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|                                                                                                                          | UNITED STATES
      SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 | OMB APPROVAL
|------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------
|OMB Number:
      3235-0416 
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      Hours per response 182

FORM 10-QSB

(Mark one) x QUARTERLY REPORT UNDER SECTION
  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
  For the Quarterly period ended December 31, 2005

 ̈ TRANSITION REPORT
  UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT 
  For the transition period from __________ to ___________

Commission file number 333-120936

THE MEDICAL EXCHANGE INC.
  (Exact name of small business issuer as specified in its charter)

|**Nevada**                                       | **N/A**                          
|------------------------------------------------ | ---------------------------------
|(State or other jurisdiction of incorporation or | (IRS Employer Identification No.)
|organization)                                    |                                  

**1332 8th Street, Saskatoon, Saskatchewan, Canada
  S7N 0S9**
  (Address of principal executive offices)

**(306) 880-1627**
  (Issuer's Telephone Number)

(Former name, former address and former fiscal year, if changed
  since last report)

Check whether the issuer (1) filed all reports require to be
  filed by sections 13 or 15(d) of the Exchange Act during the past 12 months
  (or for such shorten period that the registrant was required to file such report),
  and (2) has been subject to such filing requirements for the past 90 days.

Yes x     No
   ̈

Indicate by a check mark whether the registrant is a shell
  company (as defined in Rule 1b-2 of the Exchange Act).

Yes x     No
   ̈

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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING
  DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports
  required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
  distribution of securities under a plan confirmed by a court. Yes  ̈
  No  ̈.

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's
  classes of common equity as of the latest practicable date:

Outstanding as of January 31, 2006: 2,112,500 common shares

Transitional Small Business Disclosure Format (Check one):
  Yes  ̈ No x

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The following interim unaudited financial statement for the
  period ended December 31, 2005.





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THE MEDICAL EXCHANGE INC.(A Development Stage Company)

INTERIM FINANCIAL STATEMENTS

December 31, 2005

(Unaudited)

(Stated in US Dollars)

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THE MEDICAL EXCHANGE INC.(A Development Stage Company)

INTERIM BALANCE SHEETS

December 31, 2005 and June 30, 2005
  (Unaudited)
  (Stated in US Dollars)

|                                                    |   | December 31, |   |   | June 30, |  
|--------------------------------------------------- | - | ------------ | - | - | -------- | -
|ASSETS                                              |   | 2005         |   |   | 2005     |  
|                                                    |   |              |   |   |          |  
|Current                                             |   |              |   |   |          |  
|Cash and cash equivalents                           | $ | -            |   | $ | 1,263    |  
|                                                    |   |              |   |   |          |  
|Total assets                                        | $ | -            |   | $ | 1,263    |  
|                                                    |   |              |   |   |          |  
|LIABILITIES                                         |   |              |   |   |          |  
|                                                    |   |              |   |   |          |  
|Current                                             |   |              |   |   |          |  
|Bank indebtedness                                   | $ | 25           |   | $ | -        |  
|Accounts payable and accrued liabilities            |   | 3,792        |   |   | 12,787   |  
|Due to related parties  Note
      3               |   | 27,657       |   |   | 10,568   |  
|                                                    |   |              |   |   |          |  
|Total current liabilities                           |   | 31,474       |   |   | 23,355   |  
|                                                    |   |              |   |   |          |  
|STOCKHOLDERS EQUITY
      (DEFICIENCY)             |   |              |   |   |          |  
|                                                    |   |              |   |   |          |  
|Common stock                                        |   |              |   |   |          |  
|Authorized:                                         |   |              |   |   |          |  
|25,000,000 common shares, par value $0.01 per share |   |              |   |   |          |  
|Issued and outstanding:                             |   |              |   |   |          |  
|2,112,500 common shares (June 30, 2005: 2,112,500)  |   | 2,113        |   |   | 2,113    |  
|Additional paid-in capital                          |   | 40,137       |   |   | 40,137   |  
|Accumulated other comprehensive loss                |   | (502         | ) |   | (198     | )
|Deficit accumulated during the development stage    |   | (73,222      | ) |   | (64,144  | )
|                                                    |   |              |   |   |          |  
|Total stockholders equity                          |   | (31,474      | ) |   | (22,092  | )
|                                                    |   |              |   |   |          |  
|Total liabilities and stockholders equity          | $ | -            |   | $ | 1,263    |  

SEE ACCOMPANYING NOTES

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THE MEDICAL EXCHANGE INC.(A Development Stage Company)
  INTERIM STATEMENTS OF OPERATIONS 
  for the three and six month periods ended December 31, 2005 and 2004 and 
  for the period January 23, 2004 (Date of Incorporation) to December 31, 2005
  
  (Unaudited)
  (Stated in US Dollars)

|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   | January 23,   |  
|---------------------------------------- | - | ------------------ | - | - | ---------------- | - | - | ----------------- | - | - | --------- | - | - | ------------- | -
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   | 2004 (Date of |  
|                                         |   | Three months ended |   |   | Six months ended |   |   | Incorporation) to |  
|                                         |   | December 31,       |   |   | December 31,     |   |   | December 31,      |  
|                                         |   | 2005               |   |   | 2004             |   |   | 2005              |   |   | 2004      |   |   | 2005          |  
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Administration expenses                  |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Accounting and audit fees
       Note 3 | $ | 1,501              |   | $ | 2,943            |   | $ | 2,001             |   | $ | 4,606     |   | $ | 18,172        |  
|Bank charges and interest                |   | 20                 |   |   | 15               |   |   | 77                |   |   | 66        |   |   | 214           |  
|Legal fees                               |   | 1,580              |   |   | 4,225            |   |   | 5,800             |   |   | 18,693    |   |   | 42,229        |  
|Registration and filing fees             |   | -                  |   |   | 1,362            |   |   | 1,200             |   |   | 1,362     |   |   | 8,179         |  
|Website costs                            |   | -                  |   |   | -                |   |   | -                 |   |   | -         |   |   | 2,928         |  
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Loss before other item                   |   | (3,101             | ) |   | (8,545           | ) |   | (9,078            | ) |   | (24,727   | ) |   | (71,722       | )
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Other item:                              |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Write-off of advance receivable          |   | -                  |   |   | -                |   |   | -                 |   |   | -         |   |   | (1,500        | )
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Net loss for the period                  |   | (3,101             | ) |   | (8,545           | ) |   | (9,078            | ) |   | (24,727   | ) |   | (73,222       | )
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Other comprehensive loss                 |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Foreign currency translation             |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|adjustment                               |   | (295               | ) |   | (18              | ) |   | (304              | ) |   | 26        |   |   | (502          | )
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Comprehensive loss                       | $ | (3,396             | ) | $ | (8,563           | ) | $ | (9,382            | ) | $ | (24,701   | ) | $ | (73,724       | )
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Basic and diluted loss per share         | $ | (0.00              | ) | $ | (0.01            | ) | $ | (0.00             | ) | $ | (0.01     | ) |   |               |  
|                                         |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|Weighted average number of shares        |   |                    |   |   |                  |   |   |                   |   |   |           |   |   |               |  
|outstanding                              |   | 2,112,500          |   |   | 2,112,500        |   |   | 2,112,500         |   |   | 2,112,500 |   |   |               |  

SEE ACCOMPANYING NOTES

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THE MEDICAL EXCHANGE INC. (A Development Stage Company)
  INTERIM STATEMENTS OF CASH FLOWS 
  for the six month periods ended December 31, 2005 and 2004 and
  for the period January 23, 2004 (Date of Incorporation) to December 31, 2005
  
  (Unaudited) 
  (Stated in US Dollars)

|                                                         |   |                  |   |   |                   |   |   | January 23,   |  
|-------------------------------------------------------- | - | ---------------- | - | - | ----------------- | - | - | ------------- | -
|                                                         |   |                  |   |   |                   |   |   | 2004 (Date of |  
|                                                         |   | Six months ended |   |   | Incorporation) to |  
|                                                         |   | December 31,     |   |   | December 31,      |  
|                                                         |   | 2005             |   |   | 2004              |   |   | 2005          |  
|                                                         |   |                  |   |   |                   |   |   |               |  
|Cash Flows from Operating Activities                     |   |                  |   |   |                   |   |   |               |  
|Net loss for the period                                  | $ | (9,078           | ) | $ | (24,727           | ) | $ | (73,222       | )
|Adjustments to reconcile
      net loss to net cash used |   |                  |   |   |                   |   |   |               |  
|by operating activities                                  |   |                  |   |   |                   |   |   |               |  
|Accounts
      payable and accrued liabilities           |   | (8,995           | ) |   | 2,857             |   |   | 3,792         |  
|                                                         |   |                  |   |   |                   |   |   |               |  
|Net cash used in operating activities                    |   | (18,073          | ) |   | (21,870           | ) |   | (69,430       | )
|                                                         |   |                  |   |   |                   |   |   |               |  
|Cash flows used in Investing Activity                    |   |                  |   |   |                   |   |   |               |  
|Increase in advance receivable                           |   | -                |   |   | (1,500            | ) |   | -             |  
|                                                         |   |                  |   |   |                   |   |   |               |  
|Cash Flows from Financing Activities                     |   |                  |   |   |                   |   |   |               |  
|Issuance of common shares                                |   | -                |   |   | -                 |   |   | 42,250        |  
|Increase in due to related party                         |   | 17,089           |   |   | -                 |   |   | 27,657        |  
|Bank indebtedness                                        |   | 25               |   |   | -                 |   |   | 25            |  
|                                                         |   |                  |   |   |                   |   |   |               |  
|Net cash provided by financing activities                |   | 17,114           |   |   | -                 |   |   | 69,932        |  
|                                                         |   |                  |   |   |                   |   |   |               |  
|Effect of foreign exchange on cash                       |   | (304             | ) |   | 26                |   |   | (502          | )
|                                                         |   |                  |   |   |                   |   |   |               |  
|Decrease in cash during the period                       |   | (1,263           | ) |   | (23,344           | ) |   | -             |  
|                                                         |   |                  |   |   |                   |   |   |               |  
|Cash, beginning of the period                            |   | 1,263            |   |   | 38,253            |   |   | -             |  
|                                                         |   |                  |   |   |                   |   |   |               |  
|Cash, end of the period                                  | $ | -                |   | $ | 14,909            |   | $ | -             |  

SEE ACCOMPANYING NOTES

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THEMEDICALEXCHANGEINC.(A Development Stage Company)
   INTERIM STATEMENT OF STOCKHOLDERS EQUITY (DEFICIENCY) 
  for the period from January 23, 2004 (Date of Incorporation) to December 31,
  2005
  (Unaudited) 
  (Stated in US Dollars)

|                                |  |              |  |   |            |  |   |         |  |   |               |   |   | Deficit     |   |   |         |  
|------------------------------- |  | ------------ |  | - | ---------- |  | - | ------- |  | - | ------------- | - | - | ----------- | - | - | ------- | -
|                                |  |              |  |   |            |  |   |         |  |   | Accumulated   |   |   | Accumulated |   |   |         |  
|                                |  | Common Stock |  |   | Additional |  |   | Other   |  |   | During the    |   |   |             |  
|                                |  | Number of    |  |   |            |  |   | Paid-in |  |   | Comprehensive |   |   | Development |   |   |         |  
|                                |  | Shares       |  |   | Amount     |  |   | Capital |  |   | Loss          |   |   | Stage       |   |   | Total   |  
|                                |  |              |  |   |            |  |   |         |  |   |               |   |   |             |   |   |         |  
|Balance, January 23, 2004       |  |              |  |   |            |  |   |         |  |   |               |   |   |             |   |   |         |  
|(Date of Inception)             |  | -            |  | $ | -          |  | $ | -       |  | $ | -             |   | $ | -           |   | $ | -       |  
|                                |  |              |  |   |            |  |   |         |  |   |               |   |   |             |   |   |         |  
|Common stock issued for cash at |  |              |  |   |            |  |   |         |  |   |               |   |   |             |   |   |         |  
|$0.02 per share, February 2004  |  | 2,112,500    |  |   | 2,113      |  |   | 40,137  |  |   | -             |   |   | -           |   |   | (42,250 | )
|Other comprehensive loss        |  | -            |  |   | -          |  |   | -       |  |   | (154          | ) |   | -           |   |   | (154    | )
|Net loss for the period         |  | -            |  |   | -          |  |   | -       |  |   | -             |   |   | (6,893      | ) |   | (6,893  | )
|                                |  |              |  |   |            |  |   |         |  |   |               |   |   |             |   |   |         |  
|Balance, June 30, 2004          |  | 2,112,500    |  |   | 2,113      |  |   | 40,137  |  |   | (154          | ) |   | (6,893      | ) |   | 35,203  |  
|Other comprehensive loss        |  | -            |  |   | -          |  |   | -       |  |   | (44           | ) |   | -           |   |   | (44     | )
|Net loss for the period         |  | -            |  |   | -          |  |   | -       |  |   | -             |   |   | (57,251     | ) |   | (57,251 | )
|                                |  |              |  |   |            |  |   |         |  |   |               |   |   |             |   |   |         |  
|Balance, June 30, 2005          |  | 2,112,500    |  |   | 2,113      |  |   | 40,137  |  |   | (198          | ) |   | (64,144     | ) |   | (22,092 | )
|Other comprehensive loss        |  | -            |  |   | -          |  |   | -       |  |   | (304          | ) |   | -           |   |   | (304    | )
|Net loss for the period         |  | -            |  |   | -          |  |   | -       |  |   | -             |   |   | (9,078      | ) |   | (9,078  | )
|                                |  |              |  |   |            |  |   |         |  |   |               |   |   |             |   |   |         |  
|Balance, December 31, 2005      |  | 2,112,500    |  | $ | 2,113      |  | $ | 40,137  |  | $ | (502          | ) | $ | (73,222     | ) | $ | (31,474 | )

SEE ACCOMPANYING NOTES

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THE MEDICAL EXCHANGE INC.(A Development Stage Company) 
  NOTES TO THE INTERIM FINANCIAL STATEMENTS 
  DECEMBER 31, 2005 
  (Unaudited)
  (Stated in US Dollars)



|Note 1 | Interim Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       | The accompanying interim financial statements of the Company are unaudited, include all adjustments which are, in the opinion of management necessary to present fairly the financial position, results of operations and cash flows
for the interim period presented in accordance with the accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations
and financial position have been included and all such adjustments are of a normal recurring nature. It is suggested that these financial statements be read in conjunction with the Companys June 30, 2005 financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       | Operating results for the six month period ended December 31, 2005 are not necessarily indicative of the results that can be expected for the year ending June 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Note 2 | Continuance of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       | The financial statements have been prepared using generally accepted accounting principles in the United States of America applicable for a going concern which assumes that the Company will realize its assets and discharge its
liabilities in the ordinary course of business. As at December 31, 2005, the Company had a working capital deficiency of $31,474, has yet to achieve profitable operations and has accumulated losses of $73,222 since its commencement. Its
ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when the come due. The outcome of these
matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. Realization values may be substantially different from carrying values as shown in these financial
statements should the Company be unable to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to
continue as a going concern. The Company anticipates that additional funding will be in the form of equity financing from the sale of common shares. The Company may also seek to obtain short-term

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|       | loans from the directors of the Company. There are no current arrangements in place for equity funding or short-term loans.                                       
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                   
|Note 3 | Due to Related parties                                                                                                                                            
|       |                                                                                                                                                                   
|       | The amount due to related parties consists of advances from directors of the Company and are unsecured, non-interest bearing and have no specific terms repayment.

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Item 2. Management's Discussion and Analysis or Plan of Operation

Since we have been recently engaging in the research, development and assembly of a transcription factor library and have not generated any revenue, our independent auditors have issued an opinion about our ability to continue as a going concern in
connection with our audited financial statements for the year ended June 30, 2005.  Our accumulated deficit is $73,222 as of December 31, 2005.  The discussion below provides an overview of our operations, discusses our results of operations,
our plan of operations and our liquidity and capital resources.

The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and
beliefs.  Our actual results could differ materially from those discussed in the forward-looking statements.

From January 23, 2004 (date of inception) to June 30, 2004

For the period from January 23, 2004 to June 30, 2004 we we generated no revenue.  Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. For this period our operating expenses are classified into
four categories:

- Audit fees, which consist primarily of accounting and auditing fees for
    the year-end audit. The amount incurred and accrued by our company during
    the period from January 23, 2004 to June 30, 2004 was $1,800;
- Bank charges, which consist primarily of charges by our bank for processing
    transactions through our checking account. The amount incurred by our company
    during the period from January 23, 2004 to June 30, 2004 was $22;
- Legal and organizational fees, which consist primarily of legal fees paid
    by us regarding securities advice and organizing the company. The amount incurred
    by our company during the period from January 23, 2004 to June 30, 2003 was
    $1,878; and

Other operating expenses incurred by our company during the
  period from January 23, 2004 to June 30, 2004 were $3,193, which primarily
  consists of the expenses incurred for research and development.

From June 30, 2004 to June 30, 2005

For the period from June 30, 2004 to June 30, 2005, we generated no revenue Our financial statements are prepared in accordance with US generally accepted accounting principles. Our operating activities during this period consisted primarily of
doing research and development of transcription factors to form a library.

Total operating expenses for the period from June 30, 2004 to June 30, 2005 were $55,751. Out of these total expenses, professional fees paid to our independent auditors and legal counsel for the period from June 30, 2004 to June 30, 2005 were
$48,922. Bank charges and other office charges for the period from June 30, 2004 to June 30, 2005 were $115.

From June 30, 2005 to September 30, 2005

For the period from June 30, 2005 to September 30, 2005 we generated no revenue.  Our operating activities during this period consisted primarily of doing research and development of transcription factors to form a library.

Total operating expenses for the period from June 30, 2005
  to September 30, 2005 were $5,977. Out of these total expenses, professional
  fees paid to our independent auditors and legal counsel for the period

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from June 30, 2005 to September 30, 2005 were $4,720. Bank charges and other office charges for the period from June 30, 2005 to September 30, 2005 were $57.

From September 30, 2005 to December 31, 2005

For the period from September 30, 2005 to December 31, 2005 we generated no revenue. Our operating activities during this period consisted primarily of doing research and development of transcription factors to form a library.

Total operating expenses for the period from September 30, 2005 to December 31, 2005 were $3101. Out of these total expenses, professional fees paid to our independent auditors and legal counsel for the period from September 30, 2005 to December
31, 2005 were $3,081. Bank charges and other office charges for the period from September 30, 2005 to December 31, 2005 were $20.

PLAN OF OPERATION

To date, Dr. Chen has engineered several bZIP transcription
  factors and has tested their ability to bind to their target sequences and to
  function in cell-based models. In similar models, Dr. Chen has also found the
  ability of bZIP transcription factors to regulate a limited number of commercially
  important genes.

We intend to develop our transcription factor library for application
  in pharmaceutical discovery, human therapeutics, DNA diagnostics, and agricultural
  and industrial biotechnology. To make our transcription factor broadly used
  in life science industries and to fund internal research and development activities,
  we will continue to pursue collaborations with selected pharmaceutical and biotechnology
  companies. As a result, our plan of operation requires us to:

- further generate the bZIP transcription factors and test their DNA target
    binding affinity and specificity;
- assemble bZIP TF libraries for usage in pharmaceutical target discovery;
- test the ability of engineered bZIP transcription factors in detecting
    single-base changes in clinically interesting gene targets;
- generate bZIP transcription factors for the regulation of target genes
    in multiple organisms.

Furthermore, in our managements opinion, we can expect to incur the following expenses to fund our plan of operation for the next twelve months:

- Audit fees, which consist primarily of accounting and auditing fees for
    the year-end audit. We estimate that our audit fees for the next twelve months
    will be approximately $12,000;
- Bank charges, which consist primarily of charges by our bank for processing
    transactions through our checking account. We estimate that our bank charges
    for the next twelve months will be approximately $120;
- Legal and organizational fees, which consist primarily of legal fees paid
    by us regarding securities advice and organizing the company. We estimate
    that our legal and organizational fees for the next twelve months will be
    approximately $12,000; and
- Other operating expenses, which consist primarily of expenses incurred
    for marketing. We estimate that our other operating expenses for the next
    twelve months will be approximately $20,000.

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Liquidity and Capital Resources

Presently, we do not have any revenue. Further, our cash and
working capital is not sufficient to enable us to carry out our operations for
the next12 months without additional financing. There is no assurance
that we will obtain any additional financing. We project that we will require
additional funding to expand our current research efforts.

There is some doubt about our ability to continue as a going
concern as the continuation of our business is dependent upon the successful
development of our transcription factor library, and finally, maintaining a
break-even or profitable level of operations.

We have incurred operating losses since inception. The
directors are ready to provide a loan of up to $40,000 before seeking other
financial resources.As of December 31, 2005 they have provided loans to
the company in the amount of $27,657, which are unsecured, non-interest bearing
and have no specific terms for repayment. Management projects that we may
require an additional $39,000 to $59,000 to fund our ongoing operating
expenditures and working capital requirements for the year ending June 30, 2006,
can be broken down as follows:

Estimated Funding Required During the Twelve Month Period
  Ending June 30, 2006

|Operating expenditures     |         |   |         | 
|-------------------------- | ------- | - | ------- | 
|Marketing                  | $4,000  | - | $7,000  | 
|General and Administrative | $6,000  | - | $12,000 | 
|Research and Development   | $20,000 | - | $25,000 | 
|costs                      |         |   |         | 
|Working capital            | $9,000  | - | $15,000 | 
|Total                      | $39,000 | - | $59,000 | 

Due to the uncertainty of our ability to meet our current
operating and capital expenses, in their report on the annual financial
statements for the period ended June 30, 2005, our independent auditors included
an explanatory paragraph regarding concerns about our ability to continue as a
going concern. Our financial statements contain additional note disclosures
describing the circumstances that lead to this disclosure by our independent
auditors.

There is substantial doubt about our ability to continue as a
  going concern as the continuation of our business is dependent upon obtaining
  further financing, successful and sufficient market acceptance of our transcription
  factors, the continuing successful development of our products, and, finally,
  achieving a profitable level of operations. The issuance of additional equity
  securities by us could result in a significant dilution in the equity interests
  of our current stockholders. Obtaining commercial loans, assuming those loans
  would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further
  funds required for our continued operations. We are pursuing various financing
  alternatives to meet our immediate and long-term financial requirements, which
  we anticipate will consist of further private placements of equity securities
  or shareholder loans. There can be no assurance that additional financing will
  be available to us when needed or, if available, that it can be obtained on
  commercially reasonable terms. If we are not able to obtain the additional financing
  on a timely basis, we will not be able to meet our other obligations as they
  become due and we will be forced to scale down or perhaps even cease our operations.

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Purchase or Sale of Equipment

We do not anticipate that we will expend any significant amount
on equipment for our present or future operations.

Research and Development

To date, Dr. Chen has engineered several basis-leucine zipper
transcription factors and has tested their ability to bind to their target
sequences and to function in cell-based models. In similar models, we have also
found the ability of basis-leucine zipper transcription factors to regulate a
limited number of commercially important genes.

We intend to develop our transcription factor library for
application in pharmaceutical discovery, human therapeutics, DNA diagnostics,
and agricultural and industrial biotechnology. To make transcription factors
broadly used in these industries, and to fund internal research and development
activities, we intend to pursue collaborations with selected pharmaceutical and
biotechnology companies.

As at December 31, 2005 we have not spent any money on research
and development because the work has been provided by Dr. Chen free of charge.
Our projected research and development expenses will be approximately $30,000 in
fiscal year 2006 and $40,000 in fiscal year 2007. Currently, we have two
employees dedicated to research and development. Because of the specialized
nature of the core technology, our two employees have Ph.D. and Masters
degrees. We believe that new and timely development of products and technologies
are important to our competitive position in the market and intend to continue
to invest in research and development activities.

Personnel

As of December 31, 2005, our employees include our president
and vice-president. They handle all of the responsibilities in the area of
corporate administration, business development and research. In addition, these
individuals provide us with capital raising services. We have no other
employees. For the year ending June 30, 2006, we do not plan to raise our total
number of permanent employees.

ITEM 3. Controls and Procedures

Based on their most recent evaluation, which was completed
within 90 days of filing this Form 10-QSB, the Company's chief executive officer
and principal financial officer believe the Company's disclosure controls and
procedures (as defined in Exchange Act Rule 13a-14 and 15d-14) are effective.
There were not any significant changes in the Company's internal controls and no
other facts that could significantly affect these controls subsequent to the
date of this evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses. The Company is presently
unable to provide segregation of duties within the Company as a means of
internal control. As a result, the Company is presently relying on overriding
management reviews and assistance from its board of directors in providing
short-term review procedures until such time as additional funding is provided
to hire additional executives to segregate duties within the Company.

PART II - OTHER INFORMATION

Item 6. Exhibits

|Exhibit No. | Description                                           
|----------- | ------------------------------------------------------
|            |                                                       
|3.1*        | Articles of Incorporation                             
|3.2*        | Bylaws                                                
|4.1*        | Specimen ordinary share certificate                   
|31.1        | Rule 13(a) - 14 (a)/15(d) - 14(a)
      Certifications
|31.2        | Rule 13(a) - 14
      (a)/15(d) - 14(a) Certifications
|32.1        | Section 1350 Certifications                           

|* | Incorporated by reference to same exhibit filed with the Company's Registration Statement on Form SB-2 dated November 5, 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: February 10, 2006

THE MEDICAL EXCHANGE INC.

/s/ Zhiying ZhaoZhiying Zhao 
  President, Secretary, Treasurer and a member of 
  the Board of Directors (who also performs as the 
  principal Financial and Executive Officer and 
  Accounting Officer 
  2/10/2006

/s/ Chen Han XiangChen Han Xiang 
  Vice-President and a member of the Board of 
  Directors 
  2/10/2005

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