<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 June 30, 1999

( )   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 August 11, 1999, 22,072,590 shares of our Common Stock, $.01 par value,
were outstanding.


                                       1

<PAGE>

                       GUITAR CENTER, INC. AND SUBSIDIARY

                                      INDEX


Part I.  Financial Information

         ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

         Condensed Consolidated Balance Sheets - June 30,
         1999 and December 31, 1998 ........................................3

         Condensed Consolidated Statements of Operations -
         Three months ended June 30, 1999 and 1998..........................4

         Condensed Consolidated Statements of Income -
         Six months ended June 30, 1999 and 1998............................5

         Condensed Consolidated Statements of Cash Flows -
         Six months ended June 30, 1999 and 1998 ...........................6

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

         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS .....................11

         ITEM 3.  QUANTITIVE AND QUALITATIVE DISCLOSURES
                  ABOUT MARKET RISK........................................17

Part II. Other Information

         Item 1.  Not Applicable

         Item 2.  Changes in Securities and Use of Proceeds................17

         Item 3.  Not Applicable

         Item 4.  Submission of Matters to a Vote of Security Holders......17

         Item 5.  Not Applicable

         Item 6.  Exhibits and Reports on Form 8-K ........................17


                                      2

<PAGE>



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

<TABLE>
<CAPTION>
                                                          JUNE 30,         DECEMBER 31,
                                                           1999                1998
                                                        ---------          -----------
<S>                                                     C>                     <C>
ASSETS
Current assets:
   Cash and cash equivalents                            $     880          $     472
   Inventories, net of reserves                           147,930            126,957
   Accounts receivable, net of reserves                    15,551             13,614
   Prepaid expenses and deposits                            2,990              3,324
   Pre-opening costs and other current assets                   -              2,850
                                                        ---------          ---------
Total current assets                                      167,351            147,217

Property and equipment, net                                50,284             42,410
Goodwill, net                                               4,541              4,618
Deferred tax assets                                        10,431             10,431
Deposits and other assets, non-current                      4,962              3,382
                                                        ---------          ---------
                                                        $ 237,569          $ 208,058
                                                        =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                     $  33,894          $  35,152
   Accrued expenses and other current liabilities          14,269             15,934
   Merchandise advances                                     7,164              7,147
   Line of credit                                          49,828             20,850
   Current portion of long term debt                          264                527
                                                        ---------          ---------
Total current liabilities                                 105,419             79,610

Rent equalization                                           1,737              1,570
Long term debt                                             67,946             80,663
                                                        ---------          ---------
Total liabilities                                         175,102            161,843

Stockholders' equity
   Common stock, $0.01 par value,
     authorized 55,000,000 shares, issued and
     outstanding 22,072,590 at June 30, 1999 and
     20,092,943 at December 31, 1998, respectively            221                201
   Additional paid in capital                             242,251            228,195
   Accumulated deficit                                   (180,005)          (182,181)
                                                        ---------          ---------
Total stockholders' equity                                 62,467             46,215
                                                        ---------          ---------

                                                        $ 237,569          $ 208,058
                                                        =========          =========
</TABLE>

      See accompanying notes to condensed consolidated financial statements.

                                       3

<PAGE>

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


<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                                 JUNE 30,              JUNE 30,
                                                  1999                   1998
                                                ---------             ---------
<S>                                             C>                    <C>
Net sales                                       $ 139,186             $114,540
Cost of goods sold, buying and occupancy          102,340               83,135
                                                ---------             --------
Gross profit                                       36,846               31,405

Selling, general and administrative                30,591               26,597
Transaction and conversion costs                    3,627                    -
                                                ---------             --------
Operating income                                    2,628                4,808

Interest expense, net                               2,576                2,335
Interest expense to related parties                   201                  308
Other                                                   -                 (324)
                                                ---------             --------

Income (loss) before income taxes                    (149)               2,489

Income taxes                                            -                  168
                                                ---------             --------

Net income (loss)                               $    (149)           $   2,321
                                                =========            =========

Net income (loss) per share
     Basic                                      $   (0.01)           $    0.11
                                                =========            =========

     Diluted                                    $   (0.01)           $    0.10
                                                =========            =========


Weighted average shares outstanding
     Basic                                         22,072               21,510
                                                =========            =========
     Diluted                                       22,072               23,149
                                                =========            =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       4


<PAGE>

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

<TABLE>
<CAPTION>
                                                                        SIX MONTHS ENDED
                                                                  JUNE 30,           JUNE 30,
                                                                   1999                1998
                                                                ---------            --------
<S>                                                              <C>                 <C>

Net sales                                                        $274,624            $222,249
Cost of goods sold, buying and occupancy                          202,729             161,836
                                                                 --------            --------
Gross profit                                                       71,895              60,413

Selling, general and administrative                                59,141              51,243
Transaction and conversion costs                                    3,627                   -
                                                                 --------            --------
Operating income                                                    9,127               9,170

Interest expense, net                                               5,029               4,489
Interest expense to related parties                                   501                 587
Other                                                                   -                (324)
                                                                 --------            --------

Income before income taxes and cumulative effect
   of a change in accounting principle                              3,597               4,418

Income taxes                                                        2,099                 303
                                                                 --------            --------

Income before cumulative effect of a change in
   accounting principle                                             1,498               4,115

Cumulative effect of changing accounting principle
   to write-off pre-opening costs, net of tax                       1,074                   -
                                                                 --------            --------

Net income                                                       $    424            $  4,115
                                                                 ========            ========

Net income per share
     Basic
       Income before cumulative effect of a change
           in accounting principle                               $   0.07            $   0.19

       Cumulative effect of changing accounting
           principle to write-off pre-opening costs                 (0.05)                  -
                                                                 --------            --------
              Net income                                         $   0.02            $   0.19
                                                                 ========            ========
     Diluted
       Income before cumulative effect of a change
           in accounting principle                               $   0.07            $   0.18
       Cumulative effect of changing accounting
           principle to write-off pre-opening costs                 (0.05)                  -
                                                                 --------            --------
              Net income                                         $   0.02            $   0.18
                                                                 ========            ========

Weighted average shares outstanding
     Basic                                                         22,067              21,409
                                                                 ========            ========
     Diluted                                                       22,623              22,932
                                                                 ========            ========
</TABLE>

      See accompanying notes to condensed consolidated financial statements.


                                       5


<PAGE>

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

<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED JUNE 30,
                                                               ---------------------------
                                                                 1999               1998
                                                               ---------          --------
<S>                                                            <C>                <C>
OPERATING ACTIVITIES
Net income                                                      $    424          $  4,115
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
    Depreciation and amortization                                  3,726             2,508
    Amortization of deferred financing fees                          120               120
    Gain on sale of property                                           -              (324)
    Cumulative change in accounting principle pre-opening
       cost write-off                                              1,652                 -
    Changes in operating assets and liabilities:
       Accounts receivable                                        (1,937)            1,431
       Merchandise inventories                                   (20,973)          (19,787)
       Prepaid expenses                                              334            (1,794)
       Other assets                                                 (517)             (594)
       Accounts payable                                           (1,258)           (1,696)
       Accrued expenses and other current liabilities             (1,665)           (6,077)
       Other long term liabilities                                   167               276
       Merchandise advances                                           17               945
                                                                 -------           --------
Net cash provided by (used in) operating activities              (19,910)          (20,877)

INVESTING ACTIVITIES
Proceeds from sale of property                                         -               733
Purchase of property and equipment                                (8,868)          (11,263)
Payment for purchase of Rhythm City, Inc.,
  net of cash acquired                                                 -              (507)
                                                                 -------           --------
Net cash used in investing activities                             (8,868)          (11,037)

FINANCING ACTIVITIES
Net change in revolving debt facility                             28,978            21,574
Proceeds from exercise of stock options                              208               599
Warrant underwriting                                                   -               (87)
Borrowings from related party debt                                     -             3,155
                                                                 -------           --------
Net cash provided by financing activities                         29,186            25,241

Net increase (decrease) in cash and cash equivalents                 408            (6,673)
Cash and cash equivalents at beginning of year                       472             8,370
                                                                 -------           --------

Cash and cash equivalents at end of period                      $    880          $  1,697
                                                                ========          ========

NON CASH INVESTING ACTIVITIES
Contribution of land and building                                  1,750                 -
Borrowings under capital lease                                       890                 -
Related party debt converted to common stock                      13,870                 -
</TABLE>

          See accompanying notes to condensed consolidated 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, ("Guitar Center" or the "Company"), as of June
         30, 1999, and the results of operations and cash flows for the six
         months ended June 30, 1999 and 1998. The accompanying 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, 1998 and the Musician's
         Friend audited financial statements and notes thereto for the year
         ended December 31, 1998 contained in the Form 8-K/A filed August 11,
         1999.

         The results of operations for the six months ended June 30, 1999 are
         not necessarily indicative of the results to be expected for the full
         year.

2.       Merger

         On May 28, 1999, we acquired all of the stock of Musician's Friend,
         Inc., a Delaware corporation ("Musician's Friend"), pursuant to a
         merger agreement. Each share of Musician's Friend common stock was
         converted into approximately 10.02 shares of Guitar Center common
         stock. In total, 1,959,970 shares of common stock were issued and
         stock options to purchase 250,505 shares of common stock were
         assumed. The assumed stock options have exercise prices of $19.96 to
         $21.96 per share, with a weighted average exercise price of $20.31.

         Under the terms of the merger agreement, 30% of the total shares issued
         were placed in escrow for general indemnification purposes and for
         indemnification against damages related to specific tax issues.

         The merger was accounted for under the pooling of interests method.
         Accordingly, the financial statements of Guitar Center have been
         restated for all periods to include the results of Musician's Friend.

         The following reflects net sales and net income (loss) of the
         previously separate companies for the period before the combination
         was consummated and for the period ending June 30, 1998, which are
         included in the current combined net sales and net income (loss) (in
         thousands):

<TABLE>
<CAPTION>

                               Five Months Ended                          Two Months Ended
                                 May 28, 1999                               May 28, 1999
                       Guitar Center      Musician's Friend      Guitar Center      Musician's  Friend
                         1999                1999                  1999                     1999
                      --------------------------------------------------------------------------------

<S>                    <C>                 <C>                    <C>                <C>
Net sales               $   185,403          43,411                 $ 75,499               17,878
Net income (loss)       $     5,241          (3,044)                $  2,420                 (794)


</TABLE>


<TABLE>
<CAPTION>

                              Three Months Ended                          Six Months Ended
                                 June 30, 1998                              June 30, 1998
                       Guitar Center      Musician's Friend      Guitar Center      Musicians  Friend
                         1998                1998                  1998                     1998
                      --------------------------------------------------------------------------------

<S>                    <C>                 <C>                    <C>                <C>
Net sales               $    91,260          23,280                 $ 176,476               45,773
Net income (loss)       $     4,856          (2,535)                $   9,076               (4,961)


</TABLE>

         Due to the seasonal nature of these business segments, especially
         retail operations, the above net revenue and operating results for the
         second quarter and the six months ended June 30, 1999 are not
         necessarily indicative of the results that may be expected for the
         full year.



3.       Accounting Policies

         REVENUE RECOGNITION

         Retail sales are recognized at the time of sale, net of a provision for
         estimated returns. Mail order and Internet sales are recognized when
         the related products are shipped to customers, net of a provision for
         estimated returns. Previously, we entered into numerous installment
         transactions in our catalog and Internet business. Such programs
         were substantially terminated in the fourth quarter of 1998.

         ADVERTISING

         We expense retail advertising as incurred. Mail order catalog costs are
         capitalized on a catalog by catalog basis and are amortized over the
         expected period of future benefits, not to exceed five months, under
         the provisions of SOP 93-7.

4.       Income Taxes

         As a result of the $72.4 million loss incurred in connection with
         the recapitalization completed in fiscal 1996, the Company had a net
         operating loss carryforward for federal income taxes of
         approximately $41.8 million as of December 31, 1998. A provision for
         income taxes of $2.1 million has been made in the condensed
         consolidated statement of operations for the six months ended June
         30, 1999.

         Income taxes for the three and six months ended June 30, 1999 include
         income taxes provided on the income of Guitar Center prior to the
         merger with Musician's Friend. The losses incurred by Musician's
         Friend prior to the merger have not been utilized to offset income
         from Guitar


                                      7


<PAGE>

         Center, nor has a deferred tax benefit been recorded due to
         uncertainty concerning the realizability of such benefit.

         From 1994 through 1997, Musician's Friend business was operated by
         Musician's Friend Trust,  an Oregon business trust (the "Trust"),
         which, as a trust, claimed it was not subject to federal and state
         income taxes. Accordingly, Musician's Friend has not recorded
         provisions for income taxes since the Trust's income or loss was
         attributable to the individual beneficiaries of the Trust and its
         related trusts.

         During 1998, the Internal Revenue Service ("IRS") took the position
         that the Trust was an association which is taxable as a corporation
         and not as a trust. Accordingly, the IRS asserted that the Trust was
         required to file its tax returns and pay income taxes at corporate
         rates in effect. Alternatively, the IRS contended that the Trust and
         related beneficiary were formed to avoid federal income taxes which
         were legally owed by the Trust and the individuals involved. As a
         result, the IRS issued reports to the the Trust claiming taxes due
         of $4,443,000 for the years 1994 - 1996, with penalties aggregating
         $1,286,000 and related interest. No claims relating to 1997 have
         been quantified to date in the IRS reports. The Musician's Friend
         business was operated as an S corporation for years prior to 1994.
         Accordingly, Musician's Friend's taxable income for 1994 and prior
         years had been attributed to the owners. Effective January 1, 1998,
         the Trust contributed the Musician's Friend business to a Delaware
         corporation taxable as a C corporation. By the express terms of the
         contribution agreement, that corporation did not assume any
         liability of the Trust or its beneficiaries for prior period taxes.

         The trust is contesting the positions of the IRS. Guitar Center has
         not provided for income tax expense related to this matter in its
         consolidated financial statements because its subsidiary, Musician's
         Friend, Inc., did not assume any liabilities related to this dispute
         when it was formed in January 1998 and therefore Guitar Center
         believes the liability related to any resolution of this matter
         properly resides with the Trust and its beneficiaries. As with any
         form of litigation, however, there is uncertainty regarding the
         ultimate outcome of this matter. Accordingly, pursuant to the merger
         agreement, 20% of the shares otherwise issuable to the former
         stockholders of Musician's Friend have been placed in escrow pending
         resolution of this matter.

5.       Line of Credit

         In July 1999, we terminated our prior credit facility and entered
         into a new $60 million secured revolving line of credit (the "1999
         Facility") with Wells Fargo Bank which is available through July 1,
         2004. This increased availability had been made available from and
         after June 1, 1999, as an amendment to the prior facility. The 1999
         Facility provides for revolving credit or term loan borrowings up to
         $60 million in the aggregate. The 1999 Facility is secured by
         specified inventory, receivables, and intellecutal property rights. A
         fee of 0.25% is assessed on the unused portion of the 1999 Facility.

         Under the terms of the 1999 Facility and its predecessor, we are
         subject to various financial and other covenants. We were in
         compliance with such covenants at June 30, 1999. Borrowings under
         the 1999 Facility bear interest at either the prime rate or at LIBOR
         plus 1.5%, at our option, with interest due monthly. At June 30,
         1999, we had $49.8 million outstanding under our 1999 Facility.

                                       8

<PAGE>

6.       Transaction costs

         Transaction and store conversion costs totaled $3.6 million
         during the three months ended June 30, 1999. These costs relate
         to the merger with Musician's Friend during the second quarter of
         1999 and principally include financial advisory fees, legal and
         accounting fees, and a severance accrual for a former Musician's Friend
         executive.

7.       Change in Accounting for Store Pre-Opening Costs

         Effective January 1, 1999, we adopted AICPA Statement of Position 98-5,
         "Reporting on the Costs of Start-up Activities" (SOP 98-5), which
         requires all store pre-opening costs to be expensed as incurred. As
         result of this adoption, we recorded a charge for the cumulative effect
         of this change in accounting principle, of $1,074,000 (net of taxes of
         $578,000), in the Statement of Operations for the period ending
         June 30, 1999 relative to the adoption of SOP 98-5.

         The following illustrates the pro forma amounts assuming the new
         accounting policy for pre-opening costs was applied retroactively:
         ($ in 000's, except per share data)

<TABLE>
<CAPTION>
                                                                1999          1998
                                                               ------        ------
              <S>                                              <C>           <C>
              Net income ..............................        $1,498        $3,912
              Net income per share:
                Basic .................................        $ 0.07        $ 0.18
                Diluted ...............................        $ 0.07        $ 0.17
</TABLE>

                                      9

<PAGE>

8.       Segment Information

         In accordance with the requirements of SFAS 131, "Disclosures about
         Segements of and Enterprise and Related Information," our reportable
         business are retail (stores) and direct response (catalog and
         Internet). Management evaluates segment performance based primarily
         on revenue and net income.

         Sales, net income, and total assets are summarized as follows for
         the second quarters and six months ended June 30, 1999 and June 30,
         1998 (in thousands):

<TABLE>
<CAPTION>

                                    Three Months Ended                          Six Months Ended
                         Retail      Direct Response                  Retail     Direct Response
                          1999             1999          Total         1999           1999          Total
                       ----------   ------------------   -------    ----------  ----------------   -------
<S>                   <C>          <C>                  <C>        <C>         <C>                <C>
Sales                  $  122,431         16,755         139,186    $  240,494       34,130        274,624

Net Income (loss)           1,872         (2,021)           (149)        4,275       (3,851)           424

Total Assets           $  219,598         17,971         237,569    $  219,598       17,971        237,569



                                    Three Months Ended                          Six Months Ended
                         Retail      Direct Response                  Retail     Direct Response
                          1998             1998          Total         1998           1998          Total
                       ----------   ------------------   -------    ----------  ----------------   -------
<S>                   <C>          <C>                  <C>        <C>         <C>                <C>
Sales                  $   95,261         19,279         114,540    $  184,232       38,017        222,249

Net Income (loss)           4,722         (2,401)          2,321         8,534       (4,419)         4,115

Total Assets           $  158,107         25,728         183,835    $  158,107       25,728        183,835

</TABLE>

                                      10

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

OVERVIEW

         We operated 61 retail locations in 32 major markets and 3 stores in
secondary markets as of June 30, 1999, and with the acquisition of Musician's
Friend, we now operate the largest direct response channel (catalog and
Internet) in the musical instruments industry in the United States. From 1994 to
1998, our net sales grew at an annual compound rate of 32.3%, principally due to
the comparable store sales growth of our Guitar Center stores averaging 15.2%
per year, the opening of new stores, and a 26.0% increase in the direct
response channel. Our management believes such volume increases are the result
of the continued success of the implementation of our business strategy,
continued growth in the music products industry and increasing consumer
awareness of the Guitar Center name. We do not expect comparable store sales to
continue to increase at historical rates.

         We opened twelve Guitar Center stores in 1998 and, as of June 30,
1999, had opened seven additional Guitar Center stores this year. Presently,
we expect to open an additional five Guitar Center stores during the
remainder of 1999. We opened four stores in 1998 under the Musician's Friend
brand and opened one additional Musician's Friend store in January of 1999.
Of the nine Musician's Friend retail locations acquired, we currently
anticipate rebranding seven of the nine stores to the Guitar Center name and
format. This conversion process will take approximately nine months and will
encompass three stages, back room infrastructure, store remodeling, and
remerchandising. As of June 30, 1999, we have completed stage one of the
conversion for one retail location. The two small Musician's Friend locations
will likely continue to operate under the Musician's Friend brand. However,
all retail locations are being integrated with the existing Guitar Center
stores infrastructure. 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.
We believe the infrastructure is in place to support our needs for the
immediate foreseeable future, including our present expansion plans. We will
continue to pursue our 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 this clustering
strategy results in some transfer of sales from existing stores to new
locations. As we enter new markets, management expects that we will initially
incur higher administrative and promotional costs per store than is currently
experienced in established markets. We also expect competition to continue to
increase over time as other music products retailers attempt to execute
national growth strategies.

         The following table sets forth historical income statement data as a
percentage of net sales:
<TABLE>
<CAPTION>
                                                        Three Months Ended         Six Months Ended
                                                                June 30,               June 30,
                                                        1999           1998        1999       1998
                                                       ------        -------      ------     -------
<S>                                                    <C>           <C>          <C>        <C>
Net sales                                              100.0%         100.0%      100.0%      100.0%
Gross profit                                            26.5           27.4        26.2         27.2
Selling, general, and administrative expenses           22.0           23.2        21.6         23.1
Transaction cost & conversion costs                      2.6              -         1.3           -
                                                       -----          -----       -----       -----
Operating income                                         1.9            4.2         3.3          4.1
Interest expense, net                                    1.9            2.0         1.8          2.0
Interest expense to related parties                      0.1            0.3         0.2          0.3
Other                                                      -           (0.3)          -         (0.2)
Income before income taxes and cumulative
   effect of a change in accounting principle           (0.1)           2.2         1.3          2.0
Income taxes                                               -            0.2         0.8          0.1
                                                       -----          -----       -----       -----
Income before cumulative effect of a
   change in accounting principle                       (0.1)           2.0         0.6          1.9
Cumulative effect of a change in accounting
   principle to write-off pre-opening costs, net of        -              -         0.4            -
                                                       -----          -----       -----       -----
Net income (loss)                                       (0.1)           2.0         0.2          1.9
                                                       -----          -----       -----       -----
</TABLE>

                                       11

<PAGE>
RESULTS OF OPERATIONS

         THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1998.

         Net sales increased to $139.2 million for the three months ended
June 30, 1999, from $114.6 million for the comparable prior period, a 21.5%
increase. Net sales from retail stores totaled $122.4 million, an increase of
$27.2 million, or 28.5%. Sales from new stores contributed $20.9 million, or
77% of the increase. Comparable store sales increased 7%. Comparable stores
sales growth have been adversely effected due to softness in the market for
high-technology products, competition in selected markets, including
locations where we have opened additional Guitar Center stores to build out
important markets, and a change in our direct mail strategy implemented in
1999 that is being reversed. Our management is presently anticipating
comparable store sales growth of 5 to 7 percent for the immediate future. The
foregoing guidance is subject to the qualifications set forth below under
"Forward Looking Statements; Business Risks." Net sales from the catalog and
Internet channel totaled $16.8 million, a $2.5 million decrease from the
second quarter of 1998. The reduction in sales was primarily due to the
substantial termination of the inhouse installment credit program in the
fourth quarter of 1998 and its impact on the average order size of catalog
transactions. This reduction was partially offset by a 234% increase in
Internet sales in the second quarter of 1999 compared to the same period in
1998.

         Gross profit dollars for the three months ended June 30, 1999 compared
to 1998 increased 17.3% to $36.9 million from $31.4 million. Gross profit as a
percentage of net sales for the three months ended June 30, 1999 compared to
1998 decreased to 26.5% from 27.4%. Gross profit margin percentage for the
retail stores after buying and occupancy costs was 26.0% compared to 27.9% in
the second quarter of 1998. The reduction in gross profit margin quarter over
quarter is due to increased occupancy costs due to the number of stores less
than two years old (27 stores out of 64 stores), increased freight expense as
more stores are opened on the East Coast, a reduction in selling margin due to
special buys that were made in the second quarter of 1998 that were not
available in the second quarter of 1999, and a general increase in the cost of
certain products. The gross profit margin for the catalog / Internet division
was 30.1% for the quarter compared to 25.0% in the second quarter of 1998. In
1998 significant markdowns were required to clear excess catalog and Internet
inventories. Markdowns of the same magnitude have not been required to date in
1999. Additionally, during 1998 higher than average shrink occurred in the
unit's distribution facilities.

         Selling, general and administrative expenses for the three months ended
June 30, 1999 compared to 1998 increased 15.0% to $30.6 million from $26.6
million. Selling, general and administrative expenses, for the three months
ended June 30, 1999 compared to 1998 decreased to 22.0%, as a percentage of
sales, from 23.2%. Selling, general and administrative expenses for the retail
stores in the second quarter, inclusive of pre-opening costs and corporate
general and administrative expenses, was 20.7% as a percentage of sales compared
to 20.9% in last year's second quarter. These results reflect the leveraging of
corporate expenses, partially offset by higher store level selling, general and
administrative expenses due to the number of stores that are less than two years
old. Selling, general and administrative expenses for the catalog / Internet
division were 31.6% as a percentage of sales in the second quarter compared to
34.6% in the same period last year. In 1998 Musician's Friend incurred
substantial bad debt expense related to its inhouse installment credit program.
This program was substantially terminated in the fourth quarter of 1998.

         Transaction and store conversion costs totaled $3.6 million, or 2.6%
of sales during the three months ended June 30, 1999. These costs relate to
the acquisition of Musician's Friend during the second quarter of 1999 and
principally include financial advisory fees ($1.3 million), legal and
accounting fees ($1.2 million), and a severance accrual for a former
Musician's Friend executive ($0.8 million).

         Operating income for the three months ended June 30, 1999 was $2.6
million compared to $4.8 million for the same three months of 1998, a decrease
of 45.3%. The decrease is principally the result of the transaction and
conversion costs discussed above. As a percentage of sales, operating income was
1.9% and 4.2% in the three months ended June 30, 1999 and 1998, respectively.

         Interest expense, net for the three months ended June 30, 1999
increased to $2.8 million from $2.6 million in the same period of 1998. Interest
expense includes interest to related parties of $0.2 million and $0.3 million
for the three months ended June 30, 1999, respectively.

                                      12
<PAGE>
         In the quarter ended June 30, 1999, no provision for income taxes was
recorded due to the loss for the period. In the prior period, minimal income
taxes were charged to income as we recognized the benefit of our tax net
operating loss carryforward. As the majority of the tax benefits related to the
net operating loss carryforward had been recognized as of December 31, 1998, the
Company's effective tax rate for the three month ended June 30 represents the
combined federal and state rates expected to be realized for the full year,
offset partially by the recognition of the remaining NOL.

         Net loss for the three months ended June 30, 1999 was ($149,000),
compared to net income of $2.3 million in the second quarter of 1998,
principally as a result of the effect of the transaction and conversion costs as
discussed above.


         SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1998.

         Net sales increased to $274.6 million for the six months ended June
30, 1999, from $222.2 million for the comparable prior period, a 23.6%
increase. Net sales from retail stores totaled $240.5 million, an increase of
$56.3 million, or 30.5%. Sales from new stores contributed $41.3 million, or
73% of the increase. Comparable store sales increased 8%. Comparable stores
sales growth has been adversely effected due to softness in the market for
high-technology products, competition in selected markets, including
locations where we have opened additional Guitar Center stores to build out
important markets, and a change in our direct mail strategy implemented in
early 1999 that is being reversed. Net sales from the catalog and Internet
channel totaled $34.1 million, a $3.9 million decrease from the six months
ended June 30, 1998. The reduction in sales was primarily due to the
substantial termination of the inhouse installment credit program in the
fourth quarter of 1998 and its impact on the average order size of catalog
transactions. This reduction was partially offset by a 192% increase in
Internet sales in the six months ended June 30, 1999 compared to the same
period in 1998.

         Gross profit dollars for the six months ended June 30, 1999 compared to
1998 increased 19.0% to $71.9 million from $60.4 million. Gross profit as a
percentage of net sales for the six months ended June 30, 1999 compared to 1998
decreased to 26.2% from 27.2%. Gross profit margin percentage for the retail
stores after buying and occupancy costs was 25.9% compared to 27.5% in the six
months ended June 30, 1998. The reduction in gross profit margin quarter over
quarter is due to increased occupancy costs due to the number of stores less
than two years old (27 stores out of 64 stores), increased freight expense as
more stores are opened on the East Coast, a reduction in selling margin due to
special buys that were made in the second quarter of 1998 that were not
available in the second quarter of 1999, and a general increase in the cost of
certain products. The gross profit margin for the catalog / Internet division
was 28.2% for the six months ended June 30, 1999 compared to 25.6% in the six
months ended June 30, 1998. In 1998 significant markdowns were required to clear
excess catalog and Internet inventories. Markdowns of the same magnitude have
not been required to date in 1999. Additionally, during 1998 higher than average
shrink occurred in the unit's distribution facilities.

         Selling, general and administrative expenses for the six months ended
June 30, 1999 compared to 1998 increased 15.4% to $59.1 million from $51.2
million. Selling, general and administrative expenses, for the six months ended
June 30, 1999 compared to 1998 decreased to 21.5%, as a percentage of sales,
from 23.1%. Selling, general and administrative expenses for the retail stores
in the second quarter, inclusive of pre-opening costs and corporate general and
administrative expenses, was 20.0% as a percentage of sales compared to 20.7% in
the six months ended June 30, 1998. These results reflect the leveraging of
corporate expenses, partially offset by higher store level selling, general and
administrative expenses due to the number of stores that are less than two years
old. Selling, general and administrative expenses for the catalog / Internet
division were 32.4% in the six months ended June 30, 1999 compared to 34.6% in
the same period last year. In 1998 Musician's Friend incurred substantial bad
debt expense related to its inhouse installment credit program. This program was
substantially terminated in the fourth quarter of 1998.

         Transaction and store conversion costs totaled $3.6 million, or 1.3%
of sales during the six months ended June 30, 1999. These costs relate to the
acquisition of Musician's Friend during the second quarter of 1999 and
principally include financial advisory fees ($1.3 million), legal and
accounting fees ($1.2 million), and a severance accrual for a former
Musician's Friend executive ($0.8 million).

                                     13
<PAGE>
         Operating income for the six months ended June 30, 1999 was $9.1
million compared to $9.2 million for the same six months of 1998. The decrease
is principally the result of the transaction and conversion costs discussed
above, principally offset by the increase in sales. As a percentage of sales,
operating income was 3.3% and 4.1% in the six months ended June 30, 1999 and
1998, respectively.

         Interest expense, net for the six months ended June 30, 1999 increased
to $5.5 million from $5.1 million in the same period of 1998. Interest expense
includes interest to related parties of $0.5 million and $0.6 million for the
six months ended June 30, 1999, respectively.

         In the quarter ended June 30, 1999, no provision for income taxes was
recorded due to the loss for the period. In the prior period, minimal income
taxes were charged to income as we recognized the benefit of our tax net
operating loss carryforward. As the majority of the tax benefits related to the
net operating loss carryforward had been recognized as of December 31, 1998, the
Company's effective tax rate for the six month ended June 30 represents the
combined federal and state rates expected to be realized for the full year,
offset partially by the recognition of the remaining NOL.

         Net income for the six months ended June 30, 1999 was $0.4 million,
compared to $4.1 million in the same period of 1998, principally as a result of
the effect of the transaction and conversion costs as discussed above, and
income taxes.

LIQUIDITY AND CAPITAL RESOURCES

         On May 13, 1999, we completed the merger with Musician's Friend
("MF"). Each outstanding share of MF common stock was converted into the
right to receive approximately 10.02 shares of Guitar Center common stock. In
connection with the merger we issued an aggregate of 1,959,970 shares of
common stock and assumed options (from Musician's Friend) to purchase 250,505
shares of common stock. In addition, we refinanced MF's outstanding
obligations under its secured credit facility in the aggregate amount of
approximately $17.3 million and incurred transaction expenses of
approximately $3.6 million. The source of funds was borrowings under our
credit facility. In July 1999, we terminated our prior credit facility (1997
Credit Facility) and entered into the 1999 Credit Facility which allows for
borrowings up to $60 million and expires on July 1, 2004. This increased
availability had been made available from and after June 1, 1999 as an
amendment to the prior facility. The 1999 Facility is secured by specified
inventory, receivables, and intellectual property rights. A fee of 0.25% is
assessed on the unused portion of the 1999 Facility. The agreement underlying
the 1999 Credit Facility includes certain restrictive covenants, which among
other things, require us to maintain certain financial ratios. We were in
compliance with respect to such requirements as of June 30, 1999. MF also has
outstanding capital leases of approximately $1.0 million related to computer
equipment financings which will remain in place.

         Our need for liquidity will arise primarily from interest payable on
indebtedness and the funding of capital expenditures and working capital
requirements, as well as possible acquisitions. We have historically financed
our operations through internally generated funds and borrowings under our
credit facilities. We have no mandatory payments of principal on the $66.7
million Senior Notes outstanding prior to their final maturity in 2006. As of
June 30, 1999, we had $49.8 million outstanding under our credit facility
with Wells Fargo Bank, excluding $170,000 outstanding on standby letters of
credit, and had available borrowings of approximately $10 million.

         For the six months ended June 30, 1999, cash used by operating
activities was $19.9 million, most of which represented addition to
inventory. Cash used in investing activities totaled $8.9 million. Cash
provided by financing activities totaled $29.2 million, which principally
consisted of borrowings under the credit facility.

         We intend to pursue an aggressive growth strategy by opening
additional stores in new and existing markets. During the six months ended
June 30 1999, we opened eight new stores of which one was operated by
Musician's Friend. Each new store typically has required approximately $1.8
million for gross inventory. Historically, our cost of capital improvements
for an average new store has been approximately $850,000, consisting of
leasehold improvements, fixtures and equipment. We are currently evaluating
the costs of remodeling the large format Musician's Friend store locations
that will be rebranded to the Guitar Center name. Inventory requirements for
these locations should not significantly change. The costs to provide the
additional system technology to all nine of the Musician's Friend

                                      14
<PAGE>

stores will approximate $85,000 each. We are also currently evaluating
additional capital and strategic requirements related to improving the
technology for the Internet business. Such costs could be significant.

         Our expansion strategy is to continue to increase our market share in
existing markets and to penetrate strategically selected markets. We opened a
total of 12 stores in 1998 and 8 stores in 1997, and currently anticipate
opening approximately five additional stores in 1999 and approximately 16 stores
in 2000. In preparation for this expansion, we have dedicated a substantial
amount of our resources over the past several years to building the
infrastructure necessary to support a large national chain. In addition, we have
developed a methodology for targeting prospective store sites which includes
analyzing demographic and psychographic characteristics of a potential store
location. We also believe there may be attractive opportunities to expand by
selectively acquiring existing music products retailers. However, in the music
industry there are only a small number of companies that would strategically and
financially be a beneficial opportunity for us to acquire. Our "average" store
is 16,800 square feet, carrying 7,000 SKUs and generating first year sales of
$6,000,000, whereas the "average" industry store is 3,200 square feet, carrying
2,500 SKUs and generating sales of $720,000.

         Management believes that our 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 our present plans for expansion as described elsewhere in this
Report. Our capital resources and liquidity are expected to be provided by net
cash flow from operations and borrowings under the 1999 Credit Facility.
Depending upon market conditions, we 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 us, if at all.

SEASONALITY

         Our operating 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 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, we 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 including a major software project related to our inventory management
system implemented in April of 1999. As of the date of this Report, we believe
that all of our significant IT systems will be Year 2000 compliant by the end of
1999. We currently do not have a contingency plan with regard to the Year 2000.
During 1999, we will continue to evaluate whether and to what extent contingency
arrangements should be implemented.

         We have also endeavored to assess the Year 2000 compliance of the
outside parties upon which we are most dependent, including large vendors of the
products resold in the Guitar Center stores. While we are not aware of any
material compliance difficulties expected by any such supplier, our ability to
obtain accurate information is necessarily limited. A number of our vendors
manufacture their products overseas, also making accurate information difficult
to obtain. Those vendors, as well as ourselves, 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 significant Year 2000 compliance programs underway because
they tend to be dependent on large, proprietary "legacy" computing systems that
are


                                        15


<PAGE>
particularly susceptible to Year 2000 problems. The success of these
compliance programs will prove important to us and our business.

         Based on the assessment efforts to date, however, we do not believe
that the Year 2000 issue will have a material adverse effect on our financial
condition or results of operations. Our beliefs and expectations, however, are
based on assumptions and expectations that ultimately may prove to be
inaccurate. We believe that by the end of 1999, we will be able to fully
determine its most reasonably likely worst case scenarios. Potential sources of
risk include:

           -  the  inability  of  principal  suppliers  to be Year 2000 ready,
              which could  result in delays in product deliveries from such
              suppliers;

           -  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

           -  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, we do not expect the future costs
associated with our Year 2000 efforts to be substantial. To date, we have 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 we have
been implementing since 1995. The Year 2000 issues have been addressed as part
of the overall global system strategies. Our statements concerning future costs
do not include time and costs that may be incurred by us 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 our 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 Guitar Center nor any of our 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

         We believe that the relatively moderate rates of inflation experienced
in recent years have not had a significant impact on our net sales or
profitability.


FORWARD LOOKING STATEMENTS; BUSINESS RISKS

         This Report contains 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 Guitar Center. These forward-looking statements are
based largely on our current expectations and are subject to risks and
uncertainties. Actual results could differ materially from these
forward-looking statements. Important factors to consider in evaluating any
of these forward-looking statements include changes in external competitive
market factors, the effectiveness of our promotion and merchandising
strategies, changes in our business strategy or any inability to execute our
business 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
us from competing successfully in existing or future markets. These matters
and other business risks to which Guitar Center is subject are discussed in
our periodic reports and registration statements filed from time to time with
the Securities and Exchange Commission. In particular, a discussion of some
of the business risks that we face is contained under the caption "Item 1.,
Business Risks Related to the Business" on pages 11 through 13 of our 1998
Annual Report on Form 10-K. We do not presently intend to update any of these
forward looking statements.

                                       16
<PAGE>

         ITEM 3.  QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

         Guitar Center does not have any assets or liabilities which in its
view impose upon it significant market risk except that it has outstanding
$66.7 million in aggregate principal amount of 11% Senior Notes due 2006.
These senior notes constitute long-term, fixed interest rate obligations for
which market quotations are available.

Part II. OTHER INFORMATION

         ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

                  (c)  During the quarter ended June 30, 1999, the Registrant
                       issued shares of common stock in connection with the
                       acquisition of Musician's Friend, Inc. as more fully
                       described in footnote No. 2 to the condensed consolidated
                       financial statements contained in this Report and in the
                       Form 8-K dated May 28, 1999. These issuances were exempt
                       from registration under the Securities Act by operation
                       of Section 4(2) and Regulation D thereunder.

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

         The required information with respect to the Annual Meeting of
Stockholders held April 26, 1999 was previously provided with the Form 10-Q
for the quarter ended March 31, 1999.

         ITEM 6.  EXHIBITS.

                  (a)  Exhibit 2.1      Agreement and Plan of Merger by and
                                        among Guitar Center, Inc., EMIC
                                        Acquisition Corporation, Musician's
                                        Friend, Inc. and the Stockholders of
                                        Musician's Friend, Inc., dated as of
                                        May 13, 1999 (incorporated by reference
                                        from Exhibit 2.1 to the Company's Form
                                        8-K dated May 28, 1999)

                       Exhibit 10.30    Amended and Restated Registration
                                        Rights Agreement (incorporated by
                                        reference from Exhibit 2.2 to the
                                        Company's Form 8-K dated May 28, 1999)

                       Exhibit 10.31    Executive Employment Agreement with
                                        Robert V. Eastman,
                                                  Effective date May 28, 1999

                       Exhibit 10.32    Wells Fargo Bank Credit Agreement

                       Exhibit 11.      Income per share.

                       Exhibit 27.      Financial Data Schedule.


                                     17


<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 14th day of August 1999.

                                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)


                                      18


<PAGE>

Exhibit Index

EXHIBIT NO.       DESCRIPTION
----------        -----------
2.1               Agreement and Plan of Merger by and among Guitar Center,
                  Inc., EMIC Acquisition Corporation, Musician's Friend, Inc.
                  and the Stockholders of Musician's Friend, Inc., dated as of
                  May 13, 1999 (incorporated by reference from Exhibit 2.1 to
                  the Company's Form 8-K dated May 28, 1999)

10.30             Amended and Restated Registration Rights Agreement
                  (incorporated by reference from Exhibit 2.2 to the
                  Company's Form 8-K dated May 28, 1999)

10.31             Executive Employment Agreement with Robert V. Eastman,
                  Effective date May 28, 1999

10.32             Wells Fargo Bank Credit Agreement

11                Income per share.

27                Financial Data Schedule.

                                     19