<PAGE>

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


                                   FORM 10-Q


( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 1998

( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934
     For the transition period from ________________ to __________________


                        Commission File No. 000 - 22207

                              GUITAR CENTER, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

       DELAWARE                                          95-4600862
--------------------------------------------------------------------------------
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                     Identification Number)

                              5155 CLARETON DRIVE
                         AGOURA HILLS, CALIFORNIA 91301
--------------------------------------------------------------------------------
              (Address of principal executive offices) (Zip Code)

                                 (818) 735-8800
--------------------------------------------------------------------------------
               Registrant's telephone number, including area code


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.


                                          Yes     X             No
                                               --------             --------

As of November 5, 1998, 20,084,646 shares of the registrant's Common Stock, $.01
par value, were outstanding.

<PAGE>


                       GUITAR CENTER, INC. AND SUBSIDIARY

                                      INDEX

<TABLE>
<CAPTION>

<S>                                                                                                 <C>

Part I.  Financial Information

         ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

         Condensed Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 .......... 3

         Condensed Consolidated Statements of Income - Three months ended
          September 30, 1998 and 1997............................................................... 4

         Condensed Consolidated Statements of Income - Nine months ended
         September 30, 1998 and 1997................................................................ 5

         Condensed Consolidated Statements of Cash Flows - Nine months ended
         September 30, 1998 and 1997 ............................................................... 6

         Notes to Condensed Consolidated Financial Statements  ..................................... 7

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                  RESULTS OF OPERATIONS ...........................................................  8

Part II. Other Information

         Item 1.  Not Applicable

         Item 2.  Not Applicable
         
         Item 3.  Not Applicable

         Item 4.  Not Applicable

         Item 5.  Not Applicable

         Item 6.  Exhibits and Reports on Form 8-K  ............................................... 14

</TABLE>


                                       2

<PAGE>


                       GUITAR CENTER, INC. AND SUBSIDIARY
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                         SEPTEMBER 30,   DECEMBER 31,
                                                                             1998            1997
                                                                         -------------   ------------
<S>                                                                       <C>             <C>

ASSETS
Current assets:
   Cash and cash equivalents                                               $    113        $  7,755
   Accounts receivable                                                        8,329           7,896
   Merchandise inventories                                                   97,778          78,898
   Prepaid expenses and other current assets                                  5,032           3,226
                                                                           --------        --------
Total current assets                                                        111,252          97,775

Property and equipment, net                                                  32,076          22,809
Goodwill, net of accumulated amortization                                     4,665           4,094
Other assets                                                                  8,285           7,946
                                                                           --------        --------
                                                                           --------        --------
                                                                           $156,278        $132,624
                                                                           --------        --------
                                                                           --------        --------

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Accounts payable                                                        $  9,114        $ 16,863
   Accrued expenses and other current liabilities                            16,016          19,301
   Line of credit                                                            19,924              --
                                                                           --------        --------
Total current liabilities                                                    45,054          36,164
Other long-term liabilities                                                   1,327           1,017
Long term debt                                                               66,667          66,667
Stockholders' equity
   Preferred stock; authorized 5,000,000 shares at 
    September 30, 1998 and December 31, 1997, 
    none issued and outstanding                                                  --              --
    
   Common stock, $0.01 par value, authorized 
    55,000,000 shares, issued and outstanding 
    20,083,790 at September 30, 1998 and
    19,338,073 at December 31, 1997, respectively                               201             193
   Warrants                                                                      --           6,500
   Additional paid in capital                                               227,667         220,514
   Accumulated deficit                                                     (184,638)       (198,431)
                                                                          ---------        --------
Total stockholders' equity                                                   43,230          28,776
                                                                          ---------        --------
                                                                           $156,278        $132,624
                                                                          ---------        --------
                                                                          ---------        --------
</TABLE>
                                       
          See accompanying notes to condensed financial statements.

                                       3

<PAGE>
                                       
                       GUITAR CENTER, INC. AND SUBSIDIARY
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                     SEPTEMBER 30, 1998  SEPTEMBER 30, 1997
                                                     ------------------  ------------------
<S>                                                       <C>                 <C>

Net sales                                                  $96,195             $75,948
Cost of goods sold, buying and occupancy                    69,210              55,151
                                                           -------             -------
Gross profit                                                26,985              20,797

Selling, general and administrative                         19,747              15,363
                                                           -------             -------
Operating income                                             7,238               5,434

Interest expense, net                                        2,260               1,896

Income before income taxes                                   4,978               3,538

Income taxes                                                   261                 255
                                                           -------             -------

Net income                                                 $ 4,717             $ 3,283
                                                           -------             -------
                                                           -------             -------

Net income per share
     Basic                                                 $  0.23             $  0.17
                                                           -------             -------
                                                           -------             -------
     Diluted                                               $  0.22             $  0.16
                                                           -------             -------
                                                           -------             -------

Weighted average shares outstanding
     Basic                                                  20,076              19,329
                                                           -------             -------
                                                           -------             -------
     Diluted                                                21,000              20,735
                                                           -------             -------
                                                           -------             -------
</TABLE>
                                       
         See accompanying notes to condensed financial statements.



                                       4

<PAGE>


                       GUITAR CENTER, INC. AND SUBSIDIARY
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                       NINE MONTHS ENDED
                                            SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
                                            ------------------ ------------------
<S>                                             <C>                <C>

Net sales                                        $ 272,671          $ 205,384
Cost of goods sold, buying and occupancy           196,325            149,353
                                                 ---------          ---------
Gross profit                                        76,346             56,031

Selling, general and administrative                 55,985             40,494
                                                 ---------          ---------
Operating income                                    20,361             15,537

Interest expense, net                                6,328              6,955
Gain on sale of assets                                (324)              (535)
Transaction expense                                     --                731
                                                 ---------          ---------

Income before income taxes and
  extraordinary loss                                14,357              8,386

Income taxes                                           564              1,963
                                                 ---------          ---------

Income before extraordinary loss                    13,793              6,423

Extraordinary loss on early extinguishment of
  debt, net of tax $1,679                               --             (2,739)
                                                 ---------          ---------
Net income                                       $  13,793          $   3,684
                                                 ---------          ---------
                                                 ---------          ---------

Net income per share

     Basic                                       $    0.70          $    0.19
                                                 ---------          ---------
                                                 ---------          ---------
     Diluted                                     $    0.66          $    0.18
                                                 ---------          ---------
                                                 ---------          ---------

Weighted average shares outstanding
     Basic                                          19,658             19,329
                                                 ---------          ---------
                                                 ---------          ---------
     Diluted                                        20,869             20,456
                                                 ---------          ---------
                                                 ---------          ---------

</TABLE>

           See accompanying notes to condensed financial statements.

                                       5


<PAGE>



                       GUITAR CENTER, INC. AND SUBSIDIARY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                         NINE MONTHS ENDED SEPTEMBER 30,
                                                              1998            1997
                                                            --------       -------- 
<S>                                                        <C>            <C>
OPERATING ACTIVITIES
Net income                                                  $ 13,793       $  3,684
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
    Depreciation and amortization                              3,267          2,222
    Amortization of deferred financing fees                      180          1,303
    Gain on sale of property                                    (324)          (535)
    Changes in operating assets and liabilities:
       Accounts receivable                                      (433)        (1,108)
       Merchandise inventories                               (18,880)       (19,517)
       Prepaid expenses                                       (1,806)        (1,543)
       Other assets                                           (1,090)          (214)
       Accounts payable                                       (7,749)           537
       Accrued expenses and other current liabilities         (2,228)         3,512
       Other long term liabilities                               310            294
                                                            --------        -------
Net cash used in operating activities                        (14,960)       (11,365)

INVESTING ACTIVITIES
Proceeds from sale of property                                   733            893
Purchase of property and equipment                           (12,940)        (6,985)
Payment for purchase of Rhythm City, Inc., net of cash
  acquired                                                    (1,058)       (10,300)
                                                            --------        -------
Net cash used in investing activities                        (13,265)       (16,392)

FINANCING ACTIVITIES
Net change in revolving debt facility                         19,924         (3,536)
Redemption of senior notes                                        --        (33,333)
Proceeds from sale of stock to management                         --            310
Proceeds from initial public offering                             --        107,571
Redemption of management common stock                             --        (18,417)
Redemption of senior preferred stock                              --        (22,963)
Exercise of stock options                                        757            --
  Warrant underwriting                                           (98)           --
                                                            --------        -------
Net cash provided by financing activities                     20,583         29,632

Net increase (decrease) in cash and cash equivalents          (7,642)         1,875
Cash and cash equivalents at beginning of year                 7,755             47
                                                            --------        -------

Cash and cash equivalents at end of period                  $    113        $ 1,922
                                                            --------        -------
                                                            --------        -------
</TABLE>
                                       
                See accompanying notes to financial statements.


                                       6

<PAGE>

                       GUITAR CENTER, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.       General

         In the opinion of management, the accompanying unaudited condensed
         consolidated financial statements contain all adjustments necessary to
         present fairly the financial position of Guitar Center, Inc., a
         Delaware corporation, and subsidiary ("Guitar Center" or the
         "Company"), as of September 30, 1998, and the results of operations and
         cash flows for the three and nine months ended September 30, 1998 and
         1997. The accompanying consolidated financial statements should be read
         in conjunction with the audited financial statements and notes thereto
         contained in the Company's Annual Report on Form 10-K for the year
         ended December 31, 1997.

         The results of operations for the three and nine months ended September
         30, 1998 are not necessarily indicative of the results to be expected
         for the full year.


2.       Income Taxes

         As a result of the $72.4 million loss incurred in fiscal 1996, the
         Company had a net operating loss carryforward for federal income taxes
         of approximately $61.8 million as of December 31, 1997. Accordingly, no
         provision for income taxes has been made in the condensed consolidated
         statement of operations for the three and nine months ended September
         30, 1998, except for certain minimum federal and state taxes.


3.       Warrants

         In June 1996, Guitar Center, Inc. issued warrants to purchase an
         aggregate of 676,325 shares of common stock, par value $0.01 per share,
         of the Company. On June 3, 1998, the warrants were exercised and
         converted into shares of common stock on a cash-less exercise basis.
         The effect to the Company's total stockholders' equity was immaterial.


4.       Earnings Per Share

         In 1997, the Company adopted SFAS 128, which requires the presentation
         of basic and diluted earnings per share. The difference between the
         weighted average number of shares outstanding for basic and diluted
         earnings per share represents the dilutive effect of the Company's
         potential common stock (stock options and warrants outstanding during
         the applicable periods).


                                       7
<PAGE>


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

OVERVIEW

         Guitar Center operated 44 stores in 23 major markets as of September 
30, 1998. From 1993 to 1997, Guitar Center's net sales and operating income 
before deferred compensation expense grew at compound annual growth rates of 
32.1% and 38.6%, respectively, principally due to comparable store sales 
growth averaging 14.9% per year and the opening of new stores. The increases 
were principally attributable to increases in unit sales rather than 
increases in prices or changes in product mix. Management believes such 
volume increases are the result of the continued success of the Company's 
implementation of its business strategy, continued growth in the music 
products industry and increasing consumer awareness of the Guitar Center 
name. The Company does not expect comparable store sales to continue to 
increase at historical rates.

         The Company opened eight stores in 1997, of which two were purchased 
by the Company and, as of September 30, 1998, the Company had opened eight 
additional stores in 1998. Presently, the Company expects to open an 
additional four stores during the remainder of 1998. In preparation for these 
additional stores, management had dedicated a substantial amount of resources 
over the past several years to building the infrastructure necessary to 
support a large, national chain. Management believes the infrastructure is in 
place to support its needs for the immediate foreseeable future, including 
its present expansion plans. The Company will continue to pursue its strategy 
of clustering stores in major markets to take advantage of operating and 
advertising efficiencies and to build awareness of the Guitar Center name in 
new markets. In some markets where the Company has pursued its clustering 
strategy, there has been some transfer of sales from certain existing stores 
to new locations. Generally, however, mature stores have demonstrated net 
sales growth rates consistent with the Company's average. As the Company 
enters new markets, management expects that it will initially incur higher 
administrative and promotional costs per store than it currently experiences 
in established markets. Management also expects competition to continue to 
increase over time as other music products retailers attempt to execute 
national growth strategies.

         The following table sets forth certain historical income statement 
data as a percentage of net sales:

<TABLE>
<CAPTION>

                                                          Three Months Ended         Nine Months Ended
                                                             September 30,             September 30,
                                                           1998        1997         1998         1997
                                                          ------      ------       ------       ------
<S>                                                      <C>         <C>          <C>          <C>
Net sales                                                  100.0%      100.0%       100.0%       100.0%
Gross profit                                                28.1        27.4         28.0         27.3
Selling, general, and administrative
 expenses                                                   20.5        20.2         20.5         19.7
                                                          ------      ------       ------       ------
Operating income                                             7.6         7.2          7.5          7.6
Interest expense, net                                        2.4         2.5          2.3          3.4
Gain on sale of assets                                        --          --         (0.1)        (0.3)
Transaction expenses and other                                --          --           --          0.4
                                                          ------      ------       ------       ------
Income before income taxes and
 extraordinary item                                          5.2         4.7          5.3          4.1
Income taxes                                                 0.3         0.3          0.2          1.0
                                                          ------      ------       ------       ------
Income before extraordinary loss                             4.9%        4.4%         5.1%         3.1%
                                                          ------      ------       ------       ------

</TABLE>

                                       8

<PAGE>

RESULTS OF OPERATIONS

         THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS
         ENDED SEPTEMBER 30, 1997.

         Net sales of the Company increased to $96.2 million for the three
months ended September 30, 1998, from $75.9 million for the comparable prior
period, a 26.7% increase. This growth was attributable to an increase of 10.3%
in comparable store net sales which contributed $7.8 million, or 38.8%, of the
total increase. New store net sales accounted for the balance of the increase in
net store sales. In the opinion of management, the strong comparable store sales
performance in the third quarter of 1998 reflects the effect of successful
promotions. Management does not expect this comparable store sales trend to
continue at this high level.

         Gross profit dollars for the three months ended September 30, 1998
compared to 1997 increased 29.8% to $27.0 million from $20.8 million. Gross
profit as a percentage of net sales for the three months ended September 30,
1998 compared to 1997 increased to 28.1% from 27.4%. The increase in gross
profit percentage is primarily due to opportunity buys in merchandise and
improved margins in the pro audio and keyboard segments of the business.

         Selling, general and administrative expenses for the three months ended
September 30, 1998 compared to 1997 increased 27.9% to $19.7 million from $15.4
million. The increase in total selling, general and administrative expenses is a
result of certain selling expenses incurred at the store level due to an
increase in the number of stores in 1998 as compared to 1997. As a percentage of
net sales, selling, general and administrative expenses increased to 20.5% from
20.2%. The change in percentage of sales reflects the incremental cost of
staffing newly opened and immature stores, which typically achieve less leverage
than mature stores. In addition, the increase reflects additional corporate
personnel and management information systems expenses associated with the
Company's continuing expansion, although these expenses were approximately flat
with 1997 as a percentage of sales.

         Operating income for the three months ended September 30, 1998 was $7.2
million compared to $5.4 million for the same three months of 1997, an increase
of 33.2%. The increase is principally the result of the increase in sales and
gross profit margin percentage derived from both new and existing stores. As a
percentage of sales, operating income for the three months ended September 30,
1998 was 7.6% compared to 7.2% in 1997. The increase is principally related to
the leveraging of fixed expenses and increased selling margin.

         Interest expense, net for the three months ended September 30, 1998
increased to $2.3 million from $1.9 million in the same period of 1997. The
interest expense for the third quarter of 1998 consisted of interest on the
Company's 11% Senior Notes due 2006 (the "Senior Notes") and borrowings under
the Company's line of credit.

         Net income for the three months ended September 30, 1998 increased to
$4.7 million from $3.3 million for the same period in 1997, principally as a
result of an increase in sales and gross margin, partially offset by an increase
in selling, general and administrative expenses and interest expense. See "Note
2. Income Taxes".

                                       9

<PAGE>

RESULTS OF OPERATIONS

         NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
         SEPTEMBER 30, 1997

         Net sales of the Company increased to $272.7 million for the nine
months ended September 30, 1998 from $205.4 million for the comparable prior
period, a 32.8% increase. This growth was attributable to an increase of 13.7%
in comparable store net sales which contributed $27.9 million, or 41.4% of the
total increase. New store net sales accounted for the balance of the increase in
net store sales.

         Gross profit dollars for the nine months ended September 30, 1998
compared to 1997 increased 36.3% to $76.3 million from $56.0 million. Gross
profit as a percentage of net sales for nine months ended September 30, 1998
compared to 1997 increased to 28.0% from 27.3% in the nine months ended
September 30, 1997. The increase in gross profit percentage is primarily due to
opportunity buys in merchandise and improved margins in the pro audio and
keyboard segments of the business.

         Selling, general and administrative expenses for the nine months ended
September 30, 1998 compared to 1997 increased 38.3% to $56.0 million from $40.5
million. The increase in total selling, general and administrative expenses is a
result of certain selling expenses incurred at the store level due to an
increase in the number of stores in 1998 as compared to 1997. As a percentage of
net sales, selling, general and administrative expenses increased to 20.5% from
19.7%. The change in percentage of sales reflects the incremental cost of
staffing newly opened and immature stores, which typically achieve less leverage
than mature stores. In addition, the increase reflects additional corporate
personnel and management information systems expenses associated with the
Company's continuing expansion.

         Operating income for the nine months ended September 30, 1998 was $20.4
million compared to operating income of $15.5 million for the same nine months
of 1997, an increase of 31.0%. The increase is principally the result of the
increase in sales derived from both new and existing stores. As a percentage of
sales, operating income for the nine months ended September 30, 1998 was 7.5%
compared to 7.6% in 1997. The decrease is related to the increase in selling,
general and administrative expenses, partially offset by the increase in gross
margin.

         Interest expense, net for the nine months ended September 30, 1998
decreased to $6.3 million from $7.0 million in the same period of 1997. The
interest expense for the nine months ended September 30, 1998 consisted
principally of interest on the Company's Senior Notes and borrowings under the
Company's line of credit. On April 19, 1997, the Company redeemed, at a premium,
$33.3 million principal amount of the Senior Notes.

         In the second quarter of 1997 the Company incurred an extraordinary
charge to operations of $4.4 million, net of tax of $1.7 million, representing
the premium paid on the Senior Notes redeemed plus the write-off of one-third of
the unamortized deferred financing fees.

         Net income for the nine months ended September 30, 1998 increased to
$13.8 million from $3.7 million for the same period in 1997, principally as a
result of the effect of the extraordinary charge discussed above, as well as an
increase in sales and gross margin, partially offset by an increase in selling,
general and administrative expenses. See "Note 2. Income Taxes".

LIQUIDITY AND CAPITAL RESOURCES

         Guitar Center's need for liquidity will arise primarily from interest
payable on its indebtedness and the funding of the Company's capital
expenditures and working capital requirements, as well as possible acquisitions.
The Company has historically financed its operations through internally
generated funds and borrowings under its credit facilities. The Company has no
mandatory payments of principal on 

                                      10

<PAGE>

the Senior Notes prior to the their final maturity in 2006. As of September 
30, 1998, the Company had $19.9 million outstanding under its Credit 
Facility, excluding $0.1 million outstanding on standby letters of credit, 
and had available borrowings under the 1997 Credit Facility of approximately 
$20.0 million. The agreement underlying the Credit Facility expires July 1, 
2004 and includes certain restrictive covenants which, among other things, 
require the Company to maintain certain financial ratios. The Company was in 
compliance with respect to all such requirements as of September 30, 1998.

         For the nine months ended September 30, 1998, cash used by operating
activities was $15.0 million. Cash used in investing activities totaled $13.3
million, relating principally to the opening of new stores and remodeling of
moved stores. Cash provided by financing activities totaled $20.6 million, which
consisted principally of borrowings under the Credit Facility.

         During the second quarter of 1998, the outstanding warrants were
exercised and converted to 376,325 shares of common stock, par value $0.01 per
share. The effect to the Company's total stockholders' equity was immaterial.

         During the third quarter of 1998, inventory turn for new product in
mature stores decreased from 3.6 times as of September 30, 1997 to 3.3 times as
of September 30, 1998. Management believes that the increase in inventory
balances has reduced store stockouts which benefited comparable and new store
sales.

         The Company intends to pursue an aggressive growth strategy by opening
additional stores in new and existing markets. During the quarter ended
September 30, 1998, the Company opened two new stores. Each new store typically
has required approximately $1.8 million for gross inventory. Historically, the
Company's cost of capital improvements for an average new store has been
approximately $850,000, consisting of leasehold improvements, fixtures and
equipment.

         The Company also believes that there may be attractive opportunities to
expand by selectively acquiring existing music products retailers. The Company,
in the ordinary course of its business, regularly evaluates and enters into
negotiations relating to potential acquisition candidates in new and existing
market areas. Any such transactions may involve the payment by the Company of
cash or securities (including equity securities), or a combination of the
foregoing. As of the date of this report, the Company had no existing agreements
or commitments to effect any such acquisition. There can be no assurance that
the Company will be able to identify suitable acquisition candidates available
for sale at reasonable prices, consummate additional acquisitions or
successfully integrate any such acquired companies into its operations.

         Management believes that the Company has adequate capital resources and
liquidity to meet its borrowing obligations, fund all required capital
expenditures and pursue its business strategy for at least the next twelve
months, including its present plans for expansion as described elsewhere herein.
The Company's capital resources and liquidity are expected to be provided by the
Company's net cash flow from operations and borrowings under the Credit
Facility. Depending upon market conditions, the Company may also incur
additional indebtedness or issue equity securities. There can be no assurance
that such additional capital, if and when required, will be available on terms
acceptable to the Company, if at all.

SEASONALITY

         The Company's results are not highly seasonal, although, as with most
retailers, sales in the fourth quarter are typically higher than any other
quarter.

YEAR 2000

         The Year 2000 issue is primarily the result of computer programs using
a two-digit format, as opposed to four digits, to indicate the year. Computer
programs that are date dependent are found in the software that operates many IT
systems as well as in the computer based devices which control many types of
electronic equipment. Computer programs that are not Year 2000 compliant will be
unable to interpret 

                                       11

<PAGE>

dates beyond the year 1999, which could cause a system failure or other 
computer errors, leading to a disruption in the operation of the related IT 
systems or electronic equipment.

         In 1997, the Company established a project plan to investigate the 
Year 2000 compliance of its internal and third party computer system 
applications and hardware. The objective was to verify third party compliance 
and complete internal compliance prior to year end 1999. All work has been 
substantially completed with the exception of a major software project 
related to the Company's inventory management system due to be implemented in 
the first quarter of 1999. As of the date of this Report, the Company 
believes that all of its significant IT systems will be Year 2000 compliant 
by the end of 1999. The Company currently does not have a contingency plan 
with regard to the Year 2000. During 1999, the Company will continue to 
evaluate whether and to what extent contingency arrangements should be 
implemented.

         The Company has also endeavored to assess the Year 2000 compliance 
of the outside parties upon which it is most dependent, including large 
vendors of the products resold in the Guitar Center stores. While the Company 
is not aware of any material compliance difficulties expected by any such 
supplier, its ability to obtain accurate information is necessarily limited. 
A number of the Company's vendors manufacture their products overseas, also 
making accurate information difficult to obtain. Those vendors, as well as 
the Company, are also dependent upon the continued normal functioning of 
surface and air transportation, electric utility and voice and data 
transmission infrastructure, and the electronic payments systems and other 
activities of large financial institutions. Many of these companies have very 
large Year 2000 compliance programs underway because they tend to be 
dependent on large, proprietary "legacy" computing systems that are 
particularly susceptible to Year 2000 problems. The success of these 
compliance programs will prove important to the Company and those it does 
business with.

         Based on the assessment efforts to date, however, the Company does 
not believe that the Year 2000 issue will have a material adverse effect on 
its financial condition or results of operations. The Company's beliefs and 
expectations, however, are based on certain assumptions and expectations that 
ultimately may prove to be inaccurate. The Company believes that by the end 
of 1999, it will be able to fully determine its most reasonably likely worst 
case scenarios. Potential sources of risk include (a) the inability of 
principal suppliers to be Year 2000 ready, which could result in delays in 
product deliveries from such suppliers, (b) disruption of the distribution 
channel, including ports, and transportation vendors, as a result of a 
general failure of systems and necessary infrastructure such as electric 
power supply, voice and data communications and financial payment systems, 
and (c) unexpected failures of systems or devices that are misidentified as 
being Year 2000 compliant or which prove unexpectedly to contain 
non-compliant, date-dependent computer code.

         As of the date of this Report, the Company does not expect the 
future costs associated with its Year 2000 efforts to be substantial. To 
date, the Company has spent minimal resources on the Year 2000 issue, as 
such, primarily due to an already established, long term plan to upgrade and 
modernize all systems which it has been implementing since 1995. The Year 
2000 issues have been addressed as part of the overall global system 
strategies. The Company's statements concerning future costs do not include 
time and costs that may be incurred by the Company as a result of the failure 
of any third parties, including suppliers, to become Year 2000 compliant, or 
costs to implement any contingency plans.

         The information above contains forward-looking statements which 
reflect the current views of the Company with respect to Year 2000 compliance 
and the related costs and possible impact on its financial performance. As 
indicated above, these assessments may prove to be inaccurate. The Year 2000 
problem is novel. Neither the Company nor any of its suppliers is experienced 
at identifying and remediating a problem of this sort which represents a 
systemic defect that, if not corrected, will cause the failure of computer 
systems and computer-controlled devices that are pervasive in the 
infrastructure of business and government.

INFLATION

         The Company believes that the relatively moderate rates of inflation
experienced in recent years have not had a significant impact on its net sales
or profitability.

                                       12
<PAGE>

IMPACT OF RECENTLY ISSUED PRONOUNCEMENTS

         In April 1998, the AICPA issued Statement of Position 98-5, 
"REPORTING ON THE COSTS OF START-UP ACTIVITIES" (98-5). The SOP requires that 
costs incurred during start-up activities, including organization costs, be 
expensed as incurred. SOP 98-5 is effective for financial statements for 
fiscal years beginning after December 15, 1998. Initial application of the 
SOP should be as of the beginning of the fiscal year in which the SOP is 
first adopted and should be reported as a cumulative effect of a change in 
accounting principle.

         The Company expects to adopt SOP 98-5 in the first quarter of 1999. 
Management estimates that the Company will incur a cumulative effect of a 
change in accounting principle of approximately $1.0 million in the 
consolidated statement of operations for the period ending March 31, 1999 
relative to the adoption of the SOP.

FORWARD LOOKING STATEMENTS; BUSINESS RISKS

         This Report contains certain forward-looking statements relating to, 
among other things, future results of operations, growth plans, sales, gross 
margin and expense trends, capital requirements and general industry and 
business conditions applicable to the Company. These forward-looking 
statements are based largely on the Company's current expectations and are 
subject to a number of risks and uncertainties. Actual results could differ 
materially from these forward-looking statements. Important factors to 
consider in evaluating such forward-looking statements include changes in 
external competitive market factors, the effectiveness of the Company's 
promotion and merchandising strategies, changes in the Company's business 
strategy or an inability to execute its strategy due to unanticipated changes 
in the music products industry or the economy in general, the emergence of 
new or growing specialty retailers of music products and various competitive 
factors that may prevent the Company from competing successfully in existing 
or future markets. These matters and other business risks to which the 
Company is subject are discussed in the Company's periodic reports and 
registration statements filed from time to time with the Securities and 
Exchange Commission. In particular, a discussion of such risks in greater 
detail is contained under the caption "Item 1., Business Risks Related to the 
Business" on pages 11 through 13 of the Company's 1997 Annual Report on Form 
10-K.

                                       13


<PAGE>

Part II. OTHER INFORMATION

         ITEM 6.  EXHIBITS.

                 (a)  Exhibit 10.29 Amended and Restated Employment Agreement 
                      between the Company and Bruce Ross

                      Exhibit 10.30 Amended and Restated Employment Agreement 
                      between the Company and Barry Soosman

                      Exhibit 11. Income per share.

                      Exhibit 27. Financial Data Schedule.

                 (b)  Reports on Form 8-K. The Company filed a Form 8-K dated 
                      June 3, 1998 relating to the conversion of Warrants to 
                      purchase 676,566 shares of Guitar Center, Inc. Common 
                      Stock.



                                       14

<PAGE>

         Pursuant to the requirements of the Securities and Exchange Act of 
1934, the registrant has duly caused this report to be signed on its behalf 
by the undersigned thereunto duly authorized as of the 5th day of November 
1998.

                                       Guitar Center, Inc.

                                       /s/  Bruce L. Ross

                                       Bruce L. Ross, Executive Vice President,
                                       Chief Financial Officer and Secretary

                                       (Duly Authorized Officer and Principal 
                                       Financial and Accounting Officer)



                                       15

<PAGE>

Exhibit Index

<TABLE>
<CAPTION>

Exhibit No.   Description
-----------   -----------
<S>          <C>
10.29         Amended and Restated Employment Agreement between the Company and
              Bruce Ross

10.30         Amended and Restated Employment Agreement between the Company and
              Barry Soosman

11            Computation of Income Per Share

27            Financial Data Schedule

</TABLE>


                                       16