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, 2010





 ̈  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





Commission file number 333-149446





MUSICIAN’S EXCHANGE


(Exact name of registrant as specified in its charter)





Nevada

26-1929199(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)





2858 Erie St., San Diego, California

92117(Address of principal executive offices)

(Zip Code)





(702) 400-4863


(Registrant’s telephone number, including area code)





Copies of Communications to:


Stoecklein Law Group


Emerald Plaza


402 West Broadway


Suite 690


San Diego, CA 92101


(619) 704-1310


Fax (619) 704-0556





Indicate by check mark whether the issuer (1) 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  ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes  ̈   No  ̈





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.





Large accelerated filer   ̈
Accelerated filer   ̈Non-accelerated filer   ̈ (Do not check if a smaller reporting company)
Smaller reporting company  x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes  ̈    No x





The number of shares of Common Stock, $0.001 par value, outstanding on August 9, 2010 was 14,500,000 shares.





PART I – FINANCIAL INFORMATION





Item 1. Financial Statements.





MUSICIAN'S EXCHANGE(A DEVELOPMENT STAGE COMPANY)BALANCE SHEETSJune 30,


December 31,2010


2009(Unaudited)


(Audited)ASSETSCurrent assets:Cash

$
17,917


$
32,091Inventory


2,266



2,266Total current assets


20,183



34,357Total assets

$
20,183


$
34,357LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities:Accounts payable

$
62,627


$
43,229Notes payable


1,000



1,000Notes payable - related party


55



55Total current liabilities


63,682



44,284Total liabilities


63,682



44,284Stockholders' deficit:Preferred stock, $0.001 par value, 10,000,000 sharesauthorized, no shares issued and outstandingas of June 30, 2010 and December 31, 2009, respectively


-



-Common stock, $0.001 par value, 100,000,000 sharesauthorized, 14,500,000 and 14,500,000 shares issued and outstandingas of June 30, 2010 and December 31, 2009, respectively


14,500



14,500Additional paid-in capital


58,000



58,000Deficit accumulated during development stage


(115,999
)


(82,427
)Total stockholders' deficit


(43,499
)


(9,927
)Total liabilities and stockholders' deficit

$
20,183


$
34,357





See Accompanying Notes to Financial Statements.


1





MUSICIAN'S EXCHANGE(A DEVELOPMENT STAGE COMPANY)STATEMENT OF OPERATIONS(Unaudited)Inception(February 4, 2008)For the three months ended


For the six months ended


toJune 30,


June 30,


June 30,2010


2009


2010


2009


2010Revenue

$
-


$
545


$
-


$
1,958


$
5,872Cost of goods sold


-



493



-



1,753



5,441Gross profit


-



52



-



205



431Operating expenses:General and administrative


-



385



313



561



2,204Executive compensation - related party


-



-



-



-



2,800Professional fees


16,240



12,023



33,259



21,023



111,426Total operating expenses


16,240



12,408



33,572



21,584



116,430Net loss

$
(16,240
)

$
(12,356
)

$
(33,572
)

$
(21,379
)

$
(115,999
)Weighted average number of common


14,500,000



8,500,000



14,500,000



8,500,000shares outstanding - basicNet loss per share - basic

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.00
)





See Accompanying Notes to Financial Statements.


2





MUSICIAN'S EXCHANGE(A DEVELOPMENT STAGE COMPANY)STATEMENT OF CASH FLOWS(Unaudited)Inception(February 4, 2008)For the six months ended


toJune 30,


June 30,2010


2009


2010CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(33,572
)

$
(21,379
)

$
(115,999
)Adjustments to reconcile net lossto net cash used in operating activities:Shares issued for services


-



-



15,000Changes in operating assets and liabilities:(Increase) in inventory


-



(223
)


(2,266
)Increase in accounts payable


19,398



21,023



62,627Net cash used in operating activities


(14,174
)


(579
)


(40,638
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from sale of common stock, net of offering costs


-



-



57,500Proceeds from notes payable


-



-



1,000Proceeds from notes payable - related party


-



337



892Payments to notes payable - related party


-



(400
)


(837
)Net cash provided by financing activities


-



(63
)


58,555NET CHANGE IN CASH


(14,174
)


(642
)


17,917CASH AT BEGINNING OF YEAR


32,091



840



-CASH AT END OF YEAR

$
17,917


$
198


$
17,917SUPPLEMENTAL INFORMATION:Interest paid

$
-


$
-


$
-Income taxes paid

$
-


$
-


$
-Non-cash activities:Number of shares issued for services


-



-



150,000





See Accompanying Notes to Financial Statements.





3
 MUSICIAN’S EXCHANGE
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO FINANCIAL STATEMENTS


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis of presentation


The condensed interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.





These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2009 and notes thereto included in the Company’s 10-K filed on March 8, 2010. The Company follows the same accounting policies in the preparation of interim reports.





Results of operations for the interim period are not indicative of annual results.





Use of estimates


The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.





Cash and Cash Equivalents


For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.





Earnings per share


The Company follows FASB ASC Topic 260, “Earnings per Share,” (“EPS”). Basic earning per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earning per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.


4
 MUSICIAN’S EXCHANGE
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO FINANCIAL STATEMENTS





Reclassifications


Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.  During the quarter ended December 31, 2009, the Company completed its offering and issued a total of 550,000 shares of common stock to its investors.  As a result, a shareholder who owned 12% of the Company before the offering was reduced to a 7% ownership stake in the Company.  In the prior financial statements, all transactions with this shareholder and its related entities were originally presented as related parties.  However, due to the current ownership of 7% all related party disclosures were reclassified to unrelated third parties.





Recent pronouncements





Below is a listing of the most recent accounting standards and their effect on the Company.





In May 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-19 (ASU 2010-19), Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates.  The amendments in this Update are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.





NOTE 2 – GOING CONCERN





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As noted above, the Company is in the development stage and, accordingly, has not yet generated revenues from operations. Since its inception, the Company has been engaged substantially in financing activities and developing its business plan and incurring start up costs and expenses. As a result, the Company incurred accumulated net losses from Inception (February 4, 2008) through the period ended June 30, 2010 of ($115,999). In addition, the Company’s development activities since inception have been financially sustained through equity financing.





The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.


5
 MUSICIAN’S EXCHANGE
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO FINANCIAL STATEMENTS





NOTE 3 – INVENTORY





Inventories consist of the following at:





June 30, 2010Finished goods

$ 2,266$ 2,266





NOTE 4 – NOTES PAYABLE AND NOTES PAYABLE – RELATED PARTY





Notes payable consists of the following at:





June 30, 2010Note payable, unsecured, 0% interest, due upon demand

$            1,000Note payable to an officer, director and shareholder, unsecured, 0% interest, due upon demand

55$          1,055





Interest expense for the three months ended June 30, 2010 and 2009 was $0 and $0, respectively.





NOTE 5 – STOCKHOLDERS’ EQUITY





The Company is authorized to issue 10,000,000 shares of it $0.001 par value preferred stock and 100,000,000 shares of its $0.001 par value common stock.





On March 14, 2010, the Company effected a 10-for-1 forward stock split of its $0.001 par value common stock.





All shares and per share amounts have been retroactively restated to reflect the split discussed above.





Common Stock





On February 4, 2008, the Company issued its sole officer of the Company 7,500,000 shares of its $0.001 par value common stock at a price of $0.001 per share for a total amount raised of $7,500 in cash.





On February 20, 2008, the Company issued 1,000,000 shares of its common stock toward legal fees totaling $10,000 at a value of approximately $0.01 per share.  The shares were valued with the fair value of the services rendered.


6
 MUSICIAN’S EXCHANGE
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO FINANCIAL STATEMENTS





On November 16, 2009, the Company completed its offering and issued a total of 5,500,000 shares of common stock for cash and raised a total of $55,000.  The Company recorded $5,000 of direct offering costs against the proceeds.





On November 18, 2009, the Company issued 500,000 shares of its common stock toward transfer agent fees totaling $5,000 at a value of approximately $0.01 per share.  The shares were valued with the fair value of the common stock.





As of June 30, 2010, there have been no other issuances of common stock.





NOTE 6 – WARRANTS AND OPTIONS





As of June 30, 2010, there were no warrants or options outstanding to acquire any additional shares of common stock.





NOTE 7 – SUBSEQUENT EVENTS





On July 22, 2010, the Company executed binding agreements to purchase the assets of Speechphone LLC and its related entities.  The Company is currently in the due diligence phase and plans to close the transactions in August 2010.  One of the material conditions to close the transaction is the completion of the audited financial statements of Speechphone LLC and its related entities.  As of the date of this filing, Speechphone LLC has not completed all of the conditions to close.  The following paragraphs detail the entities being purchased and the consideration being exchanged:





On July 22, 2010, the Company entered into an Agreement of Purchase and Sale of Assets with SpeechPhone LLC, a Delaware Limited Liability Company (“SpeechPhone”) to purchase substantially all of the assets of SpeechPhone in exchange for Ten Million Two Hundred Fifty Thousand (10,250,000) restricted shares of our common stock, $0.001 par value concurrent with the Closing.





On July 22, 2010, the Company entered into an Agreement of Purchase and Sale of Assets with MDM Intellectual Property LLC, a California Limited Liability Company (“MDM”) to purchase substantially all of the assets of MDM in exchange for Six Million One Hundred Fifty Thousand (6,150,000) restricted shares of our common stock, $0.001 par value, concurrent with closing.





On July 22, 2010, the Company entered into an Agreement of Purchase and Sale of Assets with SpeechCard LLC, a Delaware Limited Liability Company (“SpeechCard”) to purchase substantially all of the assets of SpeechCard in exchange for One Million Twenty Five Thousand (1,025,000) restricted shares of common stock, $0.001 par value, concurrent with closing.


7
 MUSICIAN’S EXCHANGE
 (A DEVELOPMENT STAGE COMPANY)
 NOTES TO FINANCIAL STATEMENTS





On July 22, 2010, the Company entered into an Agreement of Purchase and Sale of Assets with Voice Assist LLC, a Delaware Limited Liability Company (“Voice Assist”) to purchase substantially all of the assets of Voice Assist in exchange for Two Million Fifty Thousand (2,050,000) restricted shares of common stock, $0.001 par value, concurrent with closing.





Pursuant to the agreements mentioned above, the Company agreed to issue Two Million (2,000,000) convertible preferred voting shares to Michael D. Metcalf, the managing member of the four (4) companies mentioned above, in exchange for extinguishing One Million Seven Hundred Thousand dollars ($1,700,000) in debt, to release the assets being acquired under the terms and conditions of the agreements described above.





As a condition to the closing the above agreements, the Company will issue One Million Twenty Five Thousand (1,025,000) shares of common stock in exchange for 100% of Mr. Metcalf’s concept Music By Voice.





Upon closing the Company will issue a total of Twenty Million Five Hundred Thousand (20,500,000) shares of our common stock and Two Million (2,000,000) shares of our preferred stock.





Closing of the asset purchase transactions are anticipated to occur on or about August 2010.  Copies of the agreements were filed as Exhibits 10.1, 10.2, 10.3 and 10.4 to the Current Report on Form 8-K filed on July 29, 2010.





8


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations





This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements include, among other things, statements regarding:




o
our ability to diversify our operations;




o
our ability to implement our business plan of online music advertising;




o
inability to raise additional financing for working capital;




o
the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain;




o
our ability to attract key personnel;




o
our ability to operate profitably;




o
our ability to complete the acquisition of SpeechPhone and its related entities;




o
our ability, assuming we complete the SpeechPhone transaction, to incorporate the SpeechPhone assets into our operations;




o
our ability to generate sufficient funds to operate the SpeechPhone operations, upon completion of our acquisition;




o
deterioration in general or regional economic conditions;




o
changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate;




o
adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;




o
inability to achieve future sales levels or other operating results;




o
the inability of management to effectively implement our strategies and business plans;




o
the unavailability of funds for capital expenditures;




as well as other statements regarding our future operations, financial condition and prospects, and business strategies.  These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the heading “Risk Factors” in Part II, Item 1A and those discussed in other documents we file with the Securities and Exchange Commission.  We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.







References in the following discussion and throughout this quarterly report to “we”, “our”, “us”, “Musician’s”, “the Company”, and similar terms refer to Musician’s Exchange unless otherwise expressly stated or the context otherwise requires.


9





Business Development





Musician’s Exchange is a development stage company incorporated in the State of Nevada on February 4, 2008.  We were formed to engage in the business of developing an Internet destination and marketplace for musicians through our online website, (www.musiciansxchangeonline.com.).





Agreements of Purchase and Sale of Assets





On July 22, 2010, we entered into an Agreement of Purchase and Sale of Assets with SpeechPhone LLC, a Delaware Limited Liability Company (“SpeechPhone”) to purchase substantially all of the assets of SpeechPhone in exchange for Ten Million Two Hundred Fifty Thousand (10,250,000) restricted shares of our common stock, $0.001 par value concurrent with the Closing.





On July 22, 2010, we entered into an Agreement of Purchase and Sale of Assets with MDM Intellectual Property LLC, a California Limited Liability Company (“MDM”) to purchase substantially all of the assets of MDM in exchange for Six Million One Hundred Fifty Thousand (6,150,000) restricted shares of our common stock, $0.001 par value, concurrent with closing.





On July 22, 2010, we entered into an Agreement of Purchase and Sale of Assets with SpeechCard LLC, a Delaware Limited Liability Company (“SpeechCard”) to purchase substantially all of the assets of SpeechCard in exchange for One Million Twenty Five Thousand (1,025,000) restricted shares of common stock, $0.001 par value, concurrent with closing.





On July 22, 2010, we entered into an Agreement of Purchase and Sale of Assets with Voice Assist LLC, a Delaware Limited Liability Company (“Voice Assist”) to purchase substantially all of the assets of Voice Assist in exchange for Two Million Fifty Thousand (2,050,000) restricted shares of common stock, $0.001 par value, concurrent with closing.





Pursuant to the agreements mentioned above, we agreed to issue Two Million (2,000,000) convertible preferred voting shares to Michael D. Metcalf, the managing member of the four (4) companies mentioned above, in exchange for extinguishing One Million Seven Hundred Thousand dollars ($1,700,000) in debt, to release the assets being acquired under the terms and conditions of the agreements described above.





As a condition to the closing the above agreements, we will issue One Million Twenty Five Thousand (1,025,000) shares of common stock in exchange for 100% of Mr. Metcalf’s concept Music By Voice.





Upon closing we will issue a total of Twenty Million Five Hundred Thousand (20,500,000) shares of our common stock and Two Million (2,000,000) shares of our preferred stock.





Closing of the asset purchase transactions are anticipated to occur on or about August 2010.  Copies of the agreements were filed as Exhibits 10.1, 10.2, 10.3 and 10.4 to the Current Report on Form 8-K filed on July 29, 2010.


10





About SpeechPhone LLC





SpeechPhone LLC was founded in 2002 with the fundamental mission to add speech to every phone.  SpeechPhone develops and partners with existing service providers to market speech recognition based virtual assistants that unify communications and messaging through a single personal phone number.  SpeechPhone virtual assistants empower the mobile workforce through more efficient communication and easy access to information from any phone or any computer.  For more information on SpeechPhone visit their web site at www.speechphone.net.





OVERVIEW





Since inception, we have relied on equity financing to fund our operations to date.  We have incurred a net loss of $115,999 since our inception on February 4, 2008 through June 30, 2010.  Upon closing of the agreements of purchase and sale of assets mentioned above, our focus will be redirected to that of the business of SpeechPhone.





Going Concern





The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of Musician’s as a going concern.  Musician’s may not have a sufficient amount of cash required to pay all of the costs associated with operating and marketing of its services. Management intends to use borrowings and security sales to mitigate the effects of cash flow deficits; however no assurance can be given that debt or equity financing, if and when required, will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should Musician’s be unable to continue existence.





Results of Operations





Revenues





In this period ended June 30, 2010, we did not generate any revenues.  In comparable six month period ended June 30, 2010, we generated $1,958.  Since our inception on February 4, 2008 through June 30, 2010, we have generated $5,872 in revenues from inventory sales on our website.





Expenses





Operating expenses totaled $16,240 during the three months ended June 30, 2010 as compared to $12,408 in the prior year.  Operating expenses consisted solely of professional fees in the three months ended June 30, 2010.





Professional fees increased $4,217 from the three months ended June 30, 2009 to the three months ended June 30, 2010.  This increase was primarily due to an increase in legal and transfer agent fees of $3,287 and $1,353, respectively.


11





General and administrative expenses decreased $385 from the three months ended June 30, 2009 to the three months ended June 30, 2010.  In the three months ended June 30, 2010 we did not incur any general and administrative expenses.  The decrease was due to less bank service charges and not having to pay State filing fees during the period ended June 30, 2010.





Professional fees increased $12,236 from the six months ended June 30, 2009 to the six months ended June 30, 2010.  This increase was primarily due to an increase in legal and transfer agent fees of $4,036 and $7,519, respectively.





General and administrative expenses decreased $248 from the six months ended June 30, 2009 to the six months ended June 30, 2010.  The decrease was due to less bank service charges and not having to pay for State filing fees during the period ended June 30, 2010.





Liquidity and Capital Resources





The following table summarizes total current assets, total current liabilities and working capital at June 30, 2010 compared to December 31, 2009.





June 30,

2010
December 31,

2009
Increase / (Decrease)$
%Current Assets
$20,183
$34,357
$(14,174)
(41%)Current Liabilities
63,682
44,284
19,398
44%Working Capital (deficit)
$(43,499)
$(9,927)
$33,572
338%





Liquidity is a measure of a company’s ability to meet potential cash requirements.  We have historically met our capital requirements through the issuance of stock, by borrowings, and through sales-generated revenue.  In the future, we anticipate we will be able to provide the necessary liquidity we need by the revenues generated from the sales of our products.





Since inception, we have financed our cash flow requirements through issuance of common stock. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending receipt of listings or some form of advertising revenues. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from product sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans.  There can be no assurance we will be successful in raising the necessary funds to execute our business plan


12





We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain.  Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continually develop and upgrade our website, provide national and regional industry participants with an effective, efficient and accessible website on which to promote their products and services through the Internet, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.





Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.





Critical Accounting Policies and Estimates





The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions.





Revenue Recognition





The Company's revenues are anticipated to be derived from multiple sources. Dealer services revenues are to be derived from a range of promotional services, including banner advertising, inventory pages, tiles, enhanced listings and links to the dealer's own web site. Dealers will also be able to purchase a stand-alone web site with their own Internet address and searchable used musical equipment inventory for an initial non-refundable set-up fee plus a monthly maintenance fee. Revenues from these services will be recognized ratably over the period in which the service is provided. The set-up fees from dealer contracts will be recognized ratably over the period in which the service is provided, generally a year. Advertising revenues are anticipated to be generated from short-term contracts in which the Company typically guarantees for a fixed fee a minimum number of impressions, or times that an advertisement appears in pages viewed by the users. These revenues are recognized ratably over the term of the agreement, provided that the amount recognized does not exceed the amount that would be recognized based upon actual impressions delivered. Such revenues will generally be derived from specific traffic referrals or transaction leads that originate on the Company's Web site and would be recognized as such referrals and leads are directed to the vendor's product.


13





Recent Accounting Pronouncements





Below is a listing of the most recent accounting standards and their effect on the Company.





In May 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-19 (ASU 2010-19), Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates.  The amendments in this Update are effective as of the announcement date of March 18, 2010. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.





Item 3. Quantitative and Qualitative Disclosure About Market Risk





This item in not applicable as we are currently considered a smaller reporting company.





Item 4T. Controls and Procedures





Evaluation of Disclosure Controls and Procedures





Our Chief Executive Officer and Principal Financial Officer, Daniel Van Ness, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report.  Based on that evaluation, Mr. Van Ness concluded that our disclosure controls and procedures are effective in timely alerting him to material information relating to us required to be included in our periodic SEC filings and in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.





Changes in Internal Control Over Financial Reporting





There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.





PART II--OTHER INFORMATION





Item 1. Legal Proceedings.





From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.


14





Item 1A. Risk Factors





Our significant business risks are described in Item 1A to Form 10-K for the year ended December 31, 2009 to which reference is made herein.





Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.





We have no recent sales of unregistered securities.





Issuer Purchases of Equity Securities





We did not repurchase any of our equity securities from the time of our inception on February, 4, 2008 through the period ended June 30, 2010.





Item 6. Exhibits.





Incorporated by referenceExhibit

Number
Exhibit Description
Filed

herewith
Form
Period

ending
Exhibit
Filing date3(i)(a)
Articles of Incorporation of Musician’s Exchange

SB-2

3(i)(a)
2/29/083(ii)(a)
Bylaws of Musician’s Exchange

SB-2

3(ii)(a)
2/29/0831
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
X32
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
X10.1
Agreement of Purchase and Sale of Assets between MUEX and SpeechPhone, LLC

8-K

10.1
7/29/1010.2
Agreement of Purchase and Sale of Assets between MUEX and MDM Intellectual Property, LLC

8-K

10.2
7/29/1010.3
Agreement of Purchase and Sale of Assets between MUEX and Voice Assist, LLC

8-K

10.3
7/29/1010.4
Agreement of Purchase and Sale of Assets between MUEX and SpeechCard, LLC

8-K

10.4
7/29/10







15







SIGNATURES







Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.










MUSICIAN’S EXCHANGE


(Registrant)











By/S/ Daniel Van Ness


Daniel Van Ness, Chief Executive Officer


(On behalf of the registrant and as


principal financial officer)





Date:  August 13, 2010








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