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**UNITED STATES 
  SECURITIES AND EXCHANGE COMMISSION** Washington, D.C., 20549

**FORM 10-QSB**



**March 31, 2006**


[ ] 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 
      organization) | (IRS Employer Identification No.)

**3702 South Virginia Street, #G12-401, Reno, Nevada 89502** (Address of principal executive offices) **(306) 880-1677** 
    (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 required 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 [ ].

---

|APPLICABLE ONLY TO ISSUERS INVOLVED IN
      BANKRUPTCY PROCEEDINGS
|-------------------------------------------------------------------
|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 March 31, 2006: 2,112,500 common shares

Transitional Small Business Disclosure Format (Check one): Yes
[ ] No [ X ]

PART I - FINANCIAL
INFORMATION

Item 1. Financial Statements

The following interim unaudited financial statement for the
period ended March 31, 2006.

THE MEDICAL EXCHANGE INC.
  (A Development Stage Company)
  INTERIM FINANCIAL STATEMENTS
  March 31, 2006
  (Unaudited)
  (Stated in US Dollars)
  SEE ACCOMPANYING NOTES

2

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THE MEDICAL EXCHANGE INC.(A Development Stage Company)
  INTERIM BALANCE SHEETS
  March 31, 2006 and June 30, 2005
  (Unaudited)
  (Stated in US Dollars)

|                                                              |   | March 31, |   |   | June 30, |  
|------------------------------------------------------------- | - | --------- | - | - | -------- | -
|ASSETS                                                        |   | 2006      |   |   | 2005     |  
|                                                              |   |           |   |   |          |  
|Current                                                       |   |           |   |   |          |  
|Cash                                                          | $ | -         |   | $ | 1,263    |  
|                                                              |   |           |   |   |          |  
|Total assets                                                  | $ | -         |   | $ | 1,263    |  
|                                                              |   |           |   |   |          |  
|                                                              |   |           |   |   |          |  
|LIABILITIES                                                   |   |           |   |   |          |  
|                                                              |   |           |   |   |          |  
|                                                              |   |           |   |   |          |  
|Current                                                       |   |           |   |   |          |  
|Bank indebtedness                                             | $ | 6         |   | $ | -        |  
|Accounts payable and accrued
      liabilities                |   | 5,611     |   |   | 12,787   |  
|Due to related parties  Note 3                               |   | 27,695    |   |   | 10,568   |  
|                                                              |   |           |   |   |          |  
|Total current liabilities                                     |   | 33,312    |   |   | 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                          |   | (501      | ) |   | (198     | )
|Deficit accumulated during the development
      stage        |   | (75,061   | ) |   | (64,144  | )
|                                                              |   |           |   |   |          |  
|Total stockholders equity
      (deficiency)                 |   | (33,312   | ) |   | (22,092  | )
|                                                              |   |           |   |   |          |  
|Total liabilities and stockholders equity
      (deficiency) | $ | -         |   | $ | 1,263    |  

SEE ACCOMPANYING NOTES

3

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|THE MEDICAL EXCHANGE INC.                                                   
|----------------------------------------------------------------------------
|(A Development Stage Company)                                               
|INTERIM STATEMENTS OF OPERATIONS                                            
|for the three and nine month periods ended March 31, 2006
      and 2005 and
|for the period January 23, 2004 (Date of Inception) to
      March 31, 2006 
|(Unaudited)                                                                 
|(Stated in US Dollars)                                                      

January 23,2004(Date ofThree months ended
    
    
    Nine months ended
    
    
    Inception) toMarch 31,
    
    
    March 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006Administration expensesAccounting and audit
      fees
    $
    1,820
    
    $
    3,606
    
    $
    3,821
    
    $
    8,212
    
    $
    19,992Bank charges and interest
    
    19
    
    
    32
    
    
    96
    
    
    98
    
    
    233Legal fees
    
    -
    
    
    13,598
    
    
    5,800
    
    
    32,291
    
    
    42,229Registration and filing fees
    
    -
    
    
    3,131
    
    
    1,200
    
    
    4,493
    
    
    8,179Website costs
    
    -
    
    
    433
    
    
    -
    
    
    433
    
    
    2,928Loss before other item
    
    (1,839
    )
    
    (20,800
    )
    
    (10,917
    )
    
    (45,527
    )
    
    (73,561
    )Other item:Write-off of advance receivable
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,500
    )Net loss for the period
    
    (1,839
    )
    
    (20,800
    )
    
    (10,917
    )
    
    (45,527
    )
    
    (75,061
    )Other comprehensive lossForeign currency
      translationadjustment
    
    1
    
    
    -
    
    
    (303
    )
    
    26
    
    
    (501
    )Comprehensive loss
    $
    (1,838
    )
    
    (20,800
    )
    $
    (11,220
    )
    $
    (45,501
    )
    $
    (75,562
    )Basic and diluted loss per share
    $
    (0.00
    )
    
    (0.01
    )
    $
    (0.01
    )
    $
    (0.02
    )Weighted average number of sharesoutstanding
    
    2,112,500
    
    
    2,112,500
    
    
    2,112,500
    
    
    2,112,500


SEE ACCOMPANYING NOTES

4

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|THE MEDICAL EXCHANGE INC.                                                  
|---------------------------------------------------------------------------
|(A Development Stage Company)                                              
|INTERIM STATEMENTS OF CASH FLOWS                                           
|for the nine month periods ended March 31, 2006 and 2005
      and         
|for the period January 23, 2004 (Date of Inception) to
      March 31, 2006
|(Unaudited)                                                                
|(Stated in US Dollars)                                                     

|                                                         |   |                   |   |   |               |   |   | January 23,  |  
|-------------------------------------------------------- | - | ----------------- | - | - | ------------- | - | - | ------------ | -
|                                                         |   |                   |   |   |               |   |   | 2004(Date of |  
|                                                         |   | Nine months ended |   |   | Inception) to |  
|                                                         |   | March 31,         |   |   | March 31,     |  
|                                                         |   | 2006              |   |   | 2005          |   |   | 2006         |  
|                                                         |   |                   |   |   |               |   |   |              |  
|Cash Flows from Operating Activities                     |   |                   |   |   |               |   |   |              |  
|Net loss for the period                                  | $ | (10,917           | ) | $ | (45,527       | ) | $ | (75,061      | )
|Adjustments to reconcile net loss to
      net cash used |   |                   |   |   |               |   |   |              |  
|by operating activities                                  |   |                   |   |   |               |   |   |              |  
|Accounts payable and
      accrued liabilities           |   | (7,176            | ) |   | 12,133        |   |   | 5,611        |  
|                                                         |   |                   |   |   |               |   |   |              |  
|Net cash used in operating activities                    |   | (18,093           | ) |   | (33,394       | ) |   | (69,450      | )
|                                                         |   |                   |   |   |               |   |   |              |  
|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                         |   | 17,127            |   |   | 1,452         |   |   | 27,695       |  
|Bank indebtedness                                        |   | 6                 |   |   | -             |   |   | 6            |  
|                                                         |   |                   |   |   |               |   |   |              |  
|Net cash provided by financing activities                |   | 17,133            |   |   | 1,452         |   |   | 69,951       |  
|                                                         |   |                   |   |   |               |   |   |              |  
|Effect of foreign exchange on cash                       |   | (303              | ) |   | 26            |   |   | (501         | )
|                                                         |   |                   |   |   |               |   |   |              |  
|Decrease in cash during the period                       |   | (1,263            | ) |   | (33,416       | ) |   | -            |  
|                                                         |   |                   |   |   |               |   |   |              |  
|Cash, beginning of the period                            |   | 1,263             |   |   | 38,253        |   |   | -            |  
|                                                         |   |                   |   |   |               |   |   |              |  
|Cash, end of the period                                  | $ | -                 |   | $ | 4,837         |   | $ | -            |  

SEE ACCOMPANYING NOTES

5

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|THE MEDICAL EXCHANGE INC.                                                       
|--------------------------------------------------------------------------------
|(A Development Stage Company)                                                   
|INTERIM STATEMENT OF STOCKHOLDERS EQUITY (DEFICIENCY)                          
|for the period from January 23, 2004 (Date of Inception)
      to March 31, 2006
|(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        |  | -            |  |   | -          |  |   | -       |  |   | (303                      | ) |   | -           |   |   | (303    | )
|Net loss for the period         |  | -            |  |   | -          |  |   | -       |  |   | -                         |   |   | (10,917     | ) |   | (10,917 | )
|                                |  |              |  |   |            |  |   |         |  |   |                           |   |   |             |   |   |         |  
|Balance, March 31, 2006         |  | 2,112,500 $  |  |   | 2,113      |  | $ | 40,137  |  | $ | (501                      | ) | $ | (75,061     | ) | $ | (33,312 | )

SEE ACCOMPANYING NOTES

6

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|THE MEDICAL EXCHANGE INC.                
|-----------------------------------------
|(A Development Stage Company)            
|NOTES TO THE INTERIM FINANCIAL STATEMENTS
|March 31, 2006                           
|(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 periods 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 nine month
period ended March 31, 2006 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 March 31, 2006, the Company had a working capital deficiency of
$33,312, has yet to achieve profitable operations and has accumulated losses of
$75,061 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 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.

7



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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 $75,061
as of March 31, 2006. 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

8

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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 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.

From December 31, 2005 to March 31, 2006

For the period from December 31, 2005 to March 31, 2006 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 December 31, 2005
to March 31, 2006 were $1,839. Out of these total expenses, professional fees
paid to our independent auditors and legal counsel for the period from December
31, 2005 to March 31, 2006 were $1,820. Bank charges and other office charges
for the period from December 31, 2005 to March 31, 2006 were $19.

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;

9

---

- 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.

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 next 12 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 March 31, 2006 they have provided loans to the
company in the amount of $27,695, 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 September 30, 2006                                       |                 
| | Operating expenditures                                          |                 
| | Marketing                                                       | $4,000 - $7,000 
| | General and Administrative                                      | $6,000 - $12,000

10

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| | Estimated Funding Required During the Twelve
      Month Period |                  
| | --------------------------------------------------------------- | -----------------
| | Ending September 30, 2006                                       |                  
| | Operating expenditures                                          |                  
| | Research and Development costs                                  | $20,000 - $25,000
| | 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.

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 March 31, 2006 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

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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 March 31, 2006, 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, as of the end of the
period covered by 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.

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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                           
| | 32.2                                                                                                                                            | Section 1350 Certifications                           
| |                                                                                                                                                 |                                                       
| | *    Incorporated by reference to
      same exhibit filed with the Company's Registration Statement on Form SB-2
      dated November 5, 2003.

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: May 15, 2006

THE MEDICAL EXCHANGE INC.

|/s/
      Zhiying Zhao                           | 
|------------------------------------------------ | 
|Zhiying 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                               | 
|05/15/2006                                       | 
|                                                 | 
|/s/
      Chen Han Xiang                         | 
|Chen Han Xiang                                   | 
|Vice-President and a member of the Board of      | 
|Directors                                        | 
|05/15/2006                                       | 

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