars, quick-serve and fast casual dining.
Our marketing platforms include 77% of the top 100 retailers in the United
States and 100% of the top 50 quick-serve and fast-casual restaurant companies.

For further information about Mood Media, please visit www.moodmedia.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements. The words "believe",
"expect", "anticipate", "estimate", "intend", "may", "will", "would" and
similar expressions and the negative of such expressions are intended to
identify forward-looking statements, although not all forward-looking
statements contain these identifying words. These forward-looking statements
are subject to important assumptions, including without limitation, expected 
growth, results of operations, performance, and business prospects and 
opportunities. While Mood Media considers these factors and assumptions to be 
reasonable based on information currently available, they may prove to be 
incorrect.

Known and unknown factors could cause actual results to differ materially from
those projected in the forward-looking statements. Such factors include, but
are not limited to: the impact of general market, industry, credit and economic
conditions, currency fluctuations as well as the risk factors identified in
Mood Media's management discussion and analysis dated March 28, 2013 and Mood
Media's annual information form dated March 28, 2013, both of which are
available on www.sedar.com.

Given these uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements.  All of the forward-looking statements made in
this press release are qualified by these cautionary statements and other
cautionary statements or factors contained herein, and there can be no
assurance that the actual results or developments will be realized or, even if
substantially realized, that they will have the expected consequences to, or
effects on, Mood Media.

Forward-looking statements are given only as at the date hereof and Mood Media
disclaims any obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise, except as
required by applicable laws.

Mood Media Corporation presents EBITDA information as a supplemental figure
because management believes it provides useful information regarding operating
performance.  EBITDA is not a recognized measure under International Financial
Reporting Standards ("IFRS"), does not have standardized meaning, and is
unlikely to be comparable to similar measures used by other companies.
Accordingly, investors are cautioned that EBITDA should not be construed as an
alternative to net earnings or (loss) determined in accordance with IFRS as an
indicator of the financial performance of Mood Media or as a measure of Mood
Media's liquidity and cash flows.

 
Investor Inquiries:

Randal Rudniski
Mood Media Corporation
Tel: +1 (416) 565 9295
Email: randal.rudniski@moodmedia.com

Dominic Morley
Hannah Woodley
Panmure Gordon (UK) Limited
+44 20 7886 2500

North America Media Enquiries

Sumter Cox
Mood Media Corporation
Director of Communications
Tel: +1 (803) 242 9147
    


Consolidated Financial Statements
Mood Media Corporation
For the year ended December 31, 2012 


    

INDEPENDENT AUDITORS' REPORT


To the Shareholders of
Mood Media Corporation

We have audited the accompanying consolidated financial statements of Mood
Media Corporation, which comprise the consolidated statements of financial
position as at December 31, 2012 and 2011, and the consolidated statements of
loss, comprehensive loss, cash flows and changes in equity for the years then
ended and a summary of significant accounting policies and other explanatory
information.

Management's responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these
consolidated financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditors' judgment, including the assessment
of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity's preparation and fair
presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity's internal control.
An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial
statements.

We believe that the audit evidence we have obtained in our audits is sufficient
and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Mood Media Corporation as at
December 31, 2012 and 2011, and its financial performance and its cash flows
for the years then ended in accordance with International Financial Reporting
Standards.

Toronto, Canada                                                                 

March 27, 2013                                     
                                                        /s/ Ernst & Young LLP 
                                                        Chartered Accountants


                                                    Licensed Public 
Accountants           


                                                                             
             
                                                                                
                         


                                 
Mood Media Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 
As at December 31, 2012 
In thousands of US dollars unless otherwise stated 
                                 Notes              2012              2011
________________________________________________________________________________ 


                                                                              
                                                                              


                                                                          
ASSETS     
                                                                
Current assets        
                                                     
  Cash                                                  $46,384          
$15,706 
Restricted cash                                         2,675            
2,675 
Trade and other receivables           24               96,511           
71,459 
Inventory                             11               30,938           
26,205 
Prepaid expenses                                        9,329            
6,484 
Deferred costs                                          7,135            
3,985
________________________________________________________________________________
_ 
                                                                           
                                                    192,972          
126,514 
                                                                          
Assets classified as held for sale      3,4,27           15,767                - 
________________________________________________________________________________
_ 
                                                                          
Total current assets                                    208,739          
126,514
________________________________________________________________________________
_ 
                                                                          
Non-current assets        
                                                 
  Deferred costs                                          8,591            
6,467 
Property and equipment                12               57,656           
54,682 
Other financial assets                19                3,210              
862 
Investment in associates                                  621              
407 
Intangible assets                     14              339,673          
288,554 
Goodwill                              15              329,291          
244,623
________________________________________________________________________________
_
Total assets                                            947,781          
722,109
________________________________________________________________________________
_ 


                                                                              
                                                                              


                                                                          
LIABILITIES AND EQUITY    
                                                 
Current liabilities  
                                                      
  Trade and other payables              24              101,016           
73,833 
Income tax payable                                      1,217            
3,587 
Deferred revenue                                       12,814            
9,326 
Other financial liabilities           19                8,788            
8,103 
Current portion of long-term debt     17                2,132            
3,550
________________________________________________________________________________
_ 
                                                    125,967           
98,399 
                                                                          
Liabilities directly associated with                                          
assets classified as held for sale      3,4,27            9,645                - 
________________________________________________________________________________
_ 
                                                                          
Total current liabilities                               135,612           
98,399
________________________________________________________________________________
_ 
Non-current liabilities                                                       
  Deferred revenue                                        7,249            
7,104 
Deferred tax liabilities              18               34,431           
30,312 
Other financial liabilities           19               29,457           
45,694 
Long-term debt                        17              586,183          
465,691
________________________________________________________________________________
_ 
Total liabilities                                       792,932          
647,200
________________________________________________________________________________
_ 
Equity                                                                        
  Share capital                         20               323,318          
171,912 
Contributed surplus                                     30,934           
27,204 
Foreign exchange translation reserve                     2,163              
806 
Deficit                                               (204,669)        
(125,167)
  Reserves of a disposal group held for                                          
sale                                                    1,510                
-
________________________________________________________________________________
__ 
Equity attributable to owners of the                                          
parent                                                   153,256           
74,755 
Non-controlling interests                                1,593              
154
________________________________________________________________________________
__
Total equity                                             154,849           
74,909
________________________________________________________________________________
__ 
Total liabilities and equity                            $947,781         
$722,109
________________________________________________________________________________
__ 
Commitments and contingencies           23                                       
The accompanying notes form part of the consolidated financial statements 
On behalf of the Board of Directors: 
Lorne Abony                                                          
CEO and
Director 
James Lanthier
Director 
Mood Media Corporation
CONSOLIDATED STATEMENTS OF INCOME (LOSS) 
For the year ended December 31, 2012 
In thousands of US dollars unless otherwise stated 
                                    Notes              2012              2011
_______________________________________________________________________________ 
                                                                         
Continuing operations                                                         


                                                                             
                                                                             


                                                                         
Revenue                                 5          $ 443,823          $274,771   
                                                                         
Expenses                                                                      
                                                                         
Cost of sales (excludes depreciation                                         
and amortization)                       23           183,759            95,091   
   
                                                                         
Operating expenses                                   148,404            96,967   
   
                                                                         
Depreciation and amortization           12,14         57,856            42,047   
   
                                                                         
Share-based compensation                22             3,758             3,175   
    
                                                                         
Other expenses                          6             39,812            22,790   
   
                                                                         
Foreign exchange (gain) loss on                                              
financing transactions                                (1,428)            5,067   
    
                                                                         
Finance costs, net                      7             51,045            61,350   
_______________________________________________________________________________ 
                                                                             
Loss for the year before taxes                       (39,383)          (51,716)
_______________________________________________________________________________  


     
                                                                             
                                                                             


                                                                         
Income tax (credit) charge              9            (14,219)              545 
_______________________________________________________________________________  
      
                                                                         
Loss for the year from continuing                                            
operations                                           (25,164)          (52,261)
_______________________________________________________________________________  


     
                                                                             
                                                                             


                                                                         
Discontinued operations                                                       


                                                                             
                                                                             


                                                                         
Loss after tax from discontinued                                             
operations                              27           (54,067)           (7,644)
_______________________________________________________________________________  
   
                                                                         
Loss for the year                                    (79,231)          (59,905)
_______________________________________________________________________________  


     
                                                                             
                                                                             


                                                                         
Attributable to                                                               
                                                                        
Owners of the parent                                 (79,502)          (59,951)  
  
                                                                         
Non-controlling interests                                271                46 
_______________________________________________________________________________  


          
                                                                             


                                                $(79,231)         $(59,905)
_______________________________________________________________________________  
                                                                         
Net earnings (loss) per share                                                 
                                                                         
Basic and diluted                        10           $(0.50)           $(0.48)  
   
                                                                         
Basic and diluted from continuing                                            
operations                               10            (0.16)            (0.42)  
    
                                                                         
Basic and diluted from discontinued                                          
operations                               10            (0.34)            (0.06)
_______________________________________________________________________________  
    
                                                                         
The accompanying notes form part of the consolidated financial statements 
Mood Media Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 
For the year ended December 31, 2012 
In thousands of US dollars unless otherwise stated 
                                                        2012             2011   
     
_______________________________________________________________________________  
                                                                         
Loss for the year                                    $(79,231)        $(59,905)  
_______________________________________________________________________________  


     
                                                                              


                                                                          
  Exchange differences on translation of                                         
foreign operations                                   2,905           (2,966)  
   
_______________________________________________________________________________  
                                                                          
Other comprehensive income (loss) for the                                     
year, net of tax                                        2,905           (2,966)
_______________________________________________________________________________  
     
                                                                          
Total comprehensive loss for the year,                                        
net of tax                                            (76,326)         (62,871)  
_______________________________________________________________________________  


      
                                                                              
                                                                              


                                                                          
Attributable to:                                                               
                                                                          
  Owners of the parent                                (76,635)          
(62,912)        
                                                                          
  Non-controlling interests                               309                41  
________________________________________________________________________________ 


             
                                                                              


                                                 $(76,326)         
$(62,871)      
________________________________________________________________________________ 
          
The accompanying notes form part of the consolidated financial statements 
Mood Media Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS 
For the year ended December 31, 2012 
In thousands of US dollars unless otherwise stated 
                                       Notes             2012               
2011       
________________________________________________________________________________
__              
                                                                             

Operating activities                                                             


    
                                                                                



Loss for the year before taxes -                                                 

continuing operations                                 $(39,383)          
$(51,716)   
                                                                             

Loss for the year before taxes -        3,4,27                                   

discontinued operations                                (53,353)            
(2,728)    
________________________________________________________________________________
__   


                                                                                
     


                                                   (92,736)           
(54,444)    
                                                                             

Non-cash adjustment to reconcile loss                                            

for the year before taxes to net cash                                            

flows                                                                            


    
                                                                                



Depreciation and impairment of property                                          

and equipment                                           38,284             
26,343      
                                                                             

Amortization and impairment of                                                   

intangible assets                                       55,608             
27,098      
                                                                             

Profit on disposal of property and                                               

equipment                                               (1,233)                 
-           
                                                                             

Share-based compensation                                 3,758              
8,418       
                                                                             

Finance costs, net and foreign exchange                                          

from financing                                          48,829             
68,543      
                                                                             

Working capital adjustments                                                      


    
                                                                                



Increase in trade and other receivables                 (4,809)            
(5,316)     
                                                                             

Increase in inventories                                 (3,895)            
(6,580)     
                                                                             

Decrease in trade and other payables                    (9,726)            
(3,951)     
                                                                             

Decrease in deferred revenue                            (5,703)            
(9,762)    
________________________________________________________________________________
__   
                                                                             
                                                        28,377             
50,349      
                                                                             

Income tax paid                                         (7,301)            
(3,943)     
                                                                             

Interest received                                          144                 
20         
________________________________________________________________________________
__   
                                                                             

Net cash flows from operating                                                    

activities                                              21,220             
46,426    
________________________________________________________________________________
__   
                                                                               

Investing activities                                                             


    
                                                                                



Purchase of property and equipment and                                           

intangible assets                                      (37,958)           
(23,161)    
                                                                             

Acquisition of businesses, net of cash  13                                       

acquired                                              (120,204)            
(8,616)    
________________________________________________________________________________
__   
                                                                             

Net cash flows used in investing                                                 

activities                                            (158,162)           
(31,777)   
________________________________________________________________________________
__   


                                                                                
    
                                                                                
    
                                                                                



Financing activities                                                             


    
                                                                                



Repayment of borrowings                               (243,197)          
(145,605)   
                                                                             

Transaction costs on issue of common    20                                       

shares                                                  (5,427)            
(1,261)     
                                                                             

Proceeds from debt facilities           17             350,000            
462,000     
                                                                             

Proceeds from private placement         20             143,601             
29,145      
                                                                             

Proceeds from exercise of share options 20                 560                
729         
                                                                             

Proceeds from issue of convertible      17                   -             
13,331     
debentures                                                                       


    
                                                                                



Financing costs paid                    17              (8,942)           
(17,426)    
                                                                             

Cost of settlement of credit facilities 7               (4,800)                 
-           
                                                                             

Finance lease payments                                                           
                                                    (1,623)            
(1,103)     
                                                                             

Interest paid                                          (37,442)           
(33,238)    
                                                                             

Proceeds from exercise of warrants      19               6,500                  
-           
                                                                             

Dividends paid to non-controlling                                                

interest                                                  (467)                 
-           
                                                                             

Proceeds from disposal of property and                                           
equipment                                                1,111                  
-           
                                                                             

Repayment of loans to former DMX/Muzak  13                                       

shareholders and debtholders                           (32,267)          
(305,000)   
                                                                             

Repayment of derivative financial                                                

instrument                                                   -             
(6,910)     
                                                                             

Purchase of derivative financial                                                 

instrument                                                   -               
(619)      
________________________________________________________________________________
__   
                                                                             

Net cash flows from (used in) financing                                          

activities                                             167,607             
(5,957)  
________________________________________________________________________________
__   
________________________________________________________________________________
__   
                                                               
Net increase in cash                                    30,665              
8,692      
________________________________________________________________________________
__   
                                                                             

Net foreign exchange gain                                   13                
209        
________________________________________________________________________________
__   
Cash at beginning of year                               15,706              
6,805   
________________________________________________________________________________
__   
Cash at end of year                                    $46,384            
$15,706   
________________________________________________________________________________
__   
The accompanying notes form part of the consolidated financial statements 
Mood Media Corporation  
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 
For the year ended December 31, 2012 
In thousands of US dollars unless otherwise stated 


                                                     Foreign 
                                                  Exchange                      
                                        


                         Share  Contributed  Translation         
Discontinued            Non-Controlling  Total   
                  Notes Capital  Surplus      Reserve    Deficit  
operations    Total       Interests     Equity 
________________________________________________________________________________
______________________________________ 
  
As at January 1, 2012      $171,912   $27,204      $806    $(125,167)      $-   
  $74,755           $154     $74,909
________________________________________________________________________________
______________________________________ 
                                                                             
                                            
Income (loss) for 
 the year                         -         -         -      (79,502)       -   
  (79,502)           271     (79,231) 
                                                                             
                                            
Translation of foreign                                                           
                                            
operations                        -         -      2,867          -         -    


    2,867             38       2,905
                                                                                


                                            
Discontinued operations           -         -     (1,510)         -      1,510   
    -              -           -
________________________________________________________________________________
______________________________________ 
                                                                             
                                            
Total comprehensive income                                                       
                                            
(loss)                            -         -       1,357   (79,502)     1,510  
  (76,635)           309      (76,326)
________________________________________________________________________________
______________________________________ 
                                                                             
                                            
Share-based compensation   22     -     3,758           -         -           -  


    3,758              -        3,758
                                                                                


                                            
Fair value of                                                                    
                                            
non-controlling interests                                                        
                                            
acquired                   13     -          -          -          -           - 


        -          1,597        1,597
                                                                                


                                            
Dividends paid to                                                                
                                            
non-controlling interests         -          -          -          -           - 


        -           (467)        (467)
                                                                                


                                            
Issue of share capital     20  143,601       -          -          -           - 
143,601             -      143,601 
                                                                             
                                            
Transaction costs on issue                                                       
                                            
of share capital           20   (5,427)      -          -          -           - 


    (5,427)            -       (5,427)
                                                                                


                                            
Exercise of warrants     19,20  12,308       -          -          -           - 


    12,308             -       12,308
                                                                                


                                            
Exercise of share 
 options                 20,22     560       -          -          -           - 


       560             -          560
                                                                                


                                            
Conversion of debentures   20      364     (28)         -          -           - 


       336             -          336
                                                                                


                                            
As at December 31, 2012       $323,318   $30,934   $2,163   $(204,669)    
$1,510  $153,256        $1,593     $154,849
________________________________________________________________________________
______________________________________                                           
                                                                             
  
The accompanying notes form part of the consolidated financial statements 
Mood Media Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 
For the year ended December 31, 2011 
In thousands of US dollars unless otherwise stated 


                                                         Foreign                   
                           
                                                     Exchange                   
                           
                                Share   Contributed Translation                 
    Non-Controlling  Total  


                     Notes Capital    Surplus     Reserve     Deficit   
Total      Interests     Equity 
________________________________________________________________________________
_____________________________                                                    
                                                    
As at January 1, 2011          $142,691     $10,577      $3,767  $(65,216)  
$91,819            $113  $91,932
________________________________________________________________________________
_____________________________ 
                                                                             
                       
Income (loss) for the                                                            
                       
year                                  -           -           -   (59,951)  
(59,951)             46  (59,905) 
                                                                             
                       
Translation of foreign                                                           
                       
operations                            -           -      (2,961)        -    
(2,961)             (5)  (2,966)
________________________________________________________________________________
_____________________________ 
                                                                             
                       
Total comprehensive                                                              
                       
income (loss)                         -           -      (2,961)  (59,951)  
(62,912)             41  (62,871)
________________________________________________________________________________
_____________________________ 
                                                                             
                       
Share-based compensation 22           -       8,418           -         -     
8,418               -    8,418 
                                                                             
                       
Issue of share capital   20      29,145           -           -         -    
29,145               -   29,145 
                                                                             
                       
Issue of warrants        17,20        -       7,308           -         -     
7,308               -    7,308 
                                                                             
                       
Issue of convertible                                                             
                        
debentures                            -         986           -         -       
986               -      986 
                                                                             
                       
Transaction costs on     20                                                      
                       
issue of share capital          (1,261)           -           -         -    
(1,261)              -   (1,261) 
                                                                             
                       
Exercise of share        22,20                                                   
                       
options                             729           -           -         -       
729               -      729 
                                                                             
                       
Conversion of debentures 20         608         (85)          -         -       
523               -      523
________________________________________________________________________________
_____________________________ 
                                                                             
                       
As at December 31, 2011        $171,912     $27,204        $806 $(125,167)  
$74,755            $154  $74,909
________________________________________________________________________________
_____________________________ 
                                                                             
                       
The accompanying notes form part of the consolidated financial statements 
Mood Media Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 21, 2012 
1. Corporate information 
Mood Media Corporation ("Mood Media" or the "Company") is a publicly traded
company on the Toronto Stock Exchange and the London Alternative Investment
Market and is domiciled and incorporated in Canada. The Company's registered
office is located at 99 Sante Drive, Concord, Ontario, Canada. 
The Company provides in-store audio, visual and scent marketing solutions to a
range of businesses including specialist retailers, department stores,
supermarkets, financial institutions and fitness clubs as well as hotels and
restaurants. Proprietary technology and software is used to deploy music from a
compiled music library to client sites. This library comes from a diverse
network of producers including major labels and independent and emerging
artists. 
2. Statement of compliance 
These consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and International
Financial Reporting Interpretations Committee ("IFRIC") interpretations issued
and effective or issued and early adopted as at the date of these consolidated
financial statements. The policies set out below have been consistently applied
to all the periods presented. 
All amounts are expressed in US dollars (unless otherwise specified), rounded
to the nearest thousand. 
These consolidated financial statements of the Company were approved by the
Board of Directors and authorized for issue on March 27, 2013. 
3. Summary of estimates, judgments and assumptions 
The preparation of the Company's consolidated financial statements requires
management to make estimates, judgments and assumptions that affect the
reported amounts of assets, liabilities, revenue, expenses and the disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements. However, uncertainty about these estimates, judgments and
assumptions could result in outcomes that require a material adjustment to the
carrying amount of the asset or liability affected in future periods. 
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Company based its assumptions
and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances
arising beyond the control of the Company. Such changes are reflected in the
assumptions when they occur. 
Share-based compensation 
The Company measures the cost of equity-settled transactions with employees by
reference to the fair value of the equity instruments at the date at which they
are granted. Estimating fair value for share-based compensation transactions
requires determining the most appropriate valuation model, which is dependent
on the terms and conditions of the grant. This estimate also requires
determining the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield and making
assumptions about them. The assumptions and models used for estimating fair
value for share-based compensation transactions are disclosed in note 22. 
Fair value measurement of contingent consideration 
Contingent consideration, resulting from business combinations, is valued at
fair value at the acquisition date as part of the business combination. When
the contingent consideration meets the definition of a derivative and, thus, a
financial liability, it is subsequently remeasured to fair value at each
reporting date. The determination of the fair value is based on discounted cash
flows. The key assumptions take into consideration the probability of meeting
each performance target and the discount factor. 
Fair value of financial instruments 
When the fair value of financial assets and financial liabilities recorded in
the consolidated statements of financial position cannot be derived from active
markets, their fair value is determined using valuation techniques including
the discounted cash flow model. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, a degree of
judgment is required in establishing fair values. The judgments include
consideration of inputs such as liquidity risk, credit risk and volatility.
Changes in assumptions about these factors could affect the reported fair value
of financial instruments. 
Income taxes 
Tax regulations and legislation and the interpretations thereof in the various
jurisdictions in which the Company operates are subject to change. As such,
income taxes are subject to measurement uncertainty. Deferred tax assets are
recognized to the extent that it is probable that the deductible temporary
differences will be recoverable in future periods. The recoverability
assessment involves a significant amount of estimation including: an evaluation
of when the temporary differences will reverse, an analysis of the amount of
future taxable earnings, the availability of cash flow to offset the tax assets
when the reversal occurs and the application of tax laws. To the extent that
the assumptions used in the recoverability assessment change, there may be a
significant impact on the consolidated financial statements of future periods. 
Contingencies 
Contingencies, by their nature, are subject to measurement uncertainty as the
financial impact will only be confirmed by the outcome of a future event. The
assessment of contingencies involves a significant amount of judgment including
assessing whether a present obligation exists and providing a reliable estimate
of the amount of cash outflow required in settling the obligation. The
uncertainty involved with the timing and amount at which a contingency will be
settled may have a material impact on the consolidated financial statements of
future periods to the extent that the amount provided for differs from the
actual outcome. 
Inventory obsolescence 
The Company's obsolescence provision is determined at each reporting period and
the changes recorded in the consolidated statements of income (loss). This
calculation requires the use of estimates and forecasts of future sales.
Qualitative factors, including market presence and trends, strength of customer
relationships, as well as other factors, are considered when making assumptions
with regard to recoverability. A change in any of the significant assumptions
or estimates used could result in a material change to the provision. 
Sales returns accrual 
The sales return accrual is determined at each reporting period and the changes
recorded as a reduction of revenue in the consolidated statements of income
(loss) and as a reduction of trade and other receivables in the consolidated
statements of financial position. The calculation uses historical return rates
for customers or groups of customers. As historical return rates may differ
from future return rates, actual returns may differ from the estimated accrual. 
Property and equipment 
The Company has estimated the useful lives of the components of all of its
property and equipment based on past experience and industry norms, and is
depreciating these assets over their estimated useful lives. Management
assesses these estimates on a periodic basis and makes adjustments when
appropriate. Rental equipment installed at customer premises includes costs
directly attributable to the installation process. Judgment is required in
determining which costs are considered directly attributable to the
installation process and the percentage capitalized is estimated based on work
order hours for the year.   
Impairment of long-lived assets 
Long-lived assets primarily include property and equipment and intangible
assets. An impairment loss is recognized when the carrying value of the
cash-generating unit ("CGU"), which is defined as a unit that has independent
cash inflows, to which the asset relates, exceeds the CGU's fair value, which
is determined using a discounted cash flow method. The Company tests the
recoverability of its long-lived assets when events or circumstances indicate
that the carrying values may not be recoverable. While the Company believes
that no provision for impairment is required, management must make certain
estimates regarding the Company's profit projections that include assumptions
about growth rates and other future events. Changes in certain assumptions
could result in charging future results with an impairment loss. 
Leases 
The determination of whether an arrangement with a customer is, or contains, a
lease is based on the substance of the arrangement at the inception date,
whether fulfillment of the arrangement is dependent on the use of a specific
asset or assets or the arrangement conveys a right to use the asset, even if
that right is not explicitly specified in an arrangement. 
Goodwill and indefinite-lived intangible assets 
The Company performs asset impairment assessments for indefinite-lived
intangible assets and goodwill on an annual basis or on a more frequent basis
when circumstances indicate impairment may have occurred. Under IFRS, the
Company selected October 1 as the date when it performs its annual impairment
analysis. Impairment calculations under IFRS are done at a CGU group level.
Calculations use a discounted cash flow method under a one-step approach and
consider the relationship between the Company's market capitalization and its
book value.  Goodwill is allocated and tested in conjunction with its related
CGU or group of CGUs that benefit from collective synergies. The assessments
used to test for impairment are based on discounted cash flow projections that
include assumptions about growth rates and other future events. Industry
information is used to estimate appropriate discount rates used in the
calculation of discounted cash flows.   
Discontinued operations 
During March 2012, management decided to dispose of Mood Media Entertainment
Limited ("MME"), which is a major line of business and classified it as a
disposal group held for sale and as a discontinued operation. Management has
determined that MME has met the criteria to be classified as held for sale in
accordance with the requirements of IFRS 5, Non-current Assets Held for Sale
and Discontinued Operations: 
- A Confidential Investor Memorandum has been prepared and distributed to
  prospective buyers for review. 
- Some non-disclosure agreements have been executed 
- Management is in active negotiations with a prospective buyer and
  believe it is highly probable that this position will be concluded in the 
near
  term. 
In the consolidated statements of income (loss), revenue and expenses from
discontinued operations are reported separately from revenue and expenses from
continuing operations, down to the level of loss after taxes. The resulting
loss after taxes is reported separately in the consolidated statements of
income (loss). 
4. Summary of significant accounting policies 
Basis of measurement and principles of consolidation 
The consolidated financial statements include the accounts of the Company and
its subsidiaries after the elimination of intercompany balances and
transactions. Investments in entities over which the Company exercises
significant influence are accounted for using the equity method. The results of
operations of subsidiaries acquired during the year are included from their
respective dates of acquisition. Non-controlling interests represent the
portion of net earnings and net assets that are not held by the Company and are
presented separately in the consolidated statements of income (loss) and within
equity in the consolidated statements of financial position. 
The consolidated financial statements have been prepared on a historical cost
basis except for derivative financial instruments, compensation warrants and
contingent consideration, which are measured at fair value as detailed in the
accounting policies set out below. 
Foreign currency translation 
The consolidated financial statements are presented in US dollars, which is the
Company's functional currency. Each subsidiary consolidated by the Company
determines its own functional currency based on the primary economic
environment in which the subsidiary operates.   
Transactions in foreign currencies are initially recorded by subsidiaries in
their respective functional currency on the date of the transaction. Monetary
assets and liabilities denominated in a foreign currency are translated at the
exchange rate in effect at the date of the consolidated financial statements.
Other non–monetary assets and liabilities are translated at their historical
exchange rates. Revenue and expenses are translated at average exchange rates
prevailing during the year. Gains and losses resulting from foreign currency
translation are recorded in the consolidated statements of income (loss). 
Assets and liabilities of subsidiaries with functional currencies other than US
dollars are translated at the exchange rate in effect at the date of the
consolidated financial statements. Revenue and expense items are translated at
the average rate of exchange during the period date of the consolidated
financial statements. Exchange gains or losses arising from the translation of
these subsidiaries are included as part of other comprehensive income (loss). 
Cash and restricted cash 
Cash includes cash on hand and balances with banks. Restricted cash is used to
collateralize outstanding letters of credit which serve as collateral for
various bonds, ranging from performance bonds to wage bonds. 
Trade receivables 
Trade receivables are carried at amounts due, net of a provision for amounts
estimated to be uncollectible. 
Inventory 
Inventory is valued at the lower of cost and net realizable value. Equipment
for resale is valued at weighted average cost. CD and DVD finished goods and
components are valued at the standard cost of inventory, which approximates the
first-in, first-out basis, net of an allocation of volume rebates and other
payments received from suppliers.  Provisions are made for slow moving and
obsolete inventory. Reversals of previous write-downs to net realizable value
are required when there is a subsequent increase in the value of the inventory. 
Property and equipment 
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the remaining
estimated useful lives of the assets as outlined below: 
                                                                   
_______________________________________________________________________
Furniture, fixtures and leasehold
improvements                                               2 - 5 years 
Rental
equipment                                                  3 - 5 years 
Computer and other equipment                               1 - 3 years 
Vehicles                                                       3 years
_______________________________________________________________________ 
Leasehold improvements are amortized on a straight-line basis over the
remaining terms of the leases. Depreciation only commences once the asset is in
use. Included in other equipment are interactive displays which are transferred
from "assets not in use" when they are distributed to customers.     
The useful lives, method of depreciation and the assets' residual values are
reviewed at least annually and the depreciation charge is adjusted
prospectively, if appropriate. 
Company as a lessee 
Finance leases that transfer to the Company substantially all the risks and
benefits incidental to ownership of the leased item, are capitalized at the
commencement of the lease at the fair value of the leased asset or, if lower,
at the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability so as
to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are recognized in finance costs, net in the
consolidated statements of income (loss). A leased asset is depreciated over
the useful life of the asset. However, if there is no reasonable certainty that
the Company will obtain ownership by the end of the lease term, the asset is
depreciated over the shorter of the estimated useful life of the asset and the
lease term. 
Operating lease payments are recognized as an operating expense in the
consolidated statements of income (loss) on a straight-line basis over the
lease term. 
Business combinations 
Business combinations are accounted for using the acquisition method. The cost
of an acquisition is measured as the aggregate of the consideration
transferred, measured at the acquisition date fair value and the amount of any
non-controlling interest in the acquiree. Acquisition costs incurred are
expensed and included in other expenses in the consolidated statements of
income (loss). When the Company acquires a business, it assesses the financial
assets acquired and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances
and pertinent conditions at the acquisition date. Any contingent consideration
to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent
consideration that is deemed to be an asset or liability will be recognized in
accordance with IAS 39, Financial Instruments: Recognition and Measurement,
either in the consolidated statements of income (loss) or as a charge to other
comprehensive income. 
Goodwill 
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Company's share of the net identifiable assets of the acquired
business or equity method investee at the date of acquisition. If this
consideration is lower than the fair value of the net assets acquired, the
difference is recognized in the consolidated statements of income (loss). After
initial recognition, goodwill is measured at cost less any accumulated
impairment losses. For the purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date, allocated to each of the
Company's CGUs or group of CGUs that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units. 
Intangible assets 
Intangible assets are assets acquired that lack physical substance and that
meet the specified criteria for recognition apart from goodwill. Intangible
assets acquired mainly consist of brands, customer relationships, music library
and technology platforms and software. Intangible assets are amortized on a
straight-line basis as outlined below: 


                                                                                
                                                                                


                           
_______________________________________________________________________
Brands                                             5 years - Indefinite
Customer relationships                                     5 - 15 years
Music library                                              5 - 10 years
Technology platforms and
 software                                                  3 - 10 years
_______________________________________________________________________ 
Residual values and useful lives are reviewed at least annually and are
adjusted, if appropriate. 
Impairment of non-financial assets 
Assets that have an indefinite useful life, for example goodwill, are not
subject to amortization and are tested annually for impairment or more
frequently when conditions indicating impairment exist. Assets that are subject
to amortization are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs to sell and value in use. For the purposes of
assessing impairment, assets are grouped at the lowest level, for which there
are separately identifiable cash inflows (CGUs). Value in use is determined by
discounting estimated future cash flows using a pre-tax discount rate that
reflects the current market assessment of the time value of money and the
specific risks of the asset. In determining fair value less costs to sell,
recent market transactions are taken into account, if available. 
If no such transactions can be identified, an appropriate valuation model has
to be used. The recoverable amount of assets that do not generate independent
cash inflows is determined based on the CGU to which the asset belongs. 
The Company bases its impairment calculation on detailed budgets, forecast
calculations, quoted market prices, or other valuation techniques, or a
combination thereof, necessitating management to make subjective judgments and
assumptions. 
An assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer exist or
may have decreased. 
Goodwill is allocated to CGUs or a group of CGUs for the purpose of impairment
testing based on the level at which management monitors it, which is not larger
than an operating segment. 
Revenue recognition - In-store media 
The Company's in-store media revenue is derived predominantly from sales of
music and messaging services. Revenue is recognized when persuasive evidence of
an arrangement exists, prices are fixed or determinable, collectability is
reasonably assured and services have been rendered. Revenue from music and
messaging services is recognized during the period the service is provided
based on the contract terms. As part of its arrangements for in-store media,
the Company provides customers with a proprietary media player that is integral
and essential to the related services. This equipment may be sold or leased to
customers. Revenue from proprietary equipment sales is deferred and recognized
over the contract term. Revenue for equipment sales of non-proprietary
equipment is recognized upon installation. Contracts are typically for a
multi-year non-cancellable period. Royalty revenue is recognized on an accrual
basis when collection is reasonably assured. Installation revenue relating to
proprietary equipment is deferred and recognized over the term of the contract. 
Revenue recognition - Point of purchase (relates to discontinued operations) 
The Company's point of purchase revenue is realized from the sale of specialty
music CD and DVD products through interactive displays. The retailer purchases
the inventory on the interactive display and a sale is recorded at the time the
inventory is shipped to the customer. On a scheduled basis during the year, the
Company initiates a change to some of the albums on the interactive display (a
"Board Change"). When a Board Change occurs, the retailer is permitted to
return inventory from the interactive display for albums that are delisted,
provided that the new replacement titles are purchased. The return liability
for the returnable inventory is recorded in the same period as the Board Change
order is shipped. A sales return accrual is estimated based on new replacement
albums shipped in the period for which the delisted album returns have not yet
been received. Estimated return rates are based on historical return rates for
individual customers and customer groups. Sales returns are recorded as a
reduction of revenue in the consolidated statements of income (loss) and a
reduction of trade and other receivables in the consolidated statements of
financial position. 
Under certain seasonal programs, the retailer may return unsold inventory at
the end of the program. A sale is recorded at the time the inventory is shipped
to the customer and a sales return accrual is estimated at the end of each
reporting period based on historical return rates of similar programs and,
where available, retail sales of the program and remaining retail inventory of
the program at the end of the reporting period. 
Deferred revenue and deferred cost of goods sold 
The Company may invoice certain subscribers in advance for contracted music
services. Amounts received in advance of the service period are deferred and
recognized as revenue in the period services are provided. 
The Company recognizes revenue and related deferred cost of sales from
proprietary equipment sales over the life of the related contract. 
Customer acquisition costs 
The Company incurs direct and incremental sales commissions in connection with
acquiring new customers. As the Company obtains recurring contracts from new
customers, the sales commissions are capitalized as part of deferred costs and
amortized as a component of operating expenses over the term of the related
contract. If a contract is terminated early, any remaining deferred sales
commissions are expensed to reflect the termination of the customer contract. 
Investments in joint ventures 
Investments in joint ventures are accounted for using the equity method. 
Share-based compensation 
The Company accounts for share-based awards that require the Company to measure
and recognize compensation expense for all share-based compensation awards made
to employees, consultants and directors based on estimated fair values. The
fair value of share-based compensation is determined using the Black-Scholes
option pricing model, which is affected by the Company's share price as well as
assumptions regarding a number of variables on the date of grant. Forfeitures
for the share-based awards are estimated on the grant date and revised if the
actual forfeitures differ from previous estimates. Employee share-based
compensation is expensed using the straight-line method over the vesting
period. The offsetting entry to the share-based compensation expense is an
increase to contributed surplus. Where applicable, non-employee share-based
compensation is measured at the earlier of completion of performance, when a
performance commitment is reached, or when the options have vested.
Non-employee share-based compensation is expensed in the same manner and in the
same period as if the Company had paid cash for the services. 
Taxation 
Current income tax assets and liabilities in the consolidated financial
statements are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted at the reporting date in
the countries where the Company operates and generates taxable income. 
Current income tax relating to items recognized directly in equity is
recognized in equity and not in the consolidated statements of income (loss).
Management periodically evaluates positions taken in the tax returns with
respect to situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate. 
Deferred income tax is provided using the liability method on temporary
differences at the reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. 
Deferred tax liabilities are recognized for all taxable temporary differences,
except: 
- Where the deferred tax liability arises from the initial recognition of
  goodwill or of an asset or liability in a transaction that is not a business
  combination and, at the time of the transaction, affects neither the 
accounting
  profit nor taxable profit or loss. 
- In respect of taxable temporary differences associated with investments
  in subsidiaries and associates and interests in joint ventures, where the
  timing of the reversal of the temporary differences can be controlled and it 
is
  probable that the temporary differences will not reverse in the foreseeable
  future. 
Deferred tax assets are recognized for all deductible temporary differences and
carry forward of unused tax credits and unused tax losses, to the extent that
it is probable that taxable profit will be available against which the
deductible temporary differences, and the carry forward of unused tax credits
and unused tax losses can be utilized, except where the deferred tax asset
relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss. 
In respect of deductible temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, deferred tax
assets are recognized only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be
available against which the temporary differences can be utilized. 
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred tax asset to be
utilized. Unrecognized deferred tax assets are reassessed at each reporting
date and are recognized to the extent that it has become probable that future
taxable profits will allow the deferred tax assets to be recovered. 
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the year in which the asset is realized or the liability
is settled, based on tax rates and tax laws that have been enacted or
substantively enacted at the reporting date. 
Deferred tax relating to items recognized outside profit or loss is recognized
outside profit or loss. Deferred tax items are recognized in correlation to the
underlying transaction either in other comprehensive income (loss) or directly
in equity. Deferred tax assets and deferred tax liabilities are offset, if a
legally enforceable right exists to set off current tax assets against current
tax liabilities and the deferred taxes relate to the same taxable entity and
the same taxation authority. 
Tax benefits acquired as part of a business combination, but not satisfying the
criteria for separate recognition at that date, would be recognized
subsequently if new information about facts and circumstances change. The
adjustment would either be treated as a reduction to goodwill (as long as it
does not exceed goodwill) if it is incurred during the measurement period or in
profit or loss. 
Financial assets and financial liabilities 
The Company classifies its financial assets and liabilities into the following
categories: 
- Financial assets and financial liabilities at fair value through profit or
  loss; 
- Loans and receivables; and 
- Other financial assets and other financial liabilities. 
The Company has not classified any financial instruments as available for sale.
Appropriate classification of financial assets and financial liabilities is
determined at the time of initial recognition or when reclassified on the
consolidated statements of financial position. Financial instruments classified
as fair value through profit (loss) are recognized on the trade date, which is
the date that the Company commits to purchase or sell the asset. 
i)   Financial assets and financial liabilities at fair value through profit or 
 loss 
 The Company classifies certain financial assets and financial liabilities 
as 
 either held for trading or designated at fair value through profit or 
loss. 


     Assets and liabilities in this category include derivative financial
     instruments entered into by the Company that are not designated as hedging


 instruments in hedge relationships and compensation warrants. Financial 
assets 
 and financial liabilities at fair value through profit or loss are carried 
at 
 fair value. Related realized and unrealized gains and losses are included 
in 
 the consolidated statements of income (loss). 
ii)  Loans and receivables 
 Loans and receivables include originated and purchased non-derivative 
financial 
 assets with fixed or determinable payments that are not quoted in an 
active    
 market. Assets in this category include trade receivables and are 
classified as 
 current assets on the consolidated statements of financial position. 
 Loans and receivables are initially recognized at fair value plus 
transaction 
 costs. They are subsequently measured at amortized cost using the 
effective 
 interest rate method less any impairment. Receivables are reduced by 
provisions 


     for estimated bad debts.

iii) Other financial liabilities

Other financial liabilities include trade and other payables and long-term debt
instruments, including convertible debentures, and are measured at amortized
cost using the effective interest rate method. Long-term debt instruments are
initially measured at fair value, which is the consideration received, net of
transaction costs incurred. Transaction costs related to the long-term debt
instruments are netted against the carrying value of the instruments and
amortized using the effective interest rate method.

Determination of fair value

The Company categorizes its fair value measurements according to a three-level
hierarchy. The hierarchy prioritizes the inputs used by the Company's valuation
techniques. A level is assigned to each fair value measurement based on the
lowest level input significant to the fair value measurement in its entirety.
The three levels of the fair value hierarchy are defined as follows:

Level 1 - Unadjusted quoted prices at the measurement date for identical assets
or liabilities in active markets.

Level 2 - Observable inputs other than quoted prices included in Level 1, such
as quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data.

Level 3 - Significant unobservable inputs that are supported by little or no
market activity.

Impairment of financial assets

The Company assesses at each reporting date whether there is any objective
evidence that a financial asset or a group of financial assets is impaired. A
financial asset or a group of financial assets is deemed to be impaired if
there is objective evidence of impairment as a result of one or more events
that have occurred after the initial recognition of the asset (an incurred
"loss event") and that loss event has an impact on the estimated future cash
flows of the financial asset or the group of financial assets that can be
reliably estimated. Evidence of impairment may include indications that the
receivables or a group of receivables is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the
probability that they will enter bankruptcy or other financial reorganization
and where observable data indicate that there is a measurable decrease in the
estimated future cash flows, such as changes in arrears or economic conditions
that correlate with defaults.

Derivatives and hedges

Derivative instruments are recorded in the consolidated statements of financial
position at fair value unless exempted from derivative treatment as a normal
purchase and sale. Changes in their fair value are recorded in the consolidated
statements of income (loss) unless cash flow hedge accounting is used, in which
case changes in fair value are recorded in the consolidated statements of
comprehensive income (loss).

Provisions

Provisions are recognized when the Company has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. Where the
Company expects some or all of a provision to be reimbursed, the reimbursement
is recognized as a separate asset but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the consolidated
statements of income (loss), net of any reimbursement.

Earnings (loss) per share

Earnings (loss) per share amounts are calculated by dividing the net earnings
(loss) for the year attributable to common shareholders of the Company by the
weighted average number of common shares outstanding during the year. Diluted
earnings (loss) per share amounts are calculated by dividing the net results
attributable to common shareholders of the Company (after adjusting for
interest on the convertible debentures) by the weighted average number of
common shares outstanding during the year plus the weighted average number of
common shares that would be issued on conversion of all the dilutive potential
common shares into common shares.

Discontinued operations

Non-current assets and disposal groups classified as held for sale are measured
at the lower of their carrying amount and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their
carrying amounts will be recovered principally through a sale transaction
rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the asset or disposal group is available for
immediate sale in its present condition. Management must be committed to the
sale, which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.

In the consolidated statements of income (loss), revenue and expenses from
discontinued operations are reported separately from revenue and expenses from
continuing operations, down to the level of income (loss) after taxes. The
resulting income or loss (after taxes) is reported separately in the
consolidated statements of income (loss).

Property and equipment and intangible assets are not depreciated or amortized
once classified as held for sale.

The consolidated statements of cash flows have been presented inclusive of all
cash flows from both continuing and discontinued operations. Amounts relating
to solely discontinued operations by operating and investing activities are
disclosed in note 27.

New standards issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the
Company's consolidated financial statements are listed below. This listing of
standards and interpretations issued are those that the Company reasonably
expects to have an impact on disclosures, financial position or performance
when applied at a future date.

The Company intends to adopt these standards when they become effective. 

IAS 1, Financial Statement Presentation - Presentation of Items of Other
Comprehensive Income

The amendments to IAS 1 change the grouping of items presented in other
comprehensive income. Items that could be reclassified (or "recycled") to
income or loss at a future point in time (for example, upon derecognition or
settlement) would be presented separately from items that will never be
reclassified. The amendment affects presentation only and has no impact on the
Company's financial position or performance. The amendment becomes effective
for annual periods beginning on or after July 1, 2012.

IAS 28, Investments in Associates and Joint Ventures (as revised in 2011)

As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS
28, Investments in Associates and Joint Ventures, and describes the application
of the equity method to investments in joint ventures in addition to
associates. The amendment becomes effective for annual periods beginning on or
after January 1, 2013.

Amendments to IAS 32, Offsetting Financial Assets and Financial Liabilities;
and IFRS 7, Disclosures

The amendments in IAS 32 clarify certain items regarding offsetting financial
assets and financial liabilities and IFRS 7 addresses common disclosure
requirements. The amendments are to be applied retrospectively and will be
effective for annual periods commencing on or after January 1, 2013 for IFRS 7
and January 1, 2014 for IAS 32, with earlier application permitted. The
amendment affects presentation only and has no impact on the Company's
financial position or performance.

IFRS 9, Financial Instruments: Classification and Measurement

IFRS 9 as issued reflects the first phase of the International Accounting
Standards Board's ("IASB") work on the replacement of IAS 39 and applies to the
classification and measurement of financial assets and financial liabilities as
defined in IAS 39. The standard is effective for annual periods beginning on or
after January 1, 2015. In subsequent phases, the IASB will address hedge
accounting and impairment of financial assets. In 2013, the classification and
measurement phase is expected to go into a re-deliberation period and the
exposure drafts for the impairment and hedge accounting phases are expected to
be released.  The adoption of the first phase of IFRS 9 will have an effect on
the classification and measurement of the Company's financial assets, but will
potentially have no impact on the classification and measurements of financial
liabilities.

IFRS 10, Consolidated Financial Statements

IFRS 10 replaces the portion of IAS 27, Consolidated and Separate Financial
Statements that addresses the accounting for consolidated financial statements.
It also includes the issues raised in SIC-12 Consolidation - Special Purpose
Entities. IFRS 10 establishes a single control model that applies to all
entities including special purpose entities. The changes introduced by IFRS 10
will require management to exercise significant judgment to determine which
entities are controlled and, therefore, are required to be consolidated by a
parent, compared with the requirements of IAS 27. This standard becomes
effective for annual periods beginning on or after January 1, 2013.

IFRS 11, Joint Arrangements

IFRS 11 replaces IAS 31, Interests in Joint Ventures and SIC-13,
Jointly-controlled Entities - Non-monetary Contributions by Ventures. IFRS 11
removes the option to account for jointly controlled entities ("JCEs") using
proportionate consolidation. Instead, JCEs that meet the definition of a joint
venture must be accounted for using the equity method. This standard becomes
effective for annual periods beginning on or after January 1, 2013.

IFRS 12, Disclosure of Involvement with Other Entities 

IFRS 12 includes all of the disclosures that were previously included in IAS 27
related to consolidated financial statements, as well as all of the disclosures
that were previously included in IAS 31, IAS 28 and SIC 12 and SIC 13. These
disclosures relate to an entity's interests in subsidiaries, joint
arrangements, associates and structured entities. A number of new disclosures
are also required. This standard becomes effective for annual periods beginning
on or after January 1, 2013.   The amendment affects presentation only and has
no impact on the Company's financial position or performance.

IFRS 13, Fair Value Measurement 

IFRS 13 establishes a single source of guidance under IFRS for all fair value
measurements. IFRS 13 does not change when an entity is required to use fair
value, but rather provides guidance on how to measure fair value under IFRS
when fair value is required or permitted. This standard becomes effective for
annual periods beginning on or after January 1, 2013.

The Company is assessing the impact of the adoption of these standards. 


5. Revenue

The composition of revenue is as follows:
                                                            2012             2011  


      
_______________________________________________________________________________  
                                                                        
Sale of goods                                        $111,172          $45,295 
                                                                          
Rendering of services                                 328,979          226,080 
                                                                          
Royalties                                               3,672            3,396
_______________________________________________________________________________ 
                                                                           
                                                 $443,823         $274,771
_______________________________________________________________________________  


                                                                             

 
6. Other expenses
                                                            2012             2011  


      
_______________________________________________________________________________  
                                                                         
Transaction costs                                     $20,402          $18,006 
                                                                          
Restructuring and integration costs                    19,410            4,784
_______________________________________________________________________________ 
                                                                           
                                                  $39,812          $22,790
_______________________________________________________________________________ 
                                                                           
Transaction costs incurred during the year ended December 31, 2012 are
associated with the acquisitions of DMX, BIS, ICI and Technomedia (note 13).
Transaction costs for the year ended December 31, 2012 consist of legal and
professional fees of $6,255 (2011 - $3,309), consultants' fees of $5,477 (2011
- $7,968), employee bonuses related to the transactions of $3,195 (2011 -
$3,284) and other transaction costs of $5,475 (2011 - $3,445). Transaction
costs incurred during the year ended December 31, 2011 are associated with the
acquisitions of Pelika and Muzak. 
Restructuring and integration costs for the year ended December 31, 2012
consist of severance costs of $14,564 (2011 - $3,190) and other integration
costs of $4,846 (2011- $1,594) in respect of IT integration, relocation
expenses, rebranding and other integration and transition activities. These
restructuring and integration activities are as a result of integrating various
businesses, primarily Muzak, Mood Europe and DMX. 
7. Finance costs, net 
                                                        2012             2011   
      
_______________________________________________________________________________  
                                                                      
Interest expense                                      $44,047          $33,158 
                                                                       
Change in fair value of financial                     (8,186)            8,942
instruments (i)                                                             
                                                                       
Cost of settlement of credit facility                  17,745           11,919
(ii)                                                                        
                                                                       
Other finance costs, net (iii)                        (2,561)            7,331
_______________________________________________________________________________ 
                                                                        
                                                  $51,045          $61,350
_______________________________________________________________________________ 


                                                                           
    (i) Change in fair value of financial instruments consists of:
                                                            2012              2011 


       
________________________________________________________________________________ 
                                                                        
Cross-currency interest rate swap (a)                  $(630)            $1,296 
                                                                        
Interest rate floor (b)                               (9,395)             5,954 
                                                                        
Interest rate cap (c)                                     244               365 
                                                                        
Compensation warrants                                   1,595             1,327
________________________________________________________________________________ 
                                                 $(8,186)            $8,942
________________________________________________________________________________ 
                                                                        
(a) The Company has a cross-currency interest rate swap for a notional amount
of $32,375 that converts Euros into US dollars at a foreign exchange rate of
1.2350 and converts floating interest to a fixed rate of 8.312%. The Company
does not account for this cross-currency interest rate swap as a hedging
instrument and, therefore, any change in fair value is recorded as a finance
cost in the consolidated statements of income (loss). 
(b) In accordance with the Company's credit agreement, the Company entered into
an arrangement whereby LIBOR would have a minimum floor of 1.50%. However, at
the time of entering this credit agreement, LIBOR was 0.25%. Under IFRS, the
interest rate floor is considered an embedded derivative and is fair valued at
the date of issuance and at each subsequent reporting period. Any change in
fair value is included within finance costs, net in the consolidated statements
of income (loss). The change in the fair value during the year ended December
31, 2012 was a credit of $9,395 (2011 - charge of $5,954) (note 19). 
(c) In accordance with the Company's credit agreement, the Company has entered
into an arrangement where the Company capped LIBOR at 3.5% for 50% of the
credit facility. Any changes in fair value in the interest rate cap are
recorded as finance costs, net in the consolidated statements of income (loss).
The change in the fair value during the year ended December 31, 2012 was $244
(2011 - $365) (note 19). 
(ii) The cost of settlement of the credit facility for the year ended December
31, 2012 includes $7,427 of accelerated discount for deferred financing costs,
a $5,518 non-cash discount for the interest rate floor and an early settlement
fee of $4,800 as a result of the repayments made to the first lien facility and
the second lien facility following the closing of the unsecured notes (note
17). 
(iii) Other finance costs include the change in fair value of the contingent
consideration in respect of the acquisition of Muzak. For the year ended
December 31, 2012, the change in fair value of the contingent consideration was
a credit of $7,865 (2011 - charge of $1,805). Other finance costs also include
the accretion interest in respect of the convertible debentures, the credit
facilities and the unsecured notes, the accretion of debt related to the 
interest
rate floor and the prepayment option. For the year ended December 31, 2012,
accretion interest in respect of the convertible debentures was $1,432 (2011 -
$1,403) (note 17); accretion of the credit facilities and unsecured notes was
$2,340 (2011 - $2,908) (note 17); accretion of debt related to the interest
rate floor was $1,711 (2011 - $1,258); and amortization of the prepayment
option was a credit of $80 (2011 - nil) (note 19). The remaining credit of $99
within other finance costs (2011 - $43) represents interest income and share of
profits of associates. 
8. Employee benefits expenses 
                                                        2012            2011    
    
______________________________________________________________________________   
                                                                       
Wages and salaries                                    $83,019         $67,437 
                                                                         
Social security costs                                  18,750          11,572 
                                                                         
Pension costs                                           1,288             824
______________________________________________________________________________  
                                                                          
                                                 $103,057         $79,833
______________________________________________________________________________  


                                                                             

9. Income tax
                                                            2012            2011   


     
______________________________________________________________________________   
                                                                          
Current tax expense                                                             
                                                                           
Current tax on income for the year                     $5,240          $5,340  
______________________________________________________________________________   
    
                                                                           
Total current tax                                      $5,240          $5,340    
   
______________________________________________________________________________  
                                                                            
                                                                           
Deferred tax expense                                                            
                                                                           
Origination and reversal of temporary                 $(1,338)           $262    
     
differences                                                                     
                                                                           
Recognition of previously unrecognized                (18,121)        (5,057)    
  
______________________________________________________________________________ 
deferred tax assets                                                             
                                                                           
Total deferred tax credit (note 18)                  $(19,459)       $(4,795)  
______________________________________________________________________________   
  
                                                                           
Total income tax (credit) charge                     $(14,219)          $545   
______________________________________________________________________________   


        

The Company acquired the shares of DMX, BIS and Technomedia during the year. As
part of the allocation of the purchase price, a deferred tax liability was
recognized in respect of DMX of $19,277 and BIS of $3,223.  The Company
recognized the benefit of previous years' tax losses in the same jurisdiction
in the same amount for the DMX deferred tax liability.


Corporation tax in the United States applied to loss for the year is as        
follows:                                                                       
                                                                               
                                                   2012            2011         
    ________________________________________________________________________        


                                                                   
Loss for the year before taxes                 $(39,383)       $(51,716)       
________________________________________________________________________ 


                                                                               
                                                                               


                                                                           
 Expected tax charge: based on the standard                            
 United States    domestic corporation tax rate                                  
 of 40% (2011 - 40%)                            (15,753)        (20,687)         


                                                                               
                                                                               


                                                                           
 Expenses not deductible for tax purposes          8,979           4,081         
                                                                               
 Change in estimate for under (over) provision     (100)           (428)         
 in previous years                                                               
                                                                           
 Different tax rates applied in overseas           (992)           1,957         
 jurisdictions                                                                   
                                                                           
 Recognition of previously unrecognized         (20,143)               -         
   
 deferred tax asset                                                              
                                                                           
 Unprovided deferred tax movement                 12,921          15,622         
                                                                              
 US State and other                                  869               - 
________________________________________________________________________         
   
                                                                           
Total income tax (credit) charge                $(14,219)           $545 
________________________________________________________________________         


                                                                                   

The Company is resident in Canada for the purposes of the Tax Act and it
believes that it is, and will continue to be, treated as a domestic corporation
in the United States under the Internal Revenue Code of 1986 (United States).
As a result, the Company (but not the Company's subsidiaries) is generally
taxable on its worldwide income in both Canada and the United States (subject
to the availability of any tax credits or deductions in either or both
jurisdictions in respect of foreign taxes paid by the Company). Management of
the Company is of the view that the status of the Company as taxable both in
Canada and the United States has not given rise to any material adverse
consequences as of the date hereof. Management of the Company is also of the
view that such status is not likely to give rise to any material adverse
consequences. 

10. Earnings (loss) per share

Basic and diluted earnings (loss) per share ("EPS") amounts have been
determined by dividing loss for the year by the weighted average number of
common shares outstanding throughout the year.
                                                            2012            2011   


    
______________________________________________________________________________   
                                                                       
Weighted and diluted average common shares            160,106         124,645
(000s)
______________________________________________________________________________   
                                                                   
                                                                         
Total operations                                                              
                                                                         
 Basic EPS                                             $(0.50)         $(0.48) 
                                                                         
 Diluted EPS                                            (0.50)          (0.48)
______________________________________________________________________________  
                                                                         
Continuing operations                                                         
                                                                         
 Basic EPS                                              (0.16)          (0.42) 
                                                                         
 Diluted EPS                                            (0.16)          (0.42)
______________________________________________________________________________  
                                                                         
Discontinued operations                                                       
                                                                         
 Basic EPS                                              (0.34)          (0.06) 
                                                                         
 Diluted EPS                                            (0.34)          (0.06)
______________________________________________________________________________  


                                                                             

Convertible debentures, share options and warrants have not been included in
the calculation of diluted EPS because they are anti-dilutive for the years
presented.
    11. Inventory
                                                            2012            2011   


    
______________________________________________________________________________   
                                                                       
Components                                             $5,265          $5,255 
                                                                         
Finished goods                                         25,673          20,950
______________________________________________________________________________ 
                                                                          
                                                  $30,938         $26,205
______________________________________________________________________________ 


                                                                             

Inventory is held at the lower of cost and net realizable value.


12. Property and equipment
                           Furniture,                                              
                         fittings and             Computer            Assets       
                            leasehold    Rental  and other            not in       


                     improvements equipment  equipment Vehicles      use    
Total
________________________________________________________________________________
___ 
                                                                             
Cost                                                                             
                                                                                
As at January 1, 2011       $3,660   $11,006    $23,931     $679   $4,155  
$43,431 
                                                                             
Additions                     567    10,177      4,734      105    5,200   
20,783 
                                                                             
Acquisitions                2,299    28,592      7,602    2,043        -   
40,536 
                                                                             
Disposals                    (95)     (704)      (110)     (68)        -    
(977) 
                                                                             
Transfers                       -         -      4,602        -  (4,602)       
 - 
                                                                             
Exchange differences        (329)   (1,273)      (522)     (10)    (121)  
(2,255)
________________________________________________________________________________
___ 
                                                                             
As at December 31, 2011      6,102    47,798     40,237    2,749    4,632  
101,518
________________________________________________________________________________
___ 


                                                                              
                                                                                


Additions                   1,803    21,462      4,317    3,867      715   
32,164 
                                                                             
Acquisitions                1,914     4,648      1,250      280        -    
8,092 
                                                                             
Disposals                    (88)   (1,139)      (149)  (2,325)        -  
(3,701) 
                                                                             
Discontinued              (3,051)   (6,997)    (5,176)        -  (5,456) 
(20,680)
 operations                                                                      
                                                                                 
Exchange differences          446     1,526        253       19      109    
2,353
________________________________________________________________________________
___ 
                                                                             
As at December 31, 2012      7,126    67,298     40,732    4,590        -  
119,746
________________________________________________________________________________
___ 
                                                                             
                                                                                
Depreciation                                                                     
                                                                                
As at January 1,            1,007     3,027     18,541      484        -   
23,059
2011                                                                             
                                                                                
Depreciation                1,212    16,295      7,715      878        -   
26,100 
                                                                             
Disposals                    (95)     (534)       (91)     (61)        -    
(781) 
                                                                             
Exchange differences        1,084   (3,148)        536     (14)        -  
(1,542)
________________________________________________________________________________
___ 
                                                                             
As at December 31,           3,208    15,640     26,701    1,287        -   
46,836
2011                                                                             
________________________________________________________________________________
___ 
                                                                             
Depreciation                1,454    18,659      5,646    1,723        -   
27,482 
                                                                             
Disposals                    (13)   (1,029)      (109)  (1,859)        -  
(3,010) 
                                                                             
Discontinued              (2,274)   (4,665)    (3,995)        -        - 
(10,934)
 operations                                                                      
                                                                                 
Exchange differences          331     1,310         63       12        -    
1,716
________________________________________________________________________________
___ 
                                                                             
As at December 31,           2,706    29,915     28,306    1,163        -   
62,090
2012                                                                             
________________________________________________________________________________
___ 
                                                                             
Net book value                                                                   
________________________________________________________________________________
___ 
As at December 31,          $4,420   $37,383    $12,426   $3,427       $-  
$57,656
2012
________________________________________________________________________________
___ 
                                                                           
                                                                             
As at December 31,           2,894    32,158     13,536    1,462    4,632   
54,682
2011                                                                             
________________________________________________________________________________
___ 
                                                                             
13. Business combinations 
Acquisitions of DMX, BIS, ICI and Technomedia in 2012 
On December 24, 2012, the Company acquired 100% of the issued and outstanding
shares of the following private entities: Technomedia NY, LLC, Technomedia
Solutions, LLC, ServiceNET Exp, LLC, Convergence, LLC, (collectively
"Technomedia"). Technomedia provides advanced media and technology innovations
for multiple industries, including retail, hospitality, theme parks, performing
arts, museums, special venue and education. The Company believes that the
acquisition of Technomedia will support the growth of the Company's visual
business. 
On October 19, 2012, Muzak, a subsidiary of the Company, acquired certain
assets and liabilities of Independent Communications Inc. ("ICI"), one of its
largest franchisees. ICI offers a range of in-store audio, visual and scent
solutions and operates in the mid-Atlantic region of the United States. 
On May 31, 2012, the Company acquired 100% of the issued and outstanding shares
of the following private entities: Aplusk B.V., BIS Bedrijfs Informatie
Systemen B.V., BIS Business Information Systems N.V., Avimotion Holding B.V.
and BIS Elecktrotechniek B.V. (collectively "BIS"). BIS provides the design,
installation and supply of audio and visual solutions to private and public
sector organizations in the Benelux region. The Company believes the
acquisition of BIS will support the growth of the Company's visual business. 
On March 20, 2012, the Company acquired 100% of the issued and outstanding
shares of DMX Holdings Inc. ("DMX"), a private company that provides
brand-enhancing in-store media services in North America. The non-controlling
interest of one of DMX's subsidiaries was not acquired. The Company elected to
measure the non-controlling interest in the subsidiary at the proportionate
share of its interest in the identifiable net assets. The Company believes DMX
will complement its core in-store media business. 
The fair values of the identifiable assets and liabilities of DMX and BIS and
the preliminary identifiable assets and liabilities of ICI and Technomedia as
at the date of acquisition are as follows: 
                                          DMX         BIS       ICI  
Technomedia
________________________________________________________________________________
___                                                                              

Assets                                                                           
                                                                               
Cash                                      $1,930        $533       $-      
$1,019 
                                                                             
Trade receivables and prepaid             17,880      10,251    4,134       
9,319
 expenses                                                                        
                                                                                
Inventories                                2,974       3,455      718         
289 
                                                                             
Property and equipment                     3,168       1,748    2,874         
302 
                                                                             
Intangible assets                         52,486      12,893   15,324      
10,580
________________________________________________________________________________
___  
                                                                             
                                         78,438      28,880   23,050      
21,509 
                                                                             
Liabilities                                                                      
                                                                               
Trade and other payables                  27,590       9,042    1,054       
5,292 
                                                                             
Deferred revenue                           3,309       2,911    1,788       
1,566 
                                                                             
Loans to former DMX debtholders           32,267           -        -          
 - 
                                                                             
Deferred tax liabilities                  19,277       3,223        -          
 -
________________________________________________________________________________
___  
                                                                             
                                         82,443      15,176    2,842       
6,858 


                                                                                
                                                                                  


                                                                               
Total identifiable net assets            (4,005)      13,704   20,208      
14,651
 (liabilities) at fair value                                                     
                                                                                
Non-controlling interests                (1,597)           -        -          
 - 
                                                                             
Goodwill arising on acquisition           56,067      14,417    7,086       
8,155
________________________________________________________________________________
___  
                                                                             
Purchase consideration transferred         50,465      28,121   27,294      
22,806
________________________________________________________________________________
___  


                                                                                
                                                                                  


                                                                               
Fair value analysis of purchase                                                  
consideration transferred:                                                       
                                                                               
Cash                                      50,465      28,121   22,294      
22,806 
                                                                             
Deferred consideration                         -           -    5,000          
 -
________________________________________________________________________________
___                                                                              

Total purchase consideration               50,465      28,121   27,294      
22,806
________________________________________________________________________________
___  
                                                                             
                                                                               
Analysis of cash flows on                                                        
acquisition:                                                                     
                                                                               
Net cash acquired                          1,930         533        -       
1,019 
                                                                             
Cash paid                               (50,465)    (28,121) (22,294)    
(22,806)
________________________________________________________________________________
___  
                                                                             
Net cash outflow (included in net                                                
cash flows used in investing                                                     
activities)                            $(48,535)   $(27,588) $(22,294)   
$(21,787)
________________________________________________________________________________
___  
                                                                             
As part of the acquisition of DMX, the Company was required to pay loans to
former debtholders in the amount of $32,267. The DMX sale and purchase
agreement contained a working capital adjustment, which resulted in an
additional payment of $2,438 which is included in the total cash purchase
consideration transferred. 
The fair value of trade and other receivables was equivalent to the book value. 
The allocation of the purchase price was based on the fair value of
identifiable assets, including assets acquired and liabilities assumed at the
effective date of the acquisition, with the excess of the purchase price over
the fair value being allocated to goodwill. Management engaged an independent
valuator for the DMX and BIS purchase price allocations to determine the fair
value allocated to intangible assets. The valuation has been completed for DMX
and BIS. The intangible assets on the share purchases of DMX and BIS are not
deductible for tax purposes and deferred tax liabilities of $19,277 and $3,223
respectively have been recorded. For tax purposes the purchase of ICI and
Technomedia are deemed to be asset purchases, therefore the intangible assets
are deductible for the purposes of tax and no deferred tax liabilities have
been recorded.  
The independent valuator has not completed the valuation of intangible assets
and certain other assets and liabilities for ICI and Technomedia; therefore,
the allocation of the ICI and Technomedia purchase price is based on
management's best estimate and is currently considered preliminary. The ICI
sale and purchase agreement contains a working capital adjustment, which is in
the process of being finalized. 
The goodwill recognized is attributed to the expected synergies and other
benefits from combining the assets and liabilities of DMX, BIS, ICI and
Technomedia with those of the Company. 
If the acquisitions of DMX, BIS, ICI and Technomedia had taken place on January
1, 2012, consolidated revenue for the year ended December 31, 2012 would have
been approximately $542,000. Since acquisition, DMX, BIS, ICI and Technomedia
have contributed revenue of $109,000 for the year ended December 31, 2012. 
Acquisitions of Muzak and Pelika in 2011 
On May 6, 2011, the Company acquired 100% of the issued and outstanding shares
of Muzak, a privately-held company that is a provider of sensory branding
services for business in North America. The Company has acquired Muzak to
further expand the Company's international presence and benefit from synergies
between the two businesses. 
On February 16, 2011, the Company acquired 100% of the issued and outstanding
shares of Pelika, a private company based predominantly in Finland,
specializing in the provision of digital business music solutions to the
hospitality sector. The Company has acquired Pelika to expand the Company's
international in-store media network. 
The fair value of the identifiable assets and liabilities of Muzak and Pelika
as at the date of acquisition are as follows: 
                                                              Muzak     Pelika
________________________________________________________________________________ 
                                                                           
Assets                                                                          
                                                                           
 Cash                                                          $1,136       
$396 
                                                                           
 Restricted cash                                                2,675          - 
                                                                           
 Trade and other receivables                                   28,387        
345 
                                                                           
 Inventories                                                    6,968         
47 
                                                                           
 Property and equipment                                        40,320        
216 
                                                                           
 Intangible assets                                            174,666      
6,588 
                                                                           
 Other assets                                                   1,091          - 
________________________________________________________________________________ 
                                                                            
                                                          255,243      
7,592 
                                                                           
Liabilities                                                                     
                                                                           
 Trade and other payables                                    (12,673)      
(542) 
                                                                           
 Deferred revenue                                            (13,375)          - 
                                                                           
 Other financial liabilities                                  (3,245)          - 
                                                                           
 Deferred tax liabilities                                           -    
(1,713) 
                                                                           
 Loans to former Muzak shareholders and debtholders         (305,000)          - 
________________________________________________________________________________ 
                                                                            
                                                        (334,293)    
(2,255) 


                                                                               
                                                                               


                                                                           
 Total identifiable net (liabilities) assets at fair value   (79,050)      
5,337 
                                                                           
 Goodwill arising on                                          115,546      
4,811
 acquisition                                                                     
________________________________________________________________________________ 
                                                                           
Purchase consideration transferred                             36,496     
10,148
________________________________________________________________________________ 
                                                                            
                                                                           
Fair value analysis of purchase consideration                                  
transferred:                                                                    
                                                                           
 Cash                                                               -     
10,148 
                                                                           
 Convertible debentures                                         5,000          - 
                                                                           
 Warrants                                                       7,308          - 
                                                                           
 Contingent consideration                                      24,188          - 
________________________________________________________________________________ 
                                                                           
Total purchase consideration                                   36,496     
10,148
________________________________________________________________________________ 
                                                                           
Analysis of cash flows on acquisition:                                          
                                                                           
 Net cash acquired                                              1,136        
396 
                                                                           
 Cash paid                                                          -   
(10,148)
________________________________________________________________________________ 
Net cash inflow (outflow) (included in net cash flows          $1,136   
$(9,752)
used in investing activities)                                                  
________________________________________________________________________________ 


                                                                               

As part of the acquisition of Muzak, the Company was required to pay loans to
former shareholders and debt holders in the amount of $305,000.

The fair value of trade and other receivables was equivalent to the book value.

The allocation of the purchase price was based on the fair value of
identifiable assets, including assets acquired and liabilities assumed at the
effective date of the acquisition, with the excess of the purchase price over
the fair values being allocated to goodwill. Management engaged an independent
valuator to determine the fair value allocated to intangible assets. The
goodwill recognized above is attributed to the expected synergies and other
benefits from combining the assets and liabilities of Muzak and Pelika with
those of the Company. None of the recognized goodwill with respect to the
acquisition of Pelika is deductible for tax purposes.



14. Intangible assets
                                                      Technology                    
                                                     platforms                    
                                Customer      Music        and                    


                       relationships    library   software    Brands      
Total
________________________________________________________________________________
_ 
                                                                             
Cost                                                                             
                                                                             
As at January 1, 2011          $55,681    $28,499    $51,796   $13,918   
$149,894 
                                                                             
 Additions                           -          -      2,377         -      
2,377 
                                                                             
 Acquisitions                  147,208      1,271     12,503    20,269    
181,251 
                                                                             
 Exchange differences            (958)      (538)    (1,080)     (260)    
(2,836)
________________________________________________________________________________
_ 
                                                                             
As at December 31, 2011        201,931     29,232     65,596    33,927    
330,686
________________________________________________________________________________
_ 
                                                                             
 Additions                           -          -      7,593         -      
7,593 
                                                                             
 Acquisitions                   68,881          -     15,589     6,813     
91,283 
                                                                             
 Discontinued operations      (21,439)    (6,634)    (5,133)         -   
(33,206) 
                                                                             
 Exchange differences            1,532        428      1,425       346      
3,731
________________________________________________________________________________
_ 


                                                                                

As at December 31, 2012        250,905     23,026     85,070    41,086    
400,087
________________________________________________________________________________
_
                                                                                
                                                                                

Amortization                                                                    
                                                                                

As at January 1, 2011            8,547      2,714      4,597         -     
15,858
                                                                                

 Amortization                   14,646      3,628      9,067         -     
27,341
                                                                                

 Exchange differences            (395)      (202)      (470)         -    
(1,067)
________________________________________________________________________________
_
                                                                                

As at December 31, 2011         22,798      6,140     13,194         -     
42,132
________________________________________________________________________________
_
                                                                                

 Amortization                   18,298      2,531     11,468     1,595     
33,892
                                                                                

 Discontinued operations      (10,188)    (3,110)    (3,037)         -   
(16,335)
                                                                                

Exchange differences               236        127        362         -        
725
________________________________________________________________________________
_
                                                                                

As at December 31, 2012         31,144      5,688     21,987     1,595     
60,414
________________________________________________________________________________
_

________________________________________________________________________________
_                                                                               
 
Net book value                                                                  

________________________________________________________________________________
_
                                                                                

As at December 31, 2012      $ 219,761   $ 17,338   $ 63,083  $ 39,491  $ 
339,673
________________________________________________________________________________
_
                                                                                

As at December 31, 2011        179,133     23,092     52,402    33,927    
288,554
________________________________________________________________________________
_
                                                                                


Total amortization recognized for the year ended December 31, 2012 was $33,892,
(2011 - $27,341), which forms part of depreciation and amortization in the
consolidated statements of income (loss).

Internally generated intangible assets with a net book value of $6,712 (2011 -
$1,789) have been included within technology platforms and software as at
December 31, 2012.


15. Goodwill


                                                          2012             
2011      
________________________________________________________________________________ 
   
                                                                           
Cost, beginning of year                                $250,041         
$132,577 
                                                                           
 Goodwill arising on acquisitions                        85,725          
120,356 
                                                                           
 Discontinued operations                                 (4,845)               - 
                                                                           
 Net exchange differences                                 3,788           
(2,892)
________________________________________________________________________________ 
                                                                           
Cost, end of year                                       334,709          
250,041
________________________________________________________________________________ 
                                                                            
                                                                           
Accumulated impairment losses, beginning and             (5,418)          
(5,418)
end of year                                                                    
________________________________________________________________________________ 
                                                                           
Net book value, end of year                             $329,291        
$244,623
________________________________________________________________________________ 
                                                                            
                                                                           
16. Impairment testing of goodwill and intangible assets with indefinite lives 
Goodwill acquired through business combinations and brands with indefinite
lives have been allocated to two CGUs for impairment testing as follows: 
* Mood Europe
  * Mood North America 
Mood Entertainment was a CGU during the year ended December 31, 2011. In March
2012, Mood Entertainment was classified as a discontinued operation at which
point its goodwill was fully impaired. 
Carrying amount of goodwill and intangible assets with indefinite lives
allocated to each CGU 
               Mood Europe       Mood North America    Mood Entertainment    
         2012       2011       2012       2011       2012       2011      
___________________________________________________________________________      
                                                                    
Goodwill    $142,436   $124,281   $186,855   $115,546   $-         $4,796     
                                                                         
Brands       $13,980    $13,658         $-    $20,269   $-             $-      
___________________________________________________________________________   
                                                                          


    Rebranding

In connection with the Company's integration of recent acquisitions, in October
2012 management assessed the useful life of the Muzak brand as being five
years, which reflects the expected residual life of the brand.  At this time,
management assessed the brand for impairment and determined no impairment was
required.

Valuation

The Company performed its annual impairment test as at October 1, 2012. The
Company considers the relationship between its market capitalization and its
book value, among other factors, when reviewing for indicators of impairment.

The recoverable amounts of the CGUs have been determined based on a fair value
less costs to sell ("FVLCS") calculation using cash flow projections from
financial budgets approved by senior management covering a one-year period.
Cash flows beyond the budgeted period are extrapolated using a growth rate that
does not exceed the long-term average growth rate for the industry.

Key assumptions used in FVLCS calculations

The calculation of FVLCS is most sensitive to the following assumptions:

  * Discount rates

  * Growth rate used to extrapolate cash flows beyond the budgeted period

Discount rates - Discount rates represent the current market assessment of the
risks specific to each CGU, taking into consideration the time value of money
and individual risks of the underlying assets that have not been incorporated
in the cash flow estimates. The discount rate calculation is based on the
specific circumstances of the Company and its operating segments and is derived
from its weighted average cost of capital ("WACC"). The WACC takes into account
both debt and equity. The cost of equity is derived from the expected return on
investment by the Company's investors. The cost of debt is based on the
interest-bearing borrowings the Company is obliged to service. Segment-specific
risk is incorporated by applying individual beta factors. The beta factors are
evaluated annually based on publicly available market data. The discount rates
applied to cash flow projections are between 11% - 14% depending on the CGU.

Growth rate estimates - Rates are based on published industry research and do
not exceed the long-term average growth rate for the industry. The growth rates
used to extrapolate the cash flows beyond the budgeted period for the Mood
North America and Mood Europe CGUs are between 5% - 10%.

As a result of the analysis performed management did not recognize any
impairment for any CGU in the year ended December 31, 2012, except in respect
of discontinued operations (note 27).


17. Loans and borrowings
                                                  Prescribed       2012       2011 
     
                                                 interest                      


                                                 rate     
________________________________________________________________________________ 
              
                                                                          
Due in less than one year:                                                     
                                                                          
Credit facility  iv)                                 7.0%     $2,132     $3,550
________________________________________________________________________________ 


                                                                              
                                                                              


                                                                          
Due in more than one year:                                                     
                                                                          
 Senior unsecured notes i)                          9.25%    350,000          - 
                                                                          
 Unamortized discount - financing costs  ii)                 (8,719)          - 
                                                                          
 Unamortized premium - prepayment option iii)                  3,120          -
________________________________________________________________________________ 


                                                                           
                                                                              
                                                             344,401          -
                                                                              
                                                                              


                                                                          
 Credit facility  iv)                                7.0%    207,897    449,675 
                                                                          
 Unamortized discount - financing costs v)                   (6,317)   (15,861) 
                                                                          
 Unamortized discount - interest rate floor vi)              (4,747)   (11,976)
________________________________________________________________________________ 


                                                                           
                                                                              
                                                             196,833    421,838
                                                                              
                                                                              


                                                                          
10% Unsecured convertible debentures vii)           10.0%     44,949     43,853
________________________________________________________________________________ 
                                                                           
                                                         586,183    465,691
________________________________________________________________________________ 
                                                                          
Total loans and borrowings                                  $588,315   $469,241
________________________________________________________________________________ 
                                                                           
Senior unsecured notes 
i) On October 19, 2012, the Company closed its offering of $350,000 aggregate
principal amount of senior unsecured notes (the "Notes") by way of a private
placement. The Notes are guaranteed by all of Mood's existing U.S. subsidiaries
(other than Mood Entertainment Inc. and Muzak Heart & Soul Foundation). The
guarantee is an unsecured obligation. The Notes are due October 15, 2020 and
bear interest at an annual rate of 9.25%. The effective interest rate on the
Notes is 9.46%. 
In connection with the Notes, amendments were made to the Company's existing
first lien credit facility. The first lien credit facility was amended to,
among other things: (i) permit the incurrence of the debt represented by the
Notes; (ii) revise the financial maintenance covenants contained therein,
including: removing the maximum total leverage ratio financial maintenance
covenant, adding a maximum senior secured leverage ratio financial maintenance
covenant, reducing the minimum interest coverage ratio financial maintenance
covenant and providing for customary equity cure rights related to financial
maintenance compliance; and (iii) increase the size of the Company's first lien
revolving credit facility from $20,000 to $25,000. 
ii) During the year ended December 31, 2012, total costs of $8,942 associated
with the Notes have been recorded as finance costs and deducted from the
Notes.  The notes will be accreted back to their principal amount over the term
of the Notes. During the year ended December 31, 2012, accretion expense was
$223, which is included in finance costs, in the consolidated statements of
income (loss) (note 7). 
iii) The Notes contain an option to repay the entire amount prior to October 
15, 
2020 at a set repayment fee. This option has been treated as an embedded 
derivative 
financial instrument in the consolidated statement financial of position under 
IFRS 
and was valued at $3,200 on October 19, 2012. The prepayment option is measured 
at 
fair value at each reporting date with any change recorded as finance costs, in 
the 
consolidated statements of income (loss). The amortization expense of $80 for 
the 
year ended December 31, 2012 is included within finance costs, net in the 
consolidated 
statements of income (loss) (note 7). 
Credit facility 
iv) In May 2011, the Company entered into credit facilities with Credit Suisse
Securities AG, as agent, consisting of a $20,000, 5-year revolving credit
facility, a $355,000 7-year first lien term loan and a $100,000, 7.5-year
second lien term loan (collectively the "Credit Facilities"). 
The Company has used the net proceeds of the Notes to repay $140,000 of its
first lien credit facility and $100,000 of its second lien credit facility.
 Credit Suisse on behalf of the lenders under the First Lien Credit Facility
has security over substantially all the property and assets based in the United
States (other than Mood Entertainment Inc.). In addition, as discussed above,
the Company amended the first lien credit facility to increase the size of the
Company's first lien revolving credit facility from $20,000 to $25,000.  As at
December 31, 2012, the Company had $21,600 available under the revolving credit
facility. The credit facilities are subject to the maintenance of financial
covenants (per the amended credit facilities agreement). The Company was in
compliance with these covenants as at December 31, 2012. 
Following the repayments to the credit facilities the first lien term loan is
repayable at $533 a quarter, with the remainder repayable on May 6, 2018.
Interest on the first lien loan accrues at a rate of adjusted LIBOR plus 5.50%
per annum or the alternate base rate plus 4.50% per annum, as applicable. The
effective interest rate on the credit facilities is 8.0%. 
On August 2, 2011, the Company purchased an interest rate cap for $619 in
conjunction with the requirements of the credit agreement. This derivative
financial instrument is fair valued at each reporting date and any change in
fair value is recorded within the consolidated statements of income (loss). As
at December 31, 2012, the fair value of the interest rate cap was $10 (2011 -
$254). This is shown within other financial assets within the consolidated
statements of financial position. The change in fair value of $244 for the year
ended December 31, 2012 is included in finance costs, net in the consolidated
statements of income (loss) (note 7). 
v) The total costs associated with the credit facilities of $17,426 were
recorded as finance costs and are accreted over the term of the credit
facilities using the effective interest rate method. Accretion expense
associated with the credit facilities for the year ended December 31, 2012 was
$2,117.  In addition,  accelerated accretion expense of $7,427 was recorded as
part of the cost of settlement of the credit facilities within finance costs,
net in the consolidated statements of income (loss) related to the repayments
made to the credit facilities during the year ended December 31, 2012 (note 7). 
Unamortized finance costs as at December 31, 2012 were $6,317 (2011 - $15,861). 
vi) On initial recognition, the interest rate floor was ascribed a fair value
of $13,234 and this non-cash liability is included within other financial
liabilities in the consolidated statements of financial position. On initial
recognition, the carrying value of the debt was reduced by the same amount,
which is accreted over the term of the debt. The accretion of debt related to
the interest rate floor was $1,711 (2011 - $1,258) for the year ended December
31, 2012 (note 7). 
Following the repayments made to the credit facilities, a further $5,518 of
accretion charge was expensed to the consolidated statements of income (loss)
as part of the cost of settlement of the credit facilities within finance
costs, net during the year ended December 31, 2012. 
Unrecognized debt accretion as at December 31, 2012 was $4,747 (2011 -
$11,976). 
Convertible debentures 
vii) On October 1, 2010, the Company issued new debentures (the "New
Debentures") with a principal amount of $31,690. As part of this transaction,
the Company also issued, as partial payment of the underwriters' fee, an
additional $1,078 in New Debentures for a total of $32,768 aggregate principal
amount of New Debentures. 
The New Debentures have characteristics of both debt and equity. Accordingly,
$28,112 of the fair value was ascribed to the debt component and $4,656 was
ascribed to the equity component. Fair value was determined by reference to
similar debt instruments and market transactions of the amended debentures. 
Costs associated with the New Debentures have been recorded as finance costs
for the convertible debentures and are recognized over the term of the related
facilities. These have been pro-rated against the debt and equity components.
As at December 31, 2012, the carrying value of the debt component was $28,024
(2011 - $26,951), which is net of unamortized financing costs of $1,140 (2011 -
$1,554).   During the year ended December 31, 2011, holders of the New
Debentures elected to convert $646 of New Debentures into common shares at the
conversion price of $2.43 per common share, resulting in the issue of 265,843
common shares (note 20). The carrying value of the $646 of New Debentures was
$608 at the date of conversion. 
On May 6, 2011, the Company issued new debentures (the "Consideration
Debentures") with a principal amount of $5,000 as part of the consideration for
the acquisition of Muzak.  The Consideration Debentures have a maturity date of
October 31, 2015 and bear interest at a rate of 10% per annum, payable
semi-annually. They are convertible at any time at the option of the holders
into common shares at an initial conversion price of $2.43 per common share.
The Consideration Debentures have characteristics of both equity and debt.
Accordingly, on issuance, $4,602 of the fair value was ascribed to the debt
component and $398 was ascribed to the equity component. Fair value was
determined by reference to similar debt instruments. As at December 31, 2012,
the carrying value of the debt component was $4,408 (2011 - $4,659). 
During the year ended December 31, 2012, holders of the Consideration
Debentures elected to convert $364 of Consideration Debentures into common
shares at the conversion price of $2.43 per common share, resulting in the
issue of 146,500 common shares. The carrying value of the converted
Consideration Debentures was $364 at the date of conversion split between a
debt component of $336 and an equity component of $28. 
On May 27, 2011, the Company completed a private placement of debentures (the
"Convertible Debentures") with a principal amount of $13,500. The Convertible
Debentures were issued for a subscription price of $0.9875 per $1 principal
amount, resulting in gross proceeds of $13,331. The Convertible Debentures have
a maturity date of October 31, 2015 and bear interest at a rate of 10% per
annum, payable semi-annually. They are convertible at any time at the option of
the holders into common shares at an initial conversion price of $2.80 per
common share. The Convertible Debentures have characteristics of both equity
and debt. 
Accordingly, on issuance, $12,085 of the fair value was ascribed to the debt
component and $1,246 was ascribed to the equity component. Fair value was
determined by reference to similar debt instruments. As at December 31, 2012,
the carrying value of the debt component was $12,517 (2011 - $12,243). A
deferred tax liability of $658 was recorded on the equity component of
convertible debentures issued in 2011.  The corresponding entry was a reduction
to contributed surplus.  
For the year ended December 31, 2012, total accretion interest in respect of
all convertible debentures was $1,432, which is included within finance costs,
net in the consolidated statements of income (loss) (note 7). 
18. Deferred tax assets and liabilities 
                                                         2012       2011      
___________________________________________________________________________ 
                                                                       
Balance, at beginning of year                         $(30,312)  $(28,718)  
                                                                       
Recognized on acquisitions                             (22,500)    (1,713)    
                                                                       
Tax charge (credit) recognized in discontinued                             
operations                                                    -      4,463      
                                                                       
Tax charge (credit) recognized in consolidated                             
statements of income (loss) - continuing operations                        
(note 9)                                                 19,459    (4,795)    
                                                                       
Tax charge recognized in equity                               -       (51)       
                                                                         
Net foreign exchange differences and other movements      (811)      (162)      
                                                                       
Transferred to discontinued operations                    (267)          -       
___________________________________________________________________________ 
                                                                       
Balance, at end of year                               $(34,431)  $(30,312) 
___________________________________________________________________________ 


                                                                           

Deferred tax assets have been recognized in respect of all tax losses and other
temporary differences giving rise to deferred tax assets where management
believes it is probable that these assets will be recovered.

The movements in deferred tax assets and liabilities (prior to the offsetting
of balances within the same jurisdiction as permitted by IAS 12) during the
year are shown below.

Details of the deferred tax asset (liability) amounts recognized in the
consolidated statements of income (loss) and amounts recognized in equity in
the consolidated statements financial position are as follows:
                                                            Foreign exchange       
      


                                                     movement          
Asset       
                                           Credited  (charged)          
(liability) 
              Asset    Liability   Net     (charged) credited to other  
recognized  


                                               to profit comprehensive      on  
       


               2012      2012      2012    or loss   income (loss)      
acquisition
________________________________________________________________________________
_______ 
                                                                             
   
Property and                                                                     
   
equipment           $302          $-      $302    $(271)         $-              


    $-         
                                                                                


   
Operating losses                                                                 
   
carried forward   18,778           -    18,778    15,426          -              


     -          
                                                                                


    
Goodwill               -     (4,087)   (4,087)   (4,087)                         


        
                                                                                


   
Identifiable                                                                     
   
intangible assets      -    (48,897)  (48,897)    10,216      (794)           
(22,500)    
                                                                             
   
Other temporary                                                                  
   
and deductible                                                                   
   
differences        2,232     (2,759)     (527)   (1,825)       (17)              
 -          
________________________________________________________________________________
_______ 
                                                                             
   
Deferred tax                                                                     
   
assets                                                                           
   
(liabilities)    $21,312   $(55,743) $(34,431)   $19,459     $(811)          
$(22,500)  
________________________________________________________________________________
_______ 
                                                                             
    
The net deferred tax liability in respect of other temporary and deductible
differences has increased during the year by $267 as a result of the transfer
of deferred tax assets to discontinued operations. 
                                                       Movement credited     
Asset       
                                         (Charged)    (charged) to     
(liability) 
              Asset     Liability  Net    credited   equity or other   
recognized  
                                         to profit   comprehensive         
on          
                2011      2011    2011    or loss    income (loss)     
acquisition
________________________________________________________________________________
________ 
                                                                             
     
Property and                                                                     
     
equipment          $573      $-       $573      $56            $-               
$-          
                                                                             
     
Operating losses                                                                 
     
carried forward   3,352       -      3,352     (2,086)          -               
 -           
                                                                             
     
Identifiable                                                                     
     
intangible assets     -   (35,819)  (35,819)    5,257         613            
(1,713)     
                                                                             
     
Other temporary                                                                  
     
and deductible                                                                   
     
differences       3,757    (2,175)   1,582     (2,895)       (664)               
-           
                                                                             
     
Deferred tax                                                                     
     
assets                                                                           
     
(liabilities)    $7,682   $(37,994) ($30,312)     $332       $(51)          
$(1,713)    


                                                                                
         
    A deferred tax asset has not been set up for the following:
                                                     2012         2011          


                                                                         
Deductible temporary differences                 $45,355       $46,656        
                                                                         
Unused tax losses                                 34,089       108,510        


                                                                             
                                                 $79,444       $155,166      
                                                                             

As at December 31, 2012, there was nil recognized as deferred tax liability
(2011 - nil) for taxes that would be payable on the unremitted earnings of the
Company's subsidiaries. The Company has determined that undistributed profits
of its subsidiaries will not be distributed in the foreseeable future. The
unused tax losses and deductible timing differences can be carried forward for
20 years. As a result of the company's dual residence status, there are also
losses available to carry forward at December 31, 2012 in Canada of
approximately $115m.
    19. Other financial assets and financial liabilities
    Other financial assets
                                                            2012             2011  
          


                                                                          
Interest rate cap                                         $10             $254 
                                                                          
Leases receivable                                           -              608 
                                                                          
Prepayment option                                       3,200                - 
                                                                          
Total other financial assets                            3,210              862 


                                                                              
                                                                              


                                                                          
Due in less than one year                                   -              608 
                                                                          
Due in more than one year                               3,210              254 
                                                                          
Total other financial assets                           $3,210             $862 
                                                                           


    Interest rate cap

On August 2, 2011, in accordance with the Company's credit agreement, the
Company entered into an arrangement where the Company capped LIBOR at 3.5% for
50% of the credit facility. This derivative financial instrument is fair valued
at each reporting date and any change in fair value is recorded within the
consolidated statements of income (loss).

Prepayment option

The Company has the right to prepay the Notes early, but will incur a penalty
depending on the date of settlement.  The prepayment option has been treated as
an embedded derivative financial instrument under IFRS. On initial recognition,
the prepayment option was ascribed a fair value of $3,210, which is recorded
within other financial assets in the consolidated statements of financial
position. On initial recognition the carrying value of the Notes were increased
by the same amount, which is amortized over the term of the Notes. The
amortization of the prepayment was $80 for the year ended December 31, 2012,
which is shown within other finance costs, net (note 7) in the consolidated
statements of income (loss). The prepayment option is fair valued at each year
end reporting date and any change in the fair value is recognized in the
consolidated statements of income (loss) in finance costs, net. Fair value is
determined by reference to various inputs including interest rate curves.
 

Other financial Liabilities
                                                            2012             2011  
          


                                                                          
Cross-currency interest rate swap                      $2,277           $2,907 
                                                                          
Finance leases                                          3,047            1,496 
                                                                          
Deferred and contingent consideration                  23,128           25,993 
                                                                          
Interest rate floor                                     9,793           19,188 
                                                                          
Compensation warrants                                       -            4,213 
                                                                          
Total other financial liabilities                      38,245           53,797 


                                                                              
                                                                              


                                                                          
Due in less than one year                               8,788            8,103 
                                                                          
Due in more than one year                              29,457           45,694 
                                                                          
Total other financial liabilities                     $38,245          $53,797 
                                                                           


    Cross-currency interest rate swap

As at December 31, 2010, the Company had entered into a cross-currency interest
rate swap for the period ending June 4, 2013. The cross-currency interest rate
swap has a historical notional amount of $32,375 and converts Euros into US
dollars at a foreign exchange rate of 1.2350 and converts floating interest to
a fixed rate of 8.312%.

The Company does not account for the cross-currency interest rate swap as a
hedging derivative financial instrument for accounting purposes. The change in
fair value compared to the previous period is presented in finance costs, net
in the consolidated statements of income (loss).

For the year ended December 31, 2012, the change in fair value of the
cross-currency interest rate swap was a gain of $630 which is included in
finance costs, net in the consolidated statements of income (loss) (note 7). As
at December 31, 2012, the fair value of the cross-currency interest rate swap
was $2,277 (2011 - $2,907), and has been recorded in other financial
liabilities in the consolidated statements of financial position. Fair value is
determined by management with reference to mark-to-market valuations provided
by financial institutions.


Deferred and contingent consideration

The consideration for the acquisition of ICI contains deferred consideration of
$5,600, to be paid in 2013. The fair value of the ICI deferred consideration
was $5,000 (note 13) as at December 31, 2012 (2011 - nil)

As part of the consideration for the acquisition of Muzak, a maximum of $30,000
cash may be paid in the three years following closing in the event that the
Company achieves minimum EBITDA targets. The fair value of the Muzak contingent
consideration was $18,128 (note 13) as at December 31, 2012 (2011 - $25,993).

Interest rate floor

The Credit Facilities carry an interest rate floor of 150 basis points, which
is considered an embedded derivative under IFRS as the floor rate exceeded
actual LIBOR at the time that the debt was incurred. As a result, the interest
rate floor derivative was required to be separated from the carrying value of
credit facilities and accounted for as a separate financial liability measured
at fair value through profit or loss.

The interest rate floor is fair valued at each reporting date and any change in
the fair value is recorded in the consolidated statements of income (loss) in
finance costs, net. The change in fair value for the year ended December 31,
2012 was a gain of $9,395 (note 7). The fair value of the interest rate floor
as at December 31, 2012 was $9,793 (2011 - $19,188). Fair value is determined
by reference to mark-to-market valuation performed by financial institutions at
each reporting date.

Compensation warrants

The lenders of the Mezzanine Facilities received compensation warrants (the
"Compensation Warrants") which can be exercised for 4,100,000 common shares of
Mood Media at an exercise price of CDN$1.60 per common share for a period of 42
months from the date of issuance.

Upon issuance, the Compensation Warrants were classified as a non-cash
financial liability and ascribed a fair value of $2,262 and included within
other financial liabilities in the consolidated statements of financial
position. The Compensation Warrants are fair valued at each reporting period
and any change in fair value is recorded in finance costs in the consolidated
statements of income (loss).

On May 17, 2012, the Compensation Warrants were exercised with proceeds of
CDN$6,560, which was translated to $6,500. On the exercise date, the fair value
of the Compensation Warrants was $5,808. Fair value was determined based on the
Black-Scholes option pricing model. The change in fair value from January 1,
2012 until the exercise date was a loss of $1,595 (2011 - $1,327), which is
shown within finance costs, net in the consolidated statements of income (loss)
(note 7).

Upon exercise, the fair value of the exercised Compensation Warrants, along
with any issuance proceeds, was classified as share capital. The total amount
classified as share capital attributable to the Compensation Warrants was
$12,308.


20. Shareholders' equity

 
Share capital

Share capital represents the number of common shares outstanding.

As at December 31, 2012, an unlimited number of common shares with no par value
were authorized.

Changes to share capital were as follows:
                                                 Notes       Number of    Amount
                                                             Shares          


                                                                         
Balance as at January 1, 2011                           114,089,835  $142,691 
                                                                         
Common shares issued, net of issue costs                 12,896,015    27,884 
                                                                         
Options exercised                                22         685,370       729 
                                                                         
Conversion of convertible debentures             17         265,843       608 
                                                                         
Balance as at December 31, 2011                         127,937,063  $171,912 
                                                                         
Common shares issued, net of issue costs                 38,589,000   138,174 
                                                                         
Warrants exercised                               19       4,100,000    12,308 
                                                                         
Options exercised                                22         867,000       560 
                                                                         
Conversion of convertible debentures             17         146,500       364 
                                                                         
Balance as at December 31, 2012                         171,639,563  $323,318 
                                                                          
On April 26, 2012, the Company entered into an agreement pursuant to which the
underwriters agreed to purchase 6,675,000 common shares of the Company on a
bought deal private placement basis at a price of CDN$4.12 per common share.
The offering closed on May 17, 2012 with a further 114,000 common shares
purchased under the over-allotment option. Total gross proceeds were $27,717
and net proceeds after expenses were $26,562. 
On March 20, 2012, in connection with the closing of the acquisition of DMX,
the Company completed the private placement of 31,800,000 common shares at a
subscription price of CDN$3.60 per common share for gross proceeds of $115,884
and net proceeds after expenses of $111,612. 
On May 6, 2011, in connection with the closing of the acquisition of Muzak, the
Company completed a private placement of 5,396,015 common shares at a
subscription price of CDN$2.51 per common share for gross proceeds of $14,073
and net proceeds after expenses of $13,637. 
On February 2, 2011, the Company completed a private placement offering of
7,500,000 common shares at 125 pence per common share, listed on the London
Alternative Investment Market. The private placement resulted in gross proceeds
of $15,072 and net proceeds after expenses of $14,247. 
Foreign exchange translation reserve 
The foreign exchange translation reserve is used to record exchange differences
arising from the translation of the financial statements of foreign
subsidiaries. 
Deficit 
Deficit represents the accumulated loss of the Company attributable to the
shareholders to date. 
21. Related party disclosures 
Compensation of key management personnel  


                                                            2012            2011   
        


                                                                         
Salaries and bonuses                                   $6,941          $6,430 
                                                                         
Pension costs                                              26              18 
                                                                         
Share-based compensation                                2,618           3,018 


                                                                             
                                                       $9,585          $9,466
                                                                             

The amounts disclosed in the table are the amounts recognized as an expense
during the reporting period relating to those considered to be key management
personnel. Key management personnel are those having authority and
responsibility for planning, directing and controlling the activities of the
Company, including senior management and members of the Board. The total number
of key management personnel was 10 during the year ended December 31, 2012.
    22. Share-based compensation

Equity-settled share options

The Company has a share option plan (the "Plan") for its employees, directors
and consultants, whereby share options may be granted subject to certain terms
and conditions. The issuance of share options is determined by the Board of
Directors of the Company. The aggregate number of shares of the Company that
may be issued under the Plan is limited to 10% of the number of issued and
outstanding common shares at the time. The exercise price of share options must
not be less than the fair market value of the common shares on the date that
the option is granted. Share options issued under the Plan vest at the rate of
25% on each of the four subsequent anniversaries of the grant date and are
subject to the recipient remaining employed with the Company. All of the vested
share options must be exercised no later than 10 years after the grant date.
With the adoption of the Company's current share option plan on June 17, 2008,
no further grants of options were made pursuant to the former 2005 plan.
Options previously granted under the 2005 plan will continue to vest. The
Company uses the Black-Scholes option pricing model to determine the fair value
of options issued.

On December 6, 2012, 625,000 share options were granted with an exercise price
of CDN$1.71. On   November 9, 2012, 200,000 share options were granted with an
exercise price of CDN$2.24. On June 7, 2012 930,000, share options were granted
with an exercise price of CDN$3.01.

On May 12, 2011, 7,000,000 share options were granted with an exercise price of
CDN$2.88. On August 24, 2011, 325,000 share options were granted with an
exercise price of CDN$2.83. On November 16, 2011, 150,000 share options were
granted with an exercise price of CDN$2.69.

During the year ended December 31, 2012, the following assumptions were used:
weighted average volatility of 57% (2011 - 70%) based on historic information,
expected dividend yield of nil, weighted average expected life of 6.25 years
(2011 - 6.25 years) and weighted average interest rate of 1.87% (2011 - 1.87%).
The weighted average fair value of the options granted during the year ended
December 31, 2012 was $1.28  (2011 - $1.86) per share.

The expense recognized for the year ended December 31, 2012 relating to
equity-settled share-option transactions for employees was $3,758 (2011 -
$3,175). An additional expense of nil (2011 - $5,243) in respect of share-based
compensation relating to non-employees has been recorded in other expenses in
the consolidated statements of income (loss). Therefore, total share-based
compensation expense for the year ended December 31, 2012 was $3,758 (2011 -
$8,418).

Changes in the number of options, with their weighted average exercise prices
for the year ended December 31, 2012 and 2011, are summarized below:
    
                                     2012                       2011            
           
                                                                             
                                         Weighted                    Weighted
                                          average                     average
                                         exercise                    exercise
                               Number       price        Number         price


                                                                         
Outstanding at beginning   15,250,300       $1.82     8,460,670         $0.47
of year                                                                       
                                                                         
Granted during the year     1,755,000        2.41     7,475,000          3.00 
                                                                         
Exercised during the year   (867,000)        0.65     (685,370)          1.06 
                                                                         
Forfeited/expired during    (672,500)        2.67             -             -
the year                                                                      
                                                                         
Outstanding at end of year 15,465,800        1.92    15,250,300          1.82 
                                                                         
Exercisable at end of year  8,334,550       $1.17     5,989,869         $0.70 
                                                                          
The following information relates to share options that were outstanding as at
December 31, 2012: 


                                                 Weighted average                 
                                                     remaining                 


                             Number of    contractual life Weighted average
Range of exercise prices           options             (years)   exercise price 
                                                                           
$0.00-$0.30                      3,600,000                   6            $0.21 
                                                                           
$0.31-$1.50                      2,458,300                   5             1.08 
                                                                           
$1.51-$2.50                      1,565,000                   5             1.78 
                                                                           
$2.51-$3.50                      7,842,500                   8             3.00 


                                                                               
                                15,465,800                   7            $1.92
                                                                               
    Warrants
    The following warrants were outstanding as at December 31, 2012:
                                       Number      Exercise price      Expiry date


                                                                           
Muzak acquisition warrants       4,407,543               $3.50         May 2016 
                                                                            
Warrants are recorded at the time of the grant for an amount based on the
Black-Scholes option pricing model, which is affected by the Company's share
price as well as assumptions regarding a number of subjective variables.    
In July 2012, 125,000 debenture warrants issued to PFH expired unexercised. 
23. Commitments and contingencies 
Operating leases 
Future minimum rental payments under non-cancellable operating leases as at
December 31 are as follows: 


                                                        2012                 2011  
              


                                                                          
Within one year                                   $16,410              $10,959 
                                                                          
After one year but not more than                   40,512               25,603
five years                                                                     
                                                                          
More than five years                                4,901                6,535 


                                                                              
                                                  $61,823              $43,097
                                                                              
    Finance leases

The Company has finance leases for various items of equipment. These leases
have terms of renewal but no purchase options and escalation clauses. Renewals
are at the option of the specific entity that holds the lease. Future minimum
lease payments under finance leases, together with the present value of the net
minimum lease payments, are as follows:
                                               2012                  2011          
       
                                                              
                                    Minimum   Present     Minimum  Present   
                                    payments   value      payments   value     


                                                                           
Within one year                     $2,051     $1,920     $1,489     $1,340     
                                                                           
After one year but not more than     1,536        719        466        219      
five years                                                                      
                                                                           
Total minimum lease payments         3,587      2,639      1,955      1,559      
                                                                           
Less amounts representing finance    (540)      (540)      (459)      (459)      
charges                                                                         
                                                                           
Present value of minimum lease      $3,047     $2,099     $1,496     $1,100    
payments                                                                        
                                                                            
Contingencies 
PFH litigation 
In August 2008, the Company received notification that PFH Investments Limited
("PFH") had filed a complaint with the Ontario Superior Court of Justice
against the Company and certain officers under Section 238 of the Canada
Business Corporations Act ("CBCA") alleging that the Company, when negotiating
amendments to convertible debentures first issued to PFH in 2006, withheld data
related to the issuance of share options at a strike price of $0.30 per share,
such conversion price to which PFH was then entitled. In addition to damages of
$35,000 and among other things, PFH is seeking a declaration that the
amendments to the original debenture agreement are void and that the original
debenture be reinstated. The Company believes it acted properly and in
accordance with the original and amended debenture agreements when it fully
repaid the debenture in the amount of $1,620 on June 19, 2008 and has responded
accordingly. On July 2, 2009, the Company extended a confidential settlement
offer to PFH. Among the various proposed obligations of the parties under the
offer, pursuant thereto, but subject to regulatory approval, the Company would
have issued to PFH 3,333,333, shares at $0.30 per share. This offer has since
expired. Mood Media continues to consult with legal counsel and intends to
continue to vigorously defend the claim, which it believes to be without merit.
Since it is not possible to determine the final outcome of this matter and
management believes that the claims are without merit, no accrual has been
recorded. 
License arrangements 
During the year ended December 31, 2012, in the normal course of operating the
business, the Company renegotiated the rates for certain licenses. As a result
of finalizing these negotiations, the Company received a fiscal 2012 benefit of
approximately $4,600. 
24. Financial instruments 
Risk management 
The Company is exposed to a variety of financial risks including market risk
(including currency risk and interest rate risk), liquidity risk and credit
risk. The Company's overall risk management program focuses on the
unpredictability of financial markets and seeks to minimize potential adverse
effects on the Company's financial performance. 
Currency risk 
 
The Company operates in the US, Canada and internationally. The functional
currency of the Company is US dollars. Currency risk arises because the amount
of the local currency income, expenses, cash flows, receivables and payables
for transactions denominated in foreign currencies may vary due to changes in
exchange rates ("transaction exposures") and because the non-US-denominated
financial statements of the Company's subsidiaries may vary on consolidation
into US dollars ("translation exposures"). 
The most significant translation exposure arises from the Euro currency. The
Company is required to revalue the Euro-denominated net assets of the European
subsidiaries at the end of each period with the foreign currency translation
gain or loss recorded in other comprehensive income (loss). Based on the
European subsidiaries' net assets as at December 31, 2012, fluctuations of plus
or minus $0.05/€ would, everything else being equal, affect other 
comprehensive
income (loss) for the year ended December 31, 2012 by approximately plus or
minus $4,700. The Company does not currently hedge translation exposures. 
Interest rate risk 
The Company's interest rate risk arises on a debt drawn under the Credit
Facilities, which bear interest at a floating rate. The level of interest rate
risk is mitigated by the fact that the Credit Facilities carry an interest rate
floor which currently exceeds LIBOR. The Company also purchased an interest
rate cap during the year ended December 31, 2011. 
Liquidity risk 
Liquidity risk arises through excess of financial obligations over available
financial assets due at any point in time. The Company's objective in managing
liquidity risk is to maintain sufficient readily available reserves in order to
meet its liquidity requirements at any point in time. The Company achieves this
by maintaining sufficient cash and through the availability of funding from the
committed Credit Facilities. As at December 31, 2012, the Company had cash of
$46,384 and $21,600 available under the revolving credit facility. Cash at
banks earns interest at floating rates based on daily bank deposit rates. 
Credit risk 
Credit risk arises from cash held with banks and credit exposure to customers
on outstanding trade receivable balances. The maximum exposure to credit risk
is equal to the carrying value of the financial assets. The objective of
managing counterparty credit risk is to prevent losses in financial assets. The
Company assesses the credit quality of the counterparties, taking into account
their financial position, past experience and other factors. Management also
monitors payment performance and the utilization of credit limits of customers.
The carrying amount of accounts receivable is reduced through the use of an
allowance for doubtful accounts and the amount of the loss is recognized in the
consolidated statements of income (loss) in operating expenses. When a
receivable balance is considered uncollectible, it is written off against the
allowance for doubtful accounts. Subsequent recoveries of amounts previously
written off are credited against operating expenses in the consolidated
statements of income (loss). 
The following table sets forth details of the age of receivables, allowance for
doubtful accounts, other allowances and the sales return accrual: 


                                                         2012             2011  
          


                                                                          
Trade and other receivables, before                  $102,744          $79,046
allowances                                                                     
                                                                          
Less:                                                                          
                                                                          
 Allowance for doubtful accounts                      (6,233)          (4,724) 
                                                                          
 Sales return accrual*                                      -          (3,783) 
                                                                          
 Other allowances*                                          -            (492) 
                                                                          
Add:                                                                           
                                                                          
 Provincial sound tax credits receivable*                   -            1,412 
                                                                          
Trade and other receivables, net                      $96,511          $71,459 


                                                                              
                                                                              


                                                                          
Analysis                                                                       
                                                                          
Current                                               $57,081          $39,028 
                                                                          
Past due 1-30 days                                     21,147           18,058 
                                                                          
Past due 31-60 days                                     7,193           11,311 
                                                                          
Past due 61+ days                                      17,323           10,649 
                                                                          
Less:                                                                          
                                                                          
Allowance for doubtful accounts                       (6,233)          (4,724) 
                                                                          
Sales return accrual*                                       -          (3,783) 
                                                                          
Other allowances*                                           -            (492) 
                                                                          
Add:                                                                           
                                                                          
Provincial sound tax credits receivable*                    -            1,412 
                                                                          
Trade and other receivables, net                      $96,511          $71,459 


                                                                              
    The movement in the allowance for doubtful accounts is shown below:
                                                            2012             2011  
          


                                                                          
Allowance for doubtful accounts, beginning             $4,724           $3,787
of year                                                                        
                                                                          
Allowance acquired                                      1,533            1,131 
                                                                          
Reduction in allowance                                    (24)            (194) 
                                                                          
Allowance for doubtful accounts, end of year           $6,233           $4,724 
                                                                           
Trade and other receivables are non-interest bearing and are generally on 30-90
day terms. 
* These items relate entirely to the discontinued operations (note 27). 
Financial assets and financial liabilities - classification and measurement 


                                                             Financial           
                                                         assets and           
                                                     liabilities at           
                          Cash, loans         Other      fair value           


                              and     financial  through profit           
As at December 31, 2012   receivables   liabilities         or loss      Total 
                                                                          
Current financial assets                                                       
                                                                          
Cash                          $46,384            $-              $-    $46,384 
                                                                          
Trade and other                96,511             -               -     96,511
receivables                                                                    


                                                                              
                              142,895             -               -    142,895


                                                                          
Non-current financial                                                         
assets                                                                         
                                                                          
Interest rate cap                   -             -              10         10 
                                                                          
Prepayment option                   -             -           3,200      3,200 


                                                                              
                                    -             -           3,210      3,210


                                                                          
Current financial                                                             
liabilities                                                                    
                                                                          
Trade and other payables            -       101,016               -    101,016 
                                                                          
Credit facility                     -         2,132               -      2,132 
                                                                          
Cross-currency interest             -             -           2,277      2,277
rate swap                                                                      


                                                                              
                                    -       103,148           2,277    105,425


                                                                          
Non-current financial                                                         
liabilities                                                                    
                                                                          
Credit facility                     -       196,833               -    196,833 
                                                                          
Senior unsecured notes              -       344,401               -    344,401 
                                                                          
Convertible debentures              -        44,949               -     44,949 
                                                                          
Interest rate floor                 -             -           9,793      9,793 


                                                                              
                                   $-      $586,183          $9,793   $595,976
                                                                              



Financial assets and financial liabilities - classification and measurement 


                                                              Financial          
                                                          assets and          
                                                      liabilities at          
                           Cash, loans         Other      fair value          


                               and     financial  through profit          
As at December 31, 2011    receivables   liabilities         or loss     Total 
                                                                          
Current financial assets                                                       
                                                                          
Cash                           $15,706            $-              $-   $15,706 
                                                                          
Trade and other                 71,459             -               -    71,459
receivables                                                                    


                                                                              
                                87,165             -               -    87,165


                                                                          
Non-current financial                                                         
assets                                                                         
                                                                          
Interest rate cap                    -             -             254       254 


                                                                              
                                     -             -             254       254


                                                                          
Current financial                                                             
liabilities                                                                    
                                                                          
Trade and other payables             -        73,833               -    73,833 
                                                                          
Credit facility                      -         3,550               -     3,550 
                                                                          
Cross-currency interest              -             -             320       320
rate swap                                                                      


                                                                              
                                     -        77,383             320    77,703


                                                                          
Non-current financial                                                         
liabilities                                                                    
                                                                          
Credit facility                      -       421,838               -   421,838 
                                                                          
Convertible debentures               -        43,853               -    43,853 
                                                                          
Interest rate floor                  -             -          19,188    19,188 
                                                                          
Cross-currency interest              -             -           2,587     2,587
rate swap                                                                      
                                                                          
Compensation warrants                -             -           4,213     4,213 


                                                                              
                                    $-      $465,691         $25,988  $491,679
                                                                              
    

The following table outlines the Company's contractual obligations as at
December 31, 2012:


                                        Less than  One to three   Beyond three
Description                     Total     one year         years          years  


      
                                                                                


                       
Credit facility              $210,029       $2,132        $4,265       $203,632  


                                                                                    

Credit facility interest       77,652       14,849        29,244         33,559 
     
                                                                                

Senior unsecured notes        350,000            -             -        350,000 
    
                                                                                

Senior unsecured notes        262,777       32,825        65,649        164,303 



interest                                                                         


                                                                                

Convertible debentures         50,266            -        50,266              - 
          
                                                                                

Convertible debenture                                                           

interest                       15,289        5,096        10,193              -
                                                                                

Operating leases               61,823       16,410        20,256         25,157 
     
                                                                                

Finance leases                  3,587        2,051           768            768 
        
                                                                                

Deferred and contingent                                                         

consideration                  23,728        5,600        18,128              - 
          
                                                                                

Trade and other payables      101,016      101,016             -              - 
          
                                                                                

Total                      $1,156,167     $179,979      $198,769       $777,419 
                                                                                    
    Fair value of financial instruments

The book values of the Company's financial assets and financial liabilities
approximate the fair values of such items as at December 31, 2012, with the
exception of the convertible debentures. The book value of the convertible
debentures outstanding was $44,949 (2011 - $43,853) and the fair value was
$52,549 (2011 - $53,513).

The following tables present information about the Company's financial assets
and liabilities measured at fair value on a recurring basis and indicates the
fair value hierarchy of the valuation techniques used to determine such fair
values.
                                     Fair value as at December 31, 2012            
     
                                                                            
                                           Level 1      Level 2      Level 3    
                                                                              
                                            Quoted                     
                                         prices in                        
                                            active  Significant              
                                       markets for        other   Significant 


                                     identical   observable  unobservable
Description                     Total       assets       inputs        inputs    
                                                                            
Cross-currency interest      $(2,277)           $-     $(2,277)           $-
rate swap                                                                    
                                                                        
Interest rate cap                  10            -           10            - 
                                                                        
Interest rate floor           (9,793)            -      (9,793)            - 
                                                                        
Prepayment option               3,200            -        3,200            - 


                                                                            
    
                                     Fair value as at December 31, 2011         
        
                                                                            
                                           Level 1      Level 2       Level 3   
                                                                               
                                            Quoted             
                                         prices in                     
                                            active  Significant               
                                       markets for        other   Significant 


                                     identical   observable  unobservable
Description                     Total       assets       inputs        inputs    
                                                                            
Cross-currency interest      $(2,907)           $-     $(2,907)           $-
rate swap                                                                    
                                                                        
Interest rate cap                 254            -          254            - 
                                                                        
Compensation warrants         (4,213)            -      (4,213)            - 
                                                                        
Interest rate floor          (19,188)            -     (19,188)            - 
                                                                         
During the year ended December 31, 2012, there were no transfers between Level
1 and Level 2 fair value measurements, and no transfers into and out of Level 3
fair value measurements.  No transfers between any levels of the fair value
hierarchy took place in the equivalent comparative year. There were also no
changes in the purpose of any financial asset/liability that subsequently
resulted in a different classification of that asset/liability. 
25. Management of capital 
The Company's objective in managing its capital structure is to ensure a
sufficient liquidity position to finance its strategic growth plans, operating
expenses, financial obligations as they become due, working capital and capital
expenditures. The Company's capital comprises shareholders' equity, convertible
debentures, bank debt and unsecured notes. There have been no changes in the
Company's approach to capital management in the year. Total managed capital was
as follows: 


                                                           2012            2011    
       


                                                                        
Shareholders' equity                                $153,256         $74,755 
                                                                        
Convertible debentures                                44,949          43,853 
                                                                        
Credit facilities                                    210,029         453,225 
                                                                        
Senior unsecured notes                               350,000               - 


                                                                            
                                                    $758,234        $571,833
                                                                            


The Company manages its capital structure and makes adjustments to it in
accordance with its stated objectives with consideration given to changes in
economic conditions and the risk characteristics of the underlying assets.
Since inception, the Company has issued common shares, convertible debentures
and promissory notes to finance its activities. The Company has historically
not paid dividends to its shareholders and instead retains cash for future
growth and acquisitions. 


    26. Segment information


The Company reports its continuing operations in one reportable segment,
'In-store media', based on the business activity of the Company and its
subsidiaries.

In-store media

The Company provides multi-sensory in-store media and marketing solutions to a
wide range of customer-facing businesses in the retail, financial services,
hospitality, restaurant and leisure industries internationally. Revenue is
derived predominantly from the provision of audio, visual and messaging
services and the sale and lease of propriety equipment

Geographical areas

 
Revenue is derived from the following geographic areas based on where the
customer is located:
                                                             2012            2011  
         


                                                                          
US                                                   $ 263,800        $135,525 
                                                                          
Canada                                                   5,525              50 
                                                                          
International                                           89,454          80,810 
                                                                          
Netherlands                                             45,479          17,657 
                                                                          
France                                                  39,565          40,729 
                                                                          
Total revenue                                         $443,823        $274,771 
                                                                           


    Non-current assets

Non-current assets (excluding deferred tax assets) are derived from the
following geographic areas, based on the location of the individual
subsidiaries of the Company:
                                                             2012            2011  
         


                                                                          
US                                                   $ 457,957        $322,053 
                                                                          
Canada                                                   8,235               - 
                                                                          
International                                          201,535         174,523 
                                                                          
France                                                  71,315          68,837 
                                                                          
Total non-current assets                              $739,042        $565,413 
                                                                           


    


27. Discontinued operations  


During March 2012, the Company decided to dispose of MME and intends to
complete the disposal within the 12 months from March 2012. As at December 31,
2012, MME remained as classified as a disposal group held for sale and as a
discontinued operation. The results of MME are presented below:
                                                           2012             2011   
         


                                                                         
Revenue                                              $29,747          $55,689 
                                                                         
Expenses                                              49,605           58,417 
                                                                         
Operating loss                                      (19,858)          (2,728) 
                                                                         
Impairment of goodwill and long-lived assets          33,495                - 
                                                                         
Loss before taxes from discontinued                 (53,353)          (2,728)
operations                                                                    
                                                                         
Income tax charge                                        714            4,916 
                                                                         
Loss after taxes from discontinued                 $(54,067)         $(7,644)
operations                                                                    


                                                                             
                                                                             
                                                                             


The major classes of assets and liabilities of MME classified as held for sale
as at December 31, 2012 are as follows: 
ASSETS                                                                          
                                                                           
Trade and other receivables                                              $9,386 
                                                                           
Inventories                                                               5,679 
                                                                           
Prepaid expenses                                                            702 
                                                                           
Assets classified as held for sale                                      $15,767 


                                                                               
                                                                               


                                                                           
LIABILITIES                                                                     
                                                                           
Trade and other payables                                                 $9,519 
                                                                           
Deferred revenue                                                            126 
                                                                           
Liabilities directly associated with assets classified as held                 
for sale                                                                 $9,645 
                                                                            
During the year ended December 31, 2012, the Company determined that MME was a
discontinued operation and wrote off goodwill of $4,845, intangible assets of
$16,871 and property and equipment of $11,779. 
The net cash flows incurred by MME are as follows: 
                                                 2012            2011           
                                                                            
Operating activities                          $(11,076)         $1,236          
                                                                          
Investing activities                            (3,200)         (6,479)         
                                                                          
Net cash outflow                              $(14,276)        $(5,243)        


                                                                              
    MME is no longer disclosed as a separate reportable segment in note 26.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 


                                  

The following management's discussion and analysis of financial condition and
results of operations, dated March 27, 2013 of Mood Media Corporation ("Mood
Media" or the "Company") should be read together with the attached audited
consolidated financial statements and related notes for the year ended December
31, 2012, the audited consolidated financial statements and the related notes
for the year ended December 31, 2011, and the Company's annual information form
(the "AIF"). Additional information related to the Company, including the
Company's AIF, can be found on SEDAR at www.sedar.com .  Please also refer to
the risk factors identified in the Company's AIF. The fiscal year of the
Company ends on December 31. The Company's reporting currency is the US dollar
and, unless otherwise noted, all amounts (including in the narrative) are in
thousands of US dollars except for shares and per-share amounts. Per share
amounts are calculated using the weighted average number of shares outstanding
for the year ended December 31, 2012.


This discussion contains forward-looking statements. Please see
"Forward-Looking Statements" for a discussion of the risks, uncertainties and
assumptions relating to these statements.

As used in this management's discussion and analysis of financial condition and
results of operation, the terms the "Company", "we", "us", "our" or other
similar terms refer to Mood Media and its consolidated subsidiaries.  

Overview

We are a leading global provider of in-store audio, visual and scent media and
marketing solutions in North America and Europe to more than 570,000 commercial
locations across a broad range of industries including retail, food retail,
financial services and hospitality. We believe we benefit from economies of
scope and scale, generating revenue from multiple product and service offerings
across 41 countries. Our acquisitive growth history has allowed us to
substantially broaden our geographic footprint and significantly strengthen our
product and service offerings. Our strategy of combining audio, visual and
scent media has helped our clients enhance their branding, drive impulse
purchases of their products and improve the shopping experience for their
customers. We believe that the breadth and depth of our customizable offerings
and the quality of our customer service has helped make us the preferred media
and marketing solutions provider to more than 850 North American and
international brands. We believe that we are viewed as an established
distribution network by music producers, performance rights organizations and
third-party advertisers.

In-store audio, visual and scent media and marketing solutions create a
communication channel between our clients' brand and their customers at the
point-of-purchase. By enhancing the brand experience of our clients' consumers
and establishing an emotional connection between our clients and their
consumers, these products and services can have a direct impact on consumer
purchasing decisions. We can tailor both our media's content and delivery by
scheduling specific content to be delivered at a specific time in order to
target a specific audience. Our media is broadcast through customizable
technology systems, supported by ongoing maintenance and technical support and
integrated into our clients' existing IT infrastructure. The tailored content
we deliver eliminates the need for our clients to select their own, often
repetitive, background media.

Our common shares are listed on the Toronto Stock Exchange ("TSX") and the
AIM Market of the London Stock Exchange ("AIM") under the trading symbol
"MM" and our 10% convertible unsecured subordinated debentures are listed on
the TSX under the trading symbol "MM.DB.U."

We started as a Canadian private-label music aggregation and distribution
company called Fluid Music Canada. In October 2007, we acquired Trusonic, Inc.,
now Mood Media North America, Ltd. ("MMNA"). MMNA, founded in 1999, was a
spin-off of MP3.com's in-store media assets, which included a non-exclusive
license to a library of approximately 1.5 million "rights-included" tracks
produced by independent artists, proprietary technology (the mBox), and
software to deploy the same to client locations.

In November 2009, we acquired Somerset Entertainment ltd, now Mood Media
Entertainment Ltd, following its name change in September 2011 ("Mood
Entertainment"). Mood Entertainment is the leading North American producer and
distributor of specialty music sold through non-traditional retailers using
proprietary interactive displays. As of March 31, 2012, we have discontinued
Mood Entertainment operations and as at December 31, 2012 Mood Entertainment
remained classified as a disposal held for sale and as a discontinued
operation.

In June 2010, we completed our acquisition of Mood Media Group S.A. Prior to
the acquisition, Mood Media Group S.A. was privately held with its head office
located in Luxembourg. It was built through a merger between three in-store
media providers: Mood Media International, DMX Music International (DMX Music
PTY Limited), and Alcas Holdings B.V. Our acquisition of Mood Media Group S.A.
was our largest acquisition at the time of the transaction.

Recent Acquisitions

In February 2011, we acquired Pelika Business Music ("Pelika"). Pelika, a
privately-held company based predominantly in Finland, was one of Northern
Europe's largest digital music providers specializing in business environment
background music. The acquisition of Pelika strengthened our position as an
in-store digital media provider in Europe, especially in the hospitality sector
due to the addition of bar and restaurant products to our portfolio.

In May 2011, we acquired Muzak Holdings LLC ("Muzak"), a leading provider of
in-store audio and visual media in the United States. The total consideration
of approximately $341,500 (consisting of cash, convertible debentures,
warrants, and additional cash earn-out consideration to be paid over three
years following the closing of the acquisition in the event we achieve certain
minimum EBITDA targets during such period) of which $305,000 was used to repay
loans due to former Muzak shareholders and debtholders. Muzak covers
approximately 300,000 locations in the United States with 101 franchisees
serving over 100,000 locations.

In March 2012, we acquired 100% of the issued and outstanding shares of DMX
Holdings Inc. ("DMX"), a privately-held company that provides multi-sensory
branding services to over 100,000 locations in the United States for total
consideration of $82,732 of which $32,267 was used to repay loans due to former
DMX debtholders. In connection with the closing of the DMX acquisition, we
completed a private placement of 31,800,000 common shares at a subscription
price of CAD$3.60 per common share.

In May 2012, we acquired 100% of the issued and outstanding shares of the
following private entities: Aplusk B.V., BIS Bedrijfs Informatie Systemen B.V.,
BIS Business Information Systems N.V., Avimotion Holding B.V. and BIS
Elecktrotechniek B.V. (collectively, "BIS") for total consideration of
approximately $28,121. BIS, based primarily in the Netherlands, specializes in
the design, installation, and supply of conference systems and digital signage
solutions to private and public sector organizations in the Benelux region.

In October 2012, Muzak, a subsidiary of the Company, acquired the assets of
Independent Communications Inc. ("ICI") one of its largest franchisees for a
cash consideration of $27,894. Of the cash consideration 80% was payable on
closing with the remaining 20% payable on the twelve month anniversary of
closing, subject to certain post-closing purchase price adjustments. ICI offers
a range of in-store audio, visual and scent solutions and operates in the U.S.
mid-Atlantic region.

In December 2012, the Company acquired 100% of the issued and outstanding
shares of the following private entities: Technomedia NY, LLC, Technomedia
Solutions, LLC, ServiceNET Exp, LLC, Convergence, LLC, (collectively the
Technomedia Group ("Technomedia")). Technomedia are premier providers of the
world's most advanced media and technology innovations for multiple industries,
including retail, hospitality, theme parks, performing arts, museums, special
venue, education and others. Technomedia brings a total turn-key model to
create compelling consumer destinations for a diverse range of customers, which
include international fashion labels as well as leading entertainment and
education clients globally. Technomedia is based in Orlando, Florida, and has
offices located throughout the United States and in the United Kingdom.  

Discontinued Operation

Mood Entertainment is a leading producer and distributor of specialty music
compact discs (CDs) and digital video discs (DVDs) sold to retailers and
distributors through interactive displays throughout the United States, Canada
and internationally.

During March 2012, we decided to dispose of Mood Entertainment since the retail
point-of-purchase division no longer forms part of our core focus. We intend to
complete the sale of Mood Entertainment within the near term. As a result Mood
Entertainment has been presented as a discontinued operation in our
consolidated financial statements.


Summary of Quarterly Results

The following table presents a summary of our unaudited operating results on a
quarterly basis. The financial information is presented in accordance with
International Financial Reporting Standards ("IFRS"). The quarterly results
have been prepared to show the results for Mood Entertainment classified as a
discontinued
operation.                                                                      
                                               
                                                               
                            Reclassified                                        
       
                      (Loss) income for the period                              
                       attributable to owners of the                              
           Revenue             parent                   Basic and diluted EPS  
                                                                                


    Continuing  Continuing Discontinued            Continuing Discontinued
Period  operations  operations   operations     Total  operations   operations   


                                                                                

Q4 -      $131,946   $(14,088)    $(13,203)  $(27,291)    $(0.08)      $(0.08)  
    2012(6,7)                                                                       
                                                                                   

Q3 -       119,951     (5,967)      (4,848)   (10,815)     (0.03)       (0.03)  



2012(5)                                                                          
                                                                                
Q2 -       107,844     (7,170)     (23,763)   (30,933)     (0.04)       (0.14)   

2012(3,4)                                                                        


                                                                                   

Q1 - 2012   84,082      1,790      (12,253)   (10,463)      0.01        (0.09)  
    
                                                                                

Q4 - 2011   87,676     (7,582)         (23)    (7,605)     (0.06)       (0.00)  
                                                                                    
    Q3 -        87,047    (11,136)      (1,904)   (13,040)     (0.09)       (0.01)  


  
2011(1)                                         
                                                                             
Q2 -        66,755    (28,346)      (3,311)   (31,657)     (0.23)       (0.02)   

2011(1,2)                                       


                                                                                

Q1 - 2011   33,293     (5,243)      (2,406)    (7,649)     (0.04)       (0.02)  
    
                                                                                


1. The significant increase in revenue is the result of the acquisitionof Muzak 
in May 2011. 
2. The significant total loss for the period attributable to owners of
the parent is as a result of costs associated with the settlement of the
previous finance facilities and costs relating to the acquisition of Muzak in
May 2011. 
3. The significant increase in revenue is the result of the acquisition
of DMX in March 2012. 
4. The significant total loss for the period attributed to owners of the
parent is as a result of impairment charges booked in respect of the
discontinued operation. 
5. The significant increase in revenue is the result of the BIS
acquisition in May 2012. 
6. The significant increase in revenue is primarily attributable to the
acquisition of ICI in October 2012. 
7. The significant loss for the period attributable to the owners of the
parent, is the result of the costs associated with the raising of the unsecured
notes and subsequent repayment of part of the credit facilities, and
restructuring and integration costs incurred in the period. 


    Selected Financial Information                    
                                    Three months           Year ended              
     
                                     ended                                      
    
                                                                              
                               December  December  December  December  December 
                               31, 2012  31, 2011  31, 2012  31, 2011  31, 2010 


                                                                          
Continuing operations                                                          


                                                                              
                                                                              


                                                                          
Revenue                        $131,946   $87,676  $443,823  $274,771  $79,009   
                                                                          
Expenses:                                                                      
                                                                          
 Cost of sales (excludes                                                
 depreciation and amortization)  61,045    29,263   183,759    95,091   24,220   
     
                                                                          
 Operating expenses              42,924    29,998   148,404    96,967   32,642   
                                                                            
 Depreciation and amortization   17,839    13,764    57,856    42,047   10,164   
                                                                            
 Share-based compensation           866     1,215     3,758     3,175      732   
                                                                          
 Other expenses                  15,444     3,699    39,812    22,790   14,601   
                                                                            
 Foreign exchange (gain) loss                                           
 on financing transactions       (4,195)    6,519   (1,428)     5,067   (8,153)  
                                                                          
 Finance costs, net               9,529     8,408    51,045    61,350   28,481   
                                                                            
Loss for the period before                                            
taxes                          (11,506)   (5,190)  (39,383)  (51,716)  (23,678)  


        
                                                                              
                                                                              


                                                                          
Income tax charge (credit)       2,438     2,391   (14,219)      545    (2,063)  
                                                                            
Loss for the year from                                                        
continuing operations         (13,944)   (7,581)   (25,164)  (52,261)  (21,615)  


                                                                              
                                                                              


                                                                          
Discontinued operations                                                        


                                                                              
                                                                              


                                                                          
Profit (loss) after tax from                                               
discontinued operations      (13,203)      (23)    (54,067)   (7,644)       22   


                                                                                  
                                                                              


                                                                          
Loss for the year            (27,147)   (7,604)    (79,231)  (59,905)  (21,593)  


                                                                              
                                                                              


                                                                          
Attributable to:                                                               
                                                                          
 Owners of the parent        (27,291)   (7,605)    (79,502)  (59,951)  (21,706)  
                                                                          
 Non-controlling interests       144         1         271        46       113   


    
                                                                              
                             (27,147)  $(7,604)    (79,231) $(59,905) $(21,593)


                                                                          
Net earnings (loss) per share:                                                 
                                                                          
 Basic and diluted            $(0.16)   $(0.06)     $(0.50)   $(0.48)   $(0.24)  
                                                                            
 Basic and diluted from                                                 
 continuing operations         (0.08)    (0.06)      (0.16)    (0.42)    (0.24)  
      
                                                                          
 Basic and diluted from                                              
 discontinued operations       (0.08)     0.00       (0.34)    (0.06)     0.00   


               
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                        December 31,  December 31,  December 31, 
                                            2012          2011          2010    
     


                                                                         
Total assets                            $947,781      $722,109      $367,347     
                                                                             
Total non-current liabilities            657,320       548,801       191,331     


                                                                                  


Operating Results

Three months ended December 31, 2012 compared with the three months ended
December 31, 2011

Revenue from continuing operations

We report our continuing operations as one reportable segment, "In-Store
Media."

 
Revenue for the three months ended December 31, 2012 and December 31, 2011 from
continuing operations were as follows:
                             3 months ended      3 months ended                    
                       December 31, 2012   December 31, 2011          % Change


                                                                           
In-Store Media                  $131,946             $87,676             50.5% 
                                                                            


           

Revenue is primarily derived from recurring monthly subscription fees for
providing customized and tailored music, visual displays and messages through
contracts ranging from 3-5 years. Revenue is also derived from equipment and
installation fees. In-store media revenues increased by $44,270 for the three
months ended December 31, 2012 compared to the three months ended December 31,
2011, primarily as a result of the acquisition of DMX in March 2012, BIS in May
2012 and ICI in October 2012. Revenues from the rendering of services, which
are primarily subscription revenues, rose by $7,505 to $88,820, which is
attributable to acquisitions and subscriber growth. Our equipment revenues rose
by $35,938 to $41,980 which is attributable to higher sales primarily of visual
equipment as a result of the acquisition of BIS in May 2012.  

Cost of sales from continuing operations

Cost of sales were $61,045 for the three months ended December 31, 2012, an
increase of $31,782 compared to $29,263 for the three months ended December 31,
2011. Cost of sales as a percentage of revenue for the three months ended
December 31, 2012 was 46.3%, compared with 33.4% for the three months ended
December 31, 2011.The increase is due to the fact we generated a greater
proportion of equipment sales, primarily as a result of the acquisition of BIS
in May 2012, which typically have a lower gross margin than our recurring
revenues.

Operating expenses from continuing operations

Operating expenses were $42,924 for the three months ended December 31, 2012,
an increase of $12,926 compared with $29,998 for the three months ended
December 31, 2011. The increase is primarily as a result of the acquisition of
DMX in March 2012, BIS in May 2012 and ICI in October 2012.

Depreciation and amortization from continuing operations

Depreciation and amortization was $17,839 for the three months ended December
31, 2012; an increase of $4,075, compared with $13,764 for the three months
ended December 31, 2011. The increase is primarily due to the addition of
depreciation of the property and equipment acquired with DMX, BIS and ICI and
amortization of intangibles assets that were recorded when they were acquired.

 
Share-based compensation from continuing operations

Share-based compensation expense was $866 for the three months ended December
31, 2012; a decrease of $349 compared with $1,215 for the three months ended
December 31, 2011.  The decrease is due to forfeitures of unvested share
options in the quarter although this is partly offset by new options that were
granted in June 2012, November 2012 and December 2012.

 
Other expenses from continuing operations

Other expenses were $15,444 for the three months ended December 31, 2012
compared to $3,699 for the three months ended December 31, 2011. Other expenses
included $5,742 for transaction expenses related to the acquisitions of ICI and
Technomedia. Other expenses also included $9,492 in restructuring and
integration costs related to the implementation of operational re-organization
and improvements primarily in our North American business following the
acquisition of DMX in March 2012, which management are confident will lead to
operational and financial synergies going forward. These expenses primarily
relate to employee severances. Other expenses in 2011 relate to transaction
costs and restructuring costs incurred as a result of the integration of the
Muzak business.

Financing costs, net from continuing operations

Financing costs, net were $9,529 for the three months ended December 31, 2012
compared with $8,408 for the three months ended December 31, 2011.  The
increase was due to a change in the fair value of the interest rate floor
associated with the settled credit facilities and the contingent consideration
associated with acquisition of Muzak. These are offset by a charge relating to
the partial settlement of the credit facilities.

Income tax from continuing operations

There was an income tax charge of $2,438 for the three months ended December
31, 2012 compared to $2,391 for the three months ended December 31, 2011. The
decrease has arisen primarily as a result of deferred tax movements in the
period.
    Year ended December 31, 2012 compared with the year ended December 31, 2011
    Revenue from continuing operations

Revenue for the year ended December 31, 2012 and December 31, 2011, from
continuing operations were as follows:
                    Year ended December 31,   Year ended December 31,            
                                   2012                      2011   % Change  


                                                                           
In-Store Media                 $443,823                  $274,771      61.5%     
                                                                              
Revenue is primarily derived from recurring monthly subscription fees for
providing customized and tailored music, visual displays and messages through
contracts ranging from 3-5 years. Revenue is also derived from equipment and
installation fees. In-Store Media revenues increased by $169,052 for the year
ended December 31, 2012 compared with the year ended December 31, 2011,
primarily as a result of the acquisition of BIS in May 2012, DMX in March 2012,
ICI in October 2012 and the full year results of Muzak, which was acquired in
May 2011. Revenues from the rendering of services, which are primarily
subscription revenues, rose by $102,899 to $328,979, which is attributable to
acquisitions and subscriber growth. Our equipment revenues rose by $65,877 to
$111,172 which is attributable to higher sales primarily of visual equipment as
a result of the acquisition of BIS in May 2012.   
Cost of sales from continuing operations 
Cost of sales were $183,759 for the year ended December 31, 2012; an increase
of $88,668 compared to $95,091 for the year ended December 31, 2011. Cost of
sales as a percentage of revenue for the year ended December 31, 2012 was
41.4%, compared with 34.6% for the year ended December 31, 2011. The increase
is a result of a greater proportion of equipment sales, primarily as a result
of the acquisition of BIS, which have a lower gross margin. 
Operating expenses from continuing operations 
Operating expenses were $148,404 for the year ended December 31, 2012; an
increase of $51,437 compared with $96,967 for the year ended December 31, 2011.
The increase was primarily as a result of the acquisitions of BIS in May 2012,
DMX in March 2012, ICI in October 2012 and the inclusion of a full year of
results for Muzak, which was acquired in May 2011. 
Depreciation and amortization from continuing operations 
Depreciation and amortization was $57,856 for the year ended December 31, 2012;
an increase of $15,809 compared with $42,047 for the year ended December 31,
2011. The increase was primarily due to the addition of depreciation on the
property and equipment acquired with DMX, BIS and ICI and a full year of
depreciation related to Muzak. Intangible assets were recorded as part of the
acquisitions of DMX, BIS, ICI and Technomedia, which have driven the increase
in amortization along with the full year impact of Muzak amortization. 
Share-based compensation from continuing operations 
Share-based compensation expense was $3,758 for the year ended December 31,
2012; an increase of $583 compared with $3,175 for the year ended December 31,
2011.  This increase is as a result of the charge in respect of the new share
options granted in June 2012, November 2012 and December 2012. 
Other expenses from continuing operations 
Other expenses were $39,812 for the year ended December 31, 2012 compared to
$22,790 for the year ended December 31, 2011. Other expenses included $5,742
for transaction expenses related to the acquisitions of ICI and Technomedia.
Other expenses also included $9,492 in restructuring and integration costs
related to the implementation of operational re-organization and improvements
primarily in our North American business following the acquisition of DMX in
March 2012, which management are confident will lead to operational and
financial synergies going forward. These expenses primarily relate to employee
severances. Other expenses in 2011 relate to transaction costs and
restructuring costs incurred as a result of the integration of the Muzak
business. 
Financing costs, net from continuing operations 
Financing costs, net were $51,045 for the year ended December 31, 2012 compared
with $61,350 for the year ended December 31, 2011.  The decrease is primarily
due to the decrease in the fair value of the interest rate floor associated
with the partial settlement of the credit facilities. 
Income tax from continuing operations 
There was an income tax credit of $14,219 for the year ended December 31, 2012,
compared to a charge of $545 for the year ended December 31, 2011. This
increased credit arose primarily as a result of a deferred tax asset that was
set up to recognize the benefit of prior years' tax losses as a result of the
DMX acquisition. 
Loss after tax from discontinued operations 
The loss after tax from discontinued operations was $54,067 for the year ended
December 31, 2012 an increase of $46,423 compared to a loss of $7,644 for the
year ended December 31, 2012. The increase was primarily a result of the
impairment of goodwill, tangible and intangible assets of Mood Media
Entertainment. 
Non-controlling interest from continuing operations 
A charge of $271 representing the element of profit of subsidiaries where the
Company does not own 100% of the share capital has been taken in the year ended
December 31, 2012 compared to $46 in the year ended December 31, 2011. 
Total assets 
Total assets were $947,781 as at December 31, 2012 compared to $722,109 as at
December 31, 2011. The increase of $217,990 is largely due to the intangible
assets and goodwill recognized on the acquisition of DMX, BIS and ICI. 
Non-current liabilities 
Long term liabilities were $657,320 as at December 31, 2012 compared to
$548,801 as at December 31, 2011.  The increase of $108,519 is largely due to
an increase in long term debt following the offering of $350,000 of aggregate
principle amounts of senior unsecured notes although this is offset by a
repayment of $140,000 of the Company's first lien term loan and $100,000 of the
second lien term loan. 
Liquidity and Capital Resources 
Three months ended December 31, 2012, compared with the three months ended
December 31, 2011 
During the three months ended December 31, 2012, cash increased by $33,304. 
Cash generated from operating activities for the three months ended December
31, 2012 was $14,194 compared with $17,959 in the three months ended December
31, 2011. The decrease in cash generated from operating activities was driven
by investment in working capital and growth of the business. 
Cash used in investing activities for the three months ended December 31, 2012
was $58,982 compared with $7,660 in the three months ended December 31, 2011.
The increase is primarily the result of the acquisitions of ICI and
Technomedia. 
Cash generated from financing activities for the three months ended December 31
2012 was $78,099 compared to cash used of $12,643 in the three months ended
December 31, 2011. The increase is primarily due to the net impact of proceeds
from the issue of senior unsecured notes and partial repayment of the credit
facilities. 
Year ended December 31, 2012, compared with the year ended December 31, 2011 
During the year ended December 31, 2012, cash increased by $30,678. 
Cash generated from operating activities for the year ended December 31, 2012
was $21,220 compared with $46,426 in the year ended December 31, 2011. The
decrease in cash generated from operating activities was driven by investment
in working capital, particularly within the newly acquired entities, and growth
of the visual business. 
Cash used in investing activities for the year ended December 31, 2012 was
$158,162 compared with $31,777 in the year ended December 31, 2011. The primary
driver for the increase was the acquisitions of DMX, BIS, ICI and Technomedia.
The cash used in investing activities for the year ended December 31, 2011
primarily related to the purchase of equipment. There was no cash paid as
consideration for the Muzak acquisition, other than the amounts paid to former
debtholders and shareholders which is classified within financing activities. 
Cash generated from financing activities for the year ended December 31, 2012
was $167,607 compared to cash used of $5,957 in the year ended December 31,
2011. The increase is explained by funds raised from the issue of senior
unsecured notes and the placement of shares although this is offset by the
partial repayment of credit facilities. In the year ended December 31, 2011
amounts were paid to former Muzak shareholders and debtholders to settle the
previous debt facilities, although these movements were partially offset by
proceeds from the credit facilities. 
As at December 31, 2012, the Company had cash of $46,384 and undrawn lines of
credit of $21,600. Management believes that the Company has sufficient
liquidity as a result of having strong cash reserves and the ability to draw
down on revolving credit facilities to meet its working capital and capital
expenditure needs for the forthcoming year. 
Contractual obligations 
The following chart outlines the Company's contractual obligations as at
December 31, 2012: 
                                                      One to    Four to     
Beyond     
                                     Less than      three       five       
five
Description                       Total   one year      years      years      
years 
                                                                             
Credit facility                $210,029     $2,132     $4,265     $4,265   
$199,367 
                                                                             
Credit facility interest         77,652     14,849     29,244     28,679      
4,880 
                                                                             
Senior unsecured notes          350,000          -          -          -    
350,000 
                                                                             
Senior unsecured notes         
interest                        262,777     32,825     65,649     65,739     
98,564 
                                                                             
Convertible debentures           50,266          -     50,266          -        
  - 
                                                                             
Convertible debenture                                                           
  -         
interest                         15,289     5,096      10,193          -         


            
                                                                                


Operating leases                 61,823    16,410      20,256     20,256      
4,901      
                                                                             
Finance leases                    3,587     2,051         768        768        
  - 
                                                                             
Deferred and contingent                                                         
  -
consideration                    23,728     5,600      18,128          -         
                                                                                 
Trade and other payables        101,016   101,016           -          -        
  - 
                                                                             
Total                        $1,156,167  $179,979    $198,769   $119,707   
$657,712 
                                                                             
As part of the consideration for the Muzak acquisition, a maximum of $30,000 in
cash may be paid over the three years following closing in the event that the
Company achieves certain minimum EBITDA targets. 
The consideration for the acquisition of ICI contains deferred consideration of
$5,600, to be paid in 2013. 
Bank debt 
In connection with the acquisition of Muzak on May 6 2011, we entered into
credit facilities with Credit Suisse AG ("Credit Suisse"), as agent,
consisting of a $20,000 5-year revolving credit facility (the "First Lien
Revolving Credit Facility"), a $355,000 7-year first lien term loan (the
"First Lien Term Facility" and together with the First Lien Revolving Credit
Facility, the "First Lien Facilities") and a $100,000 7.5-year second lien
term loan (the "Second Lien Facility", and together with the First Lien
Facilities, the "Credit Facilities"). The First Lien Revolving Credit
Facility matures on May 6, 2016, the First Lien Term Facility matures on May 6,
2018 and the Second Lien Facility matured on November 6, 2018. 
On October 19, 2012, the Company closed its offering of $350,000 aggregate
principal amount of senior unsecured notes (the "Notes") by way of private
placement. The Notes are due October 15, 2020 and bear interest at an annual
rate of 9.25%. We have used the net proceeds of the Notes to repay $140,000 of
the first lien term facility and the second lien facility in its entirety. 
In connection with the Notes, amendments were made to the Company's existing
First Lien Credit Facility.  The First Lien Credit Facility was amended to,
among other things: (i) permit the incurrence of the debt represented by the
Notes; (ii) revise the financial maintenance covenants contained therein,
including, removing the maximum total leverage ratio financial maintenance
covenant, adding a maximum senior secured leverage ratio financial maintenance
covenant, reducing the minimum interest coverage ratio financial maintenance
covenant and providing for customary equity cure rights related to financial
maintenance compliance; and (iii) increase the size of the Company's First Lien
Revolving Credit Facility from $20,000 to $25,000. 
Following the repayments to the credit facilities the first lien term loan is
repayable at $533 a quarter, with the remainder repayable on maturity. Interest
on the first lien loan accrues at a rate of adjusted LIBOR plus 5.50% per annum
or the alternate base rate plus 4.50% per annum, as applicable. 
Convertible debentures 
On October 1, 2010, we issued convertible unsecured subordinated debentures
(the "Original Debentures") with a principal amount of $31,690. As part of
the transaction, we also issued an additional $1,078 in Original Debentures,
for a total of $32,768 aggregate principal amount of Original Debentures, as
partial payment of the underwriter's fee. The Original Debentures have a
conversion price of $2.43 per common share. $646 of Original Debentures were
converted during 2011, resulting in the issuance of 265,843 common shares.
There are a maximum of 13,218,930 of our common shares issuable upon conversion
of the remaining Original Debentures. 
On May 6, 2011, we issued convertible unsecured subordinated debentures (the
"Muzak Debentures") with a principal amount of $5,000 as part of the
consideration for the Muzak acquisition. The Muzak Debentures have a conversion
price of $2.43 per common share. $364 of the Muzak debentures were converted
during 2012, resulting in the issues of 146,500 common shares. There are a
maximum of 1,911,113 of our common shares issuable upon conversion of the
remaining Muzak Debentures. 
On May 27, 2011, we completed a private placement of convertible unsecured
subordinated debentures (the "New Debentures" and together with the Original
Debentures and the Muzak Debentures, the "Convertible Debentures") with a
principal amount of $13,500. The New Debentures were issued for a subscription
price of $0.9875 per $1 principal amount, resulting in gross proceeds of
$13,331. The New Debentures have a conversion price of $2.80 per common share.
There are a maximum of 4,821,429 of our common shares issuable upon conversion
of the New Debentures. 
Trade and other payables 
Trade and other payables arise in the normal course of business and are to be
settled within one year of the end of the reporting period. 
Lease commitments                                                                


                                    

Operating leases and finance leases are entered into primarily for the rental
of premises and vehicles used for business activities.

Capitalization

As at December 31, 2012 our capital structure included shareholders' equity in
the amount of $151,456. Our outstanding debt as at that date included
convertible debentures of $44,949 and bank debt of $198,965 and unsecured notes
of $341,281. As at December 31, 2011 our capital structure included
shareholders' equity in the amount of $74,755. Our outstanding debt as at that
date included convertible debentures of $43,853 and long-term bank debt of
$425,388.

During the year ended December 31, 2012, the number of our outstanding common
shares increased from 127,937,063 as at January 1, 2012 to 171,639,563 due to
the issuance of 867,000 common shares from the exercise of stock options, the
private placement issuance of 38,589,000 common shares to finance the
acquisitions of DMX and BIS, the issuance of 4,100,000 common shares as a
result of the exercise of the compensation warrants and the 146,500 common
shares issued as a result of the conversion of the convertible debentures.

On June 7, 2012, 930,000 share options were granted with an exercise price of
CDN$3.01.

On November 9, 2012 200,000 share options were granted with an exercise price
of CDN$2.24.

On December 6, 2012, 625,000 share options were granted with an exercise price
of CDN$1.71.


The following table provides additional share information (in thousands of
shares) on a fully diluted basis:
                     Outstanding as at March 27,  Outstanding as at December 31, 
                                        2013                            2012    
                 


                                                                             
Common shares                        171,640                         171,640     
               
                                                                             
Share options                         15,466                          15,466     
                
                                                                             
Warrants                               4,408                           4,408     
                 
                                                                             
Convertible                                            
debentures                            19,951                          19,951     
          
                                                                             
Risk management 
The Company is exposed to a variety of financial risks including market risk
(including foreign exchange and interest rate risks), liquidity risk and credit
risk. The Company's overall risk management program focuses on the
unpredictability of financial markets and seeks to minimize potential adverse
effects on the Company's financial performance. 
Foreign currency exchange risk 
The Company operates in the US, Canada and internationally. The functional
currency of the Company is US dollars and a significant number of the Company's
transactions are recorded in Canadian dollars and Euros. Foreign currency
exchange risk arises because the amount of the local currency income, expenses,
cash flows, receivables and payables for transactions denominated in foreign
currencies may vary due to changes in exchange rates ("transaction exposures")
and because the non-US denominated financial statements of the Company's
subsidiaries may vary on consolidation into US dollars ("translation
exposures"). 
The most significant translation exposure arises from the Euro currency. The
Company is required to revalue the Euro denominated net assets of the European
subsidiaries at the end of each period with the foreign currency translation
gain or loss recorded in other comprehensive income. The Company does not
currently hedge translation exposures. Since the financial statements of Muzak,
DMX, ICI and Technomedia are denominated in US dollars, the risk associated
with translation exposures has reduced following the acquisitions.  
The most significant transaction exposure arises as a result of a significant
level of US dollar transactions occurring within the Canadian operations. 
Interest rate risk 
The Company's interest rate risk arises on a debt drawn under the Credit
Facilities, which bear interest at a floating rate. However the level of
interest rate risk is mitigated by the fact that the Credit Facilities carry an
interest rate floor which currently exceeds LIBOR. The interest rate floor is
treated for accounting purposes as a non-cash liability which is disclosed
within other financial liabilities in the consolidated statement of financial
position. The Company also purchased an interest rate cap in 2011 to protect
against increasing LIBOR rates and this asset is recorded within other
non-current assets in the consolidated statement of financial position. The
fair value of these instruments is determined by reference to mark to market
valuations performed by financial institutions at each reporting date and any
changes in fair value are recorded within finance costs within the consolidated
statements of income. The total change in fair value for the year ended
December 31, 2012 was a gain of $9,151. 
Liquidity risk 
Liquidity risk arises through excess of financial obligations over available
financial assets due at any point in time. The Company's objective in managing
liquidity risk is to maintain sufficient readily available reserves in order to
meet its liquidity requirements at any point in time. The Company achieves this
by maintaining sufficient cash and through the availability of funding from the
committed Credit Facilities. 
Credit risk 
Credit risk arises from cash held with banks and credit exposure to customers
on outstanding accounts receivable balances. The maximum exposure to credit
risk is equal to the carrying value of the financial assets. The objective of
managing counterparty credit risk is to prevent losses in financial assets. The
Company assesses the credit quality of the counterparties, taking into account
their financial position, past experience and other factors. Management also
monitors payment performance and the utilization of credit limits of customers. 
Critical Accounting Estimates 
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Company based its assumptions
and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances
arising beyond the control of the Company. Such changes are reflected in the
assumptions when they occur. 
Share-based compensation 
The Company measures the cost of equity-settled transactions with employees by
reference to the fair value of the equity instruments at the date at which they
are granted. Estimating fair value for share-based compensation transactions
requires determining the most appropriate valuation model, which is dependent
on the terms and conditions of the grant. This estimate also requires
determining the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield and making
assumptions about them. The assumptions and models used for estimating fair
value for share-based compensation transactions are disclosed in note 22 of the
Company's annual financial statements. 
Fair value measurement of contingent consideration 
Contingent consideration, resulting from business combinations, is valued at
fair value at the acquisition date as part of the business combination. When
the contingent consideration meets the definition of a derivative and, thus, a
financial liability, it is subsequently remeasured to fair value at each
reporting date. The determination of the fair value is based on discounted cash
flows. The key assumptions take into consideration the probability of meeting
each performance target and the discount factor. 
Fair value of financial instruments 
When the fair value of financial assets and financial liabilities recorded in
the consolidated statements of financial position cannot be derived from active
markets, their fair value is determined using valuation techniques including
the discounted cash flow model. The inputs to these models are taken from
observable markets where possible, but where this is not feasible, a degree of
judgment is required in establishing fair values. The judgments include
consideration of inputs such as liquidity risk, credit risk and volatility.
Changes in assumptions about these factors could affect the reported fair value
of financial instruments. 
Income taxes 
Tax regulations and legislation and the interpretations thereof in the various
jurisdictions in which the Company operates are subject to change. As such,
income taxes are subject to measurement uncertainty. Deferred tax assets are
recognized to the extent that it is probable that the deductible temporary
differences will be recoverable in future periods. The recoverability
assessment involves a significant amount of estimation including: an evaluation
of when the temporary differences will reverse, an analysis of the amount of
future taxable earnings, the availability of cash flow to offset the tax assets
when the reversal occurs and the application of tax laws. To the extent that
the assumptions used in the recoverability assessment change, there may be a
significant impact on the consolidated financial statements of future periods. 
Contingencies 
Contingencies, by their nature, are subject to measurement uncertainty as the
financial impact will only be confirmed by the outcome of a future event. The
assessment of contingencies involves a significant amount of judgment including
assessing whether a present obligation exists and providing a reliable estimate
of the amount of cash outflow required in settling the obligation. The
uncertainty involved with the timing and amount at which a contingency will be
settled may have a material impact on the consolidated financial statements of
future periods to the extent that the amount provided for differs from the
actual outcome. 
Inventory obsolescence 
The Company's obsolescence provision is determined at each reporting period and
the changes recorded in the consolidated statements of income (loss). This
calculation requires the use of estimates and forecasts of future sales.
Qualitative factors, including market presence and trends, strength of customer
relationships, as well as other factors, are considered when making assumptions
with regard to recoverability. A change in any of the significant assumptions
or estimates used could result in a material change to the provision. 
Sales returns accrual 
The sales return accrual is determined at each reporting period and the changes
recorded as a reduction of revenue in the consolidated statements of income
(loss) and as a reduction of trade and other receivables in the consolidated
statements of financial position. The calculation uses historical return rates
for customers or groups of customers. As historical return rates may differ
from future return rates, actual returns may differ from the estimated accrual. 
Property and equipment 
The Company has estimated the useful lives of the components of all of its
property and equipment based on past experience and industry norms, and is
depreciating these assets over their estimated useful lives. Management
assesses these estimates on a periodic basis and makes adjustments when
appropriate. Rental equipment installed at customer premises includes costs
directly attributable to the installation process. Judgment is required in
determining which costs are considered directly attributable to the
installation process and the percentage capitalized is estimated based on work
order hours for the year.   
Impairment of long-lived assets 
Long-lived assets primarily include property and equipment and intangible
assets. An impairment loss is recognized when the carrying value of the
cash-generating unit ("CGU"), which is defined as a unit that has independent
cash inflows, to which the asset relates, exceeds the CGU's fair value, which
is determined using a discounted cash flow method. The Company tests the
recoverability of its long-lived assets when events or circumstances indicate
that the carrying values may not be recoverable. While the Company believes
that no provision for impairment is required, management must make certain
estimates regarding the Company's profit projections that include assumptions
about growth rates and other future events. Changes in certain assumptions
could result in charging future results with an impairment loss. 
Leases 
The determination of whether an arrangement with a customer is, or contains, a
lease is based on the substance of the arrangement at the inception date,
whether fulfillment of the arrangement is dependent on the use of a specific
asset or assets or the arrangement conveys a right to use the asset, even if
that right is not explicitly specified in an arrangement. 
Goodwill and indefinite-lived intangible assets 
The Company performs asset impairment assessments for indefinite-lived
intangible assets and goodwill on an annual basis or on a more frequent basis
when circumstances indicate impairment may have occurred. Under IFRS, the
Company selected October 1 as the date when it performs its annual impairment
analysis. Impairment calculations under IFRS are done at a CGU group level.
Calculations use a discounted cash flow method under a one-step approach and
consider the relationship between the Company's market capitalization and its
book value.   Goodwill is allocated and tested in conjunction with its related
CGU or group of CGUs that benefit from collective synergies. The assessments
used to test for impairment are based on discounted cash flow projections that
include assumptions about growth rates and other future events. Industry
information is used to estimate appropriate discount rates used in the
calculation of discounted cash flows.  
Discontinued operations 
During March 2012, management decided to dispose of Mood Media Entertainment
Limited ("MME"), which is a major line of business and classified it as a
disposal group held for sale and as a discontinued operation. Management has
determined that MME has met the criteria to be classified as held for sale in
accordance with the requirements of IFRS 5, Non-current Assets Held for Sale
and Discontinued Operations: 
· A Confidential Investor Memorandum has been prepared and distributed to
prospective buyers for review. 
· Some non-disclosure agreements have been executed 
· Management is in active negotiations with a prospective buyer and believe it 
is highly probable that this position will be concluded in the near
term. 
In the consolidated statements of income (loss), revenue and expenses from
discontinued operations are reported separately from revenue and expenses from
continuing operations, down to the level of loss after taxes. The resulting
loss after taxes is reported separately in the consolidated statements of
income (loss). 
Disclosure Controls and Internal Controls over Financial Reporting 
The Company did not make any changes to the Company's internal controls over
financial reporting during the most recent reporting period that would have
materially affected or would reasonably be likely to materially affect the
Company's internal controls over financial reporting. 
As the scope of design of internal controls over financial reporting and
disclosure controls and procedures has been limited to exclude controls,
policies and procedures of ICI, which was acquired in October, 2012, and
Technomedia, which was acquired in December, 2012, certain financial
information with respect to ICI and Technomedia is set out below to indicate
the impact of the acquisition on the consolidated financial statements of the
Company. 
Summary financial information regarding ICI for the three months ended December
31, 2012. 


    Statement of operations:                               Three months ended  
                                                        December 31, 2012   


                                                                             
Revenue                                                             3,749        
     
                                                                             
Net Income                                                          1,290        


        
                                                                                
                                                                                  


                                                                               
Financial Position:                                     As at December 31,   


                                                                     2012       
         


                                                                             
Current assets                                                      4,564        
     
                                                                             
Total assets                                                       29,474        
    
                                                                             
Current liabilities                                                 1,121        
     
                                                                             
Total liabilities                                                   1,121        


        
                                                                                
    

Summary financial information regarding Technomedia for the three months ended
December 31, 2012.
    Statement of operations:                              Three months ended  
                                                       December 31, 2012   


                                                                             
Revenue                                                              929         
      
                                                                             
Net Income                                                            62         


          
                                                                                
                                                                                  


                                                                               
Financial Position:                                    As at December 31,   


                                                                    2012        
        


                                                                             
Current assets                                                    12,025         
   
                                                                             
Total assets                                                      31,058         
   
                                                                             
Current liabilities                                                8,190         
    
                                                                             
Total liabilities                                                  8,190         


       
                                                                                
    Risk Factors

The results of operations, business prospects and the financial condition of
the Company are subject to a number of risks and uncertainties, and are
affected by a number of factors outside the control of the Company's
management. These risks are noted below.

Integration risks

Making strategic acquisitions and business combinations is a significant part
of Mood Media's growth plans. Its ability to expand in this manner depends in
large part on its ability to identify suitable acquisition targets and compete
successfully with other entities for these targets. Mood Media recently
completed the acquisition of Technomedia in December 2012, ICI in October 2012,
BIS in May 2012, DMX in March 2012, and Muzak in May 2011, with the expectation
that these acquisitions would result in strategic benefits, economies of scale
and synergies. These anticipated benefits, economies of scale and synergies
will depend in part on whether the operations of Mood Media, Technomedia, ICI,
BIS, DMX and Muzak can be integrated in an efficient and effective manner. It
is possible that this may not occur as planned, or that the financial and other
benefits may be less than anticipated. In addition, management believes that
the integration will give rise to restructuring costs and charges, and these
may be greater than currently anticipated. Furthermore, the contracts governing
the Company's recent acquisitions do include, and the contracts governing the
Company's future business combinations and/or acquisitions may include,
post-closing purchase price adjustments that require it to make additional
payments to the relevant selling party post-closing and such payments could be
greater than anticipated.

The Company has been built via a series of acquisitions. Failure to properly
integrate these acquisitions will leave Mood Media less able to operate as a
consolidated whole and may lead to depressed revenue and margin performance.
This integration is ongoing and requires dedication and substantial management
effort, time and resources which may divert management's focus and resources
from other strategic opportunities and from operational matters during this
process. The integration process may result in loss of key employees and the
disruption of the ongoing business, customer and employee relationships that
may adversely affect the ability of Mood Media to achieve the anticipated
benefits of the acquisitions. Further, the operating results and financial
condition of Mood Media could be materially adversely impacted by the focus on
integration.

Future business combinations and/or acquisitions could materially and adversely
affect the Company's business, financial condition and results of operations if
it is unable to integrate the operations of the acquired companies.

Completing business combinations and/or acquisitions could require use of a
significant amount of our available cash. Furthermore, Mood Media may have to
issue equity or equity linked securities to pay for future business
combinations and/or acquisitions. Acquisitions and investments may also have
negative effects on the Company's reported results of operations due to
acquisition-related charges, amortization of acquired technology and other
intangibles, failure to retain key employees or customers of acquired companies
and/or actual or potential liabilities, known and unknown, associated with the
acquired businesses or joint ventures. Any of these acquisition-related risks
or costs could materially and adversely affect the Company's business,
financial condition and results of operations.

Failure to retain key personnel

The Company's future success depends to a significant extent on the continued
services of the Company's senior management and other key personnel,
particularly Lorne Abony, the Company's Chairman and Chief Executive Officer.
The loss of the services of Mr. Abony and/or any other key personnel may have a
material adverse effect on the Company's business if the Company is unable to
find suitable replacements. The Company currently does not maintain "key man"
life insurance for Mr. Abony or any of its other key personnel.

Costly and protracted litigation may be necessary to defend usage of
intellectual property

The Company may become subject to legal proceedings and claims in relation to
its business. In particular, while management believes that it has the rights
to distribute the music recordings used in connection with the Company's
business, the Company may be subject to copyright infringement lawsuits for
selling, performing or distributing music recordings if it does not have the
rights to do so. Results of legal proceedings cannot be predicted with
certainty. Regardless of their merits, litigation, arbitration and/or mediation
of such claims may be both time-consuming and disruptive to the Company's'
operations and cause significant expense and diversion of management attention.
The Company is currently defending itself against a number of legal claims.
While the Company believes these claims to be without merit, and is vigorously
defending itself, the Company cannot guarantee that it will be successful or
that it will reach commercially reasonable settlement terms. Should Mood Media
fail to prevail in such proceedings and claims, its financial condition and
operating results could be materially and adversely affected.

If the current owners with which the Company contracts do not have legal title
to the digital rights they grant the Company, the Company's business may be
adversely affected

Mood Media's acquisition and distribution agreements with content owners
contain representations, warranties and indemnities with respect to the digital
rights granted to Mood Media. If the Company were to acquire and make available
for purchase music recordings from a person who did not actually own such
rights and the Company was unable to enforce on the representations, warranties
and indemnities made by such person, the Company's business may be adversely
affected.

The Company faces intense competition from our competitors that could
negatively affect our results of operations

The market for acquiring exclusive digital rights from content owners is
competitive, especially for the distribution of music catalogues owned by
independent labels. The number of commercialized music recordings available for
acquisition is large, but limited, and many of the more desirable music
recordings are already subject to digital distribution agreements or have been
directly placed with digital entertainment services. The Company faces
competition in its pursuit to acquire additional content, which may reduce the
amount of music content that it is able to acquire or license and may lead to
higher acquisition prices. The Company's competitors may from time to time
offer better terms of acquisition to content owners. Increased competition for
the acquisition of digital rights to music recordings may result in a reduction
in operating margins and may reduce the Company's ability to distinguish itself
from its competitors by virtue of its music library.

The Company has different competitors in its local geographies but very few
that operate across international markets. Some of these local competitors
offer services at a lower price than Mood Media offers in order to promote
their services and gain share. If these competitors are able to leverage such
price advantages, it could harm the Company's ability to compete effectively in
the marketplace. Furthermore, there is a threat of new entrants to the
competitive landscape, including traditional advertisers and media providers as
well as start-up companies. The growth of social media could facilitate other
forms of new entry that will compete with the Company.

Mood Media also competes with companies that are not principally focused on
providing business music services. Such competitors include Sirius XM Satellite
Radio, webcasters and traditional radio broadcasters that encourage workplace
listening, video services that provide business establishments with music
videos or television programming, and performing rights societies that license
business establishments to play sources such as CDs, tapes, MP3 files and
satellite, terrestrial and internet radio.

The Company competes on the basis of service, the quality and variety of its
music programs, the availability of its non-music services and, to a lesser
extent, price. Management believes that the Company can compete effectively due
to the breadth of its in-store media. While managements believes that the
Company competes effectively, the Company's competitors have established client
bases and are continually seeking new ways to expand such client bases and
revenue streams. As a result, competition may negatively impact the Company's
ability to attract new clients and retain existing clients.

If the Company is unable to generate demand for managed media services, its
financial results may suffer

Mood Media's current business plan contemplates deriving revenue from
businesses that want a professional media service that is available for sale
in-store or broadcast in-store. The Company's ability to generate such revenues
depends on the market demand for its media content and its ability to provide a
robust service that delivers a return on investment.

Mood Media's customers may choose to terminate their relationship with Mood
Media or reduce their spending on its services, which could have a material
adverse effect on its financial condition and results of operations.

The Company depends for a large portion of its revenues on the continued
spending by its clients on in-store media services. The Company's top clients
for such services typically have lengthy tenures. However, should clients
decide to stop using or to reduce their expenditures on in-store media or
decide to terminate their agreements with the Company and to use one of its
competitors, the Company will lose subscription income which will have an
adverse effect on its financial position.

The Company's success will depend, in part, on its ability to develop and sell
new products and services

The Company's success depends in part on the ability of its personnel to
develop leading-edge media products and services and the ability to cross sell
visual media and scent marketing to existing clients. The Company's business
and operating results will be harmed if it fails to cross sell its services and
/or fails to develop products and services that achieve widespread market
acceptance or that fails to generate significant revenues or gross profits to
offset  development and operating costs. The Company may not successfully
identify, develop and market new products and service opportunities in a timely
manner. The Company also may not be able to add new content as quickly or as
efficiently as its competitors, or at all. If the Company introduces new
products and services, they may not attain broad market acceptance or
contribute meaningfully to its revenues or profitability. Competitive or
technological developments may require the Company to make substantial,
unanticipated investments in new products and technologies, and the Company may
not have sufficient resources to make these investments.

The Company's use of open source and third party software could impose
unanticipated conditions or restrictions on its ability to commercialize its
solutions

While Mood Media has developed its own proprietary software and hardware for
the delivery of its media solutions, Mood Media may be restricted under
existing or future agreements from utilizing certain licensed technology in all
of the jurisdictions and/or industry sectors in which it operates. Failure to
comply with such restrictions may leave the Company open to proceedings by
third parties and such restrictions may, if alternative technology is not
available, affect the Company's ability to deliver its services in such
jurisdictions, in each case resulting in an adverse effect on the Company's
financial position.

The Company's suppliers may choose to terminate their relationship with the
Company, which could have a material adverse effect on the Company's financial
condition and results of operations

The Company has licensing arrangements with suppliers of satellite services
which are used in the delivery of content to its customers. If such licensing
arrangements were terminated and alternative arrangements were not available,
this would affect the Company's ability to deliver its services resulting in an
adverse effect on its financial or trading position.

The imposition of the obligation to collect sales or other taxes on shipments
into one or more states in the United States could create administrative
burdens on the Company and decrease its future sales

The Company does not collect sales or other taxes on shipments by its foreign
subsidiaries of most of its goods into most states in the United States. One or
more states or foreign countries may seek to impose sales or other tax
collection obligations on out-of-jurisdiction e-commerce companies. A
successful assertion by one or more states or foreign countries that the
Company should collect sales or other taxes on the sale of merchandise or
services could result in substantial tax liabilities for past sales, decrease
the Company's ability to compete with traditional retailers, and otherwise harm
its business.

Currently, U.S. Supreme Court decisions restrict the imposition of obligations
to collect state and local sales and use taxes with respect to sales made over
the internet. However, a number of states, as well as the U.S. Congress, have
been considering initiatives that could limit or supersede the Supreme Court's
position regarding sales and use taxes on internet sales. If any of these
initiatives were successful, Mood Media could be required to collect sales and
use taxes in additional states. The imposition by state and local governments
of various taxes upon internet commerce could create administrative burdens for
the Company, put it at a competitive disadvantage if they do not impose similar
obligations on all of its online competitors and decrease its future sales.

The Company is taxable on its worldwide income both in Canada and the United
States, which could, in certain circumstances, have a material adverse effect
on the Company

The Company is a resident in Canada for purposes of the Income Tax Act (Canada)
and management believes that it will continue to be treated as a domestic
corporation in the United States under the U.S. Internal Revenue Code 1986, as
amended. As a result, Mood Media (but not its subsidiaries) is generally
taxable on its worldwide income in both Canada and the United States (subject
to the availability of any tax credits and deductions in either or both
jurisdictions in respect of foreign taxes paid by Mood Media). Management
believes that the Company's status of being taxable both in Canada and the
United States has not given rise to any material adverse consequences as of the
date hereof. Management also believes that such status is not likely to give
rise to any material adverse consequences in the future as it is not
anticipated that it will have any material amounts of taxable income.
Nevertheless, the Company's status of being taxable on its worldwide income
both in Canada and the United States could, in certain circumstances, have a
material adverse effect on the Company.

As result of the Company being resident in both Canada and the United States,
withholding taxes of both Canada and the United States will be relevant to
holders of the notes and could, in certain circumstances, result in double
taxation to certain investors and other consequences.

If the Company is unable to access additional equity or debt financing at a
reasonable cost, it could affect our ability to grow

With the deterioration of capital markets worldwide, there is an increased risk
that the Company may not be able to obtain additional equity or debt financing
that it may require to consummate future acquisitions or to refinance its debt
when it is due. While management believes that the Company possesses sufficient
cash resources to execute the Company's business plan, an inability to access
financing at a reasonable cost could affect its ability to grow.

Failure to continue to generate sufficient cash revenues could materially
adversely affect Mood Media's business

The Company's ability to be profitable and to have positive cash flow is
dependent upon its ability to maintain and locate new customers who will
purchase its products and use its services, and the Company's ability to
continue to generate sufficient cash revenues. Mood Media presently generates
the majority of its revenue in the United States and Europe, with customers
concentrated in the retail and hospitality sectors. These sectors continue to
be negatively affected by ongoing economic difficulties and the Company's
revenues could be affected by bankruptcies or rationalization of a portion of
its existing client base. A material reduction in revenue would negatively
impact the Company's financial position.

If the Company's revenue grows more slowly than anticipated, or if the Company
is unable to find additional acquisitions sufficiently profitable to support
its cash outflows, or if the Company's operating expenses are higher than
expected, it may not be able to sustain or increase profitability, in which
case its financial condition will suffer and its value could decline. Failure
to continue to generate sufficient cash revenues could also cause the Company
to go out of business.

The Company may not have the financial or technological resources to adapt to
changes in available technology and its clients' preferences, which may have a
negative effect on the Company's revenue

Mood Media's product and service offerings compete in a market characterized by
rapidly changing technologies, frequent innovations and evolving industry
standards. There are numerous methods by which existing and future competitors
can deliver programming, including various forms of recorded media, direct
broadcast satellite services, wireless cable, fibre optic cable, digital
compression over existing telephone lines, advanced television broadcast
channels, digital audio radio service and the internet. Competitors may use
different forms of delivery for the services that the Company offers, and
clients may prefer these alternative delivery methods. The Company may not have
the financial or technological resources to adapt to changes in available
technology and the Company's clients' preferences, which may have a negative
effect on its revenue.

The Company cannot provide assurance that it will be able to use, or compete
effectively with competitors that adopt, new delivery methods and technologies,
or keep pace with discoveries or improvements in the communications, media and
entertainment industries. The Company also cannot provide assurance that the
technology it currently relies upon will not become obsolete.

The Company pays royalties to license music rights and may be adversely
affected if such royalties are increased

The Company pays performance royalties to songwriters and publishers through
contracts negotiated with performing rights societies such as The American
Society of Composers Authors and Publishers ("ASCAP") and Broadcast Music,
Inc., and publishing or mechanical royalties to publishers and collectives that
represent their interests, such as The Harry Fox Agency-a collective that
represents publishers and collects royalties on their behalf.

If mechanical royalty rates for digital music are increased, there can be no
assurance that the Company will be able to pass through such increased rates to
its customers. As a result, the Company's results of operations and financial
condition may be adversely affected.

Mood Media also secures rights to music directly from songwriters. There is no
assurance that it will be able to secure such rights, licenses and content in
the future on commercially reasonable terms, if at all. Limitations on the
availability of certain musical works may result in the discontinuance of
certain programs, and as a result, may lead to increased client churn.

The Company depends upon suppliers for the manufacture of its proprietary media
players, and the termination of its arrangements with these suppliers could
materially affect its business

The Company relies on suppliers to manufacture its proprietary media players.
In the event these agreements are terminated, management believes that the
Company will be able to find alternative suppliers. If it is unable to obtain
alternative suppliers on a timely basis, or at all, or if it experiences
significant delays in shipment, the Company may be forced to suspend or cancel
delivery of products and services to new accounts which may have a material
adverse effect upon its business. If the Company is unable to obtain an
adequate supply of components meeting its standards of reliability, accuracy
and performance, the Company would be materially and adversely affected.

Possible infringement by third parties of intellectual property rights could
have a material adverse effect on the Company's business, financial condition
and results of operations

The Company distributes digital music content to its business music consumers
via its proprietary media players. The Company cannot be certain that the steps
it has taken to protect its intellectual property rights will be adequate or
that third parties will not infringe or misappropriate its proprietary rights.
To protect its proprietary rights, Mood Media depends on a combination of
patent, trademark, copyright and trade secret laws, confidentiality agreements
with its employees and third parties and protective contractual provisions.
These efforts to protect its intellectual property rights may not be effective
in preventing misappropriation of its technology. These efforts also may not
prevent the development and design by others of products or technologies
similar to, competitive with or superior to those developed by the Company. Any
of these results could reduce the value of the Company's intellectual property.
In addition, any infringement or misappropriation by third parties could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company may be liable if third parties misappropriate its users' and
customers' personal information

Third parties may be able to hack into or otherwise compromise the Company's
network security or otherwise misappropriate its users' personal information or
credit card information. If the Company's network security is compromised, the
Company could be subject to liability arising from claims related to, among
other things, unauthorized purchases with credit card information,
impersonation or other similar fraud claims or other misuse of personal
information, such as claims for unauthorized marketing purposes. In such
circumstances, the Company also could be liable for failing to provide timely
notice of a data security breach affecting certain types of personal
information in accordance with the growing number of notification statutes.
Consumer protection privacy regulations could impair the Company's ability to
obtain information about its users, which could result in decreased advertising
revenues.

Mood Media's network also uses "cookies" to track user behavior and
preferences. A cookie is information keyed to a specific server, file pathway
or directory location that is stored on a user's hard drive or browser,
possibly without the user's knowledge, but is generally removable by the user.
The Company uses information gathered from cookies to tailor content to users
of its network and such information may also be provided to advertisers on an
aggregate basis. In addition, advertisers may themselves use cookies to track
user behavior and preferences. A number of internet commentators, advocates and
governmental bodies in the United States and other countries have urged the
passage of laws directly or indirectly limiting or abolishing the use of
cookies. Other tracking technologies, such as so-called "pixel tags" or "clear
GIFs", are also coming under increasing scrutiny by legislators, regulators and
consumers, imposing liability risks on the Company's business. In addition,
legal restrictions on cookies, pixel tags and other tracking technologies may
make it more difficult for the Company to tailor content to its users, making
the Company's network less attractive to users. Similarly, the unavailability
of cookies, pixel tags and other tracking technologies may restrict the use of
targeted advertising, making the Company's network less attractive to
advertisers and causing it to lose significant advertising revenues.

Government regulation of the internet and e-commerce is evolving and
unfavourable changes could harm our business

The Company is subject to general business regulations and laws, as well as
regulations and laws specifically governing the internet and e-commerce.
Existing and future laws and regulations may impede the growth of the internet
or online services. These regulations and laws may cover taxation, privacy,
data protection, pricing, content, copyrights, distribution, electronic
contracts and other communications, consumer protection, and the
characteristics and quality of products and services. It is not clear how
existing laws governing issues such as property ownership, libel, and personal
privacy apply to the internet and e-commerce. Unfavourable regulations and laws
could diminish the demand for the Company's products and services and increase
its cost of doing business.

The locations of the Company's users expose it to foreign privacy and data
security laws and may increase the Company's liability, subject it to
non-uniform standards and require it to modify its practices

Mood Media's users are located in the United States and around the world. As a
result, the Company collects and processes the personal data of individuals who
live in many different countries. Privacy regulators in certain of those
countries have publicly stated that foreign entities (including entities based
in the United States) may render themselves subject to those countries' privacy
laws and the jurisdiction of such regulators by collecting or processing the
personal data of those countries' residents, even if such entities have no
physical or legal presence there. Consequently, the Company may be obligated to
comply with the privacy and data security laws of certain foreign countries.

Mood Media's exposure to Canadian, European and other foreign countries'
privacy and data security laws impacts its ability to collect and use personal
data, and increases its legal compliance costs and may expose the Company to
liability. As such laws proliferate, there may be uncertainty regarding their
application or interpretation, which consequently increases the Company's
potential liability. Even if a claim of non-compliance against the Company does
not ultimately result in liability, investigating or responding to a claim may
present a significant cost. Future legislation may also require changes in Mood
Media's data collection practices which may be expensive to implement.

In addition, enforcement of legislation prohibiting unsolicited e-mail
marketing in the European Union without prior explicit consent is increasing in
several European countries, including France, Germany and Italy, which
activities could negatively affect the Company's business in Europe and create
further costs for it.

Evolving industry

The Company sells digital music at prices which are based, to a large extent,
on the price third party digital music retailers charge to consumers. The
Company has limited ability to influence the pricing models of the digital
entertainment services. While the major record labels were unsuccessful in
their recent attempt to change the pricing structure, there is no assurance
that they will not attempt to change the pricing structure in the future or
that the digital music retailers will not initiate such a change that could
result in lower pricing or tiered pricing that could reduce the amount of
revenue the Company receives. In addition, the popularity of digital music
retailers that offer digital music through subscription and other pricing
models is increasing. The revenue the Company earns per individual music
recording is generally less under these models than what it receives through
sales of music outside of a subscription service. Additionally, digital music
services at present generally accept all the music content that the Company and
other distributors deliver to them. However, if the digital music services in
the future decide to limit the types or amount of music recordings they will
accept from content owners and distributors like the Company, or limit the
number of music recordings they will post for sale, or change their current
stocking plans, for instance by removing music recordings that do not meet
minimum sales thresholds or other criteria, the revenue of the Company may be
reduced.

Piracy is likely to continue to negatively impact the potential revenue of the
Company

A portion of the Company's revenue comes from the sale of its digital content
over the Internet and wireless, cable and mobile networks, which is subject to
unauthorized consumer copying and widespread dissemination without an economic
return to the Company. Global piracy is a significant threat to the
entertainment industry generally and to the Company. Unauthorized copies and
piracy have contributed to the decrease in the volume of legitimate sales of
music and video content and have put pressure on the price of legitimate sales.
This may result in a reduction in the Company's revenue.

The Company does not expect to pay dividends and there are potential adverse
tax consequences from the payment of dividends on the Common Shares

The Company has not paid any cash dividends with respect to its Common Shares,
and it is unlikely that the Company will pay any dividends on the Common Shares
in the foreseeable future. However, dividends received by shareholders could be
subject to applicable withholding taxes and the Company recommends that such
shareholders seek the appropriate professional advice in this regard. 

Litigation

The Company is currently defending itself against a number of legal claims
(discussed in greater detail below in Section 8.1 "Legal Proceedings".  While
the Company believes these claims to be without merit, and is vigorously
defending itself, it cannot guarantee that it will be successful or that it
will reach commercially reasonable settlement terms.  A negative judgment or
the costs of a protracted defense could materially affect the Company's
earnings.

Reliance on debt facilities

A portion of the Company's credit facilities bear interest at floating interest
rates and, therefore, are subject to fluctuations in interest rates. Interest
rate fluctuations are beyond the Company's control and there can be no
assurance that interest rates will not have a material adverse effect on the
Company's financial performance. The Company is partly financed through debt
and owes money to creditors including banks and holders of convertible
debentures. Such debt is secured against the Company's assets and is subject to
certain covenants being met. Should the Company fail to meet its covenants and
should its creditors demand repayment, the Company will need to find new
sources of finance or else cede ownership of some its assets which may have a
material adverse effect on the business of the Company.

Foreign currency exchange risk

The Company operates in the US, Canada and internationally. The functional
currency of the Company is US dollars and a significant number of the Company's
transactions are recorded in Canadian dollars and Euros. Foreign currency
exchange risk arises because the amount of the local currency income, expenses,
cash flows, receivables and payables for transactions denominated in foreign
currencies may vary due to changes in exchange rates ("transaction exposures")
and because the non-US denominated financial statements of the Company's
subsidiaries may vary on consolidation into US dollars ("translation
exposures").

The most significant translation exposure arises from the Euro currency. The
Company is required to revalue the Euro denominated net assets of the European
subsidiaries at the end of each period with the foreign currency translation
gain or loss recorded in other comprehensive income. The Company does not
currently hedge translation exposures. Since the financial statements of Muzak
and DMX are denominated in US dollars, the risk associated with translation
exposures has reduced following the acquisition of Muzak and DMX. 

The most significant transaction exposure arises as a result of a significant
level of US dollar transactions occurring within the Canadian operations.

Interest rate risk

The Company's interest rate risk arises on a debt drawn under the Credit
Facilities, which bear interest at a floating rate. However the level of
interest rate risk is mitigated by the fact that the Credit Facilities carry an
interest rate floor which currently exceeds LIBOR. The Company also purchased
an interest rate cap in 2011 to protect against increasing LIBOR rates.

Liquidity risk

Liquidity risk arises through excess of financial obligations over available
financial assets due at any point in time. The Company's objective in managing
liquidity risk is to maintain sufficient readily available reserves in order to
meet its liquidity requirements at any point in time. The Company achieves this
by maintaining sufficient cash and through the availability of funding from the
committed Credit Facilities.

Credit risk

Credit risk arises from cash held with banks and credit exposure to customers
on outstanding accounts receivable balances. The maximum exposure to credit
risk is equal to the carrying value of the financial assets. The objective of
managing counterparty credit risk is to prevent losses in financial assets. The
Company assesses the credit quality of the counterparties, taking into account
their financial position, past experience and other factors. Management also
monitors payment performance and the utilization of credit limits of customers.

Further detail is provided in the "Risk Factors" section of the Company's AIF,
which can be found at www.sedar.com.

Forward-Looking Statements

Certain statements in this management's discussion and analysis contains
"forward-looking" statements that involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. When used in this management's discussion and
analysis, such statements use such words as "may," "will," "intend," "should,"
"expect," "expect to," "believe," "plan," "anticipate," "estimate," "predict,"
"potential," "continue," the negative of these terms or other similar
terminology. These statements reflect current expectations regarding future
events and operating performance and speak only as of the date of this
management's discussion and analysis. Forward-looking statements involve
significant risks and uncertainties, should not be read as guarantees of future
performance or results, and will not necessarily be accurate indications of
whether or not such results will be achieved. A number of factors could cause
actual results to differ materially from the results discussed in the
forward-looking statements, including, but not limited to, customer
concentration, lack of written customer contracts, reliance on suppliers and
other risks described herein and in the Company's AIF, which can be found at
www.sedar.com. These forward-looking statements are made as of the date of
release of this management's discussion and analysis, and the Company does not
assume any obligation to update or revise them to reflect new events or
circumstances.



END

-0- Mar/28/2013 10:15 GMT


 
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