UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





Form
10-Q





x                   QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the quarterly period ended September 30,
2008





 ̈ TRANSITION REPORT UNDER
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.)





1140
      Lilac Charm Ave.Las
      Vegas, NV
            
            89183(Address
      of principal executive offices)
            
            (Zip
      Code)





Registrant's
telephone number: (702)
866-5838





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 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  x    No   ̈





The
number of shares of Common Stock, $0.001 par value, outstanding on November 11,
2008, was 850,000 shares.











PART
I – FINANCIAL INFORMATION





Item
1. Financial Statements.





MUSICIAN'S
      EXCHANGE(A
      DEVELOPMENT STAGE COMPANY)BALANCE
      SHEET(UNAUDITED)September
      30,2008ASSETSCurrent
      assets:Cash
            
            $
            1,069Inventory
            
            
            1,003Total
      current assets
            
            
            2,072Total
      assets
            
            $
            2,072LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            
            2,000Accounts
      payable - related party
            
            
            7,702Notes
      payable - related party
            
            
            1,063Total
      current liabilities
            
            
            10,765Total
      liabilities
            
            
            10,765Stockholders'
      equity:Preferred
      stock, $0.001 par value, 10,000,000 sharesauthorized,
      no shares issued and outstanding
            
            
            -Common
      stock, $0.001 par value, 100,000,000 sharesauthorized,
      850,000 shares issued and outstanding
            
            
            850Additional
      paid-in capital
            
            
            16,650(Deficit)
      accumulated during development stage
            
            
            (26,193
            )Total
      stockholders' equity
            
            
            (8,693
            )Total
      liabilities and stockholders' equity
            
            $
            2,072See
      Accompanying Notes to Financial Statements.


2





MUSICIAN'S
      EXCHANGE(A
      DEVELOPMENT STAGE COMPANY)STATEMENTS
      OF OPERATIONS(UNAUDITED)For
      the three
            
            
            February
      4, 2008months
      ended
            
            
            (inception)
      toSeptember
      30, 2008
            
            
            September
      30, 2008Revenue
            
            $
            1,520
            
            
            $
            1,520Cost
      of goods sold
            
            
            1,340
            
            
            
            1,340Gross
      profit
            
            
            180
            
            
            
            180Operating
      expenses:General
      and administrative
            
            
            81
            
            
            
            371Executive
      compensation
            
            
            -
            
            
            
            2,800Professional
      fees
            
            
            2,000
            
            
            
            5,500Professional
      fees - related party
            
            
            7,702
            
            
            
            17,702Total
      operating expenses
            
            
            9,783
            
            
            
            26,373(Loss)
      before provision for income taxes
            
            
            (9,603
            )
            
            
            (26,193
            )Provision
      for income taxes
            
            
            -
            
            
            
            -Net
      (loss)
            
            $
            (9,603
            )
            
            $
            (26,193
            )Weighted
      average number of common sharesoutstanding
      - basic and fully diluted
            
            
            850,000
            
            
            
            843,333Net
      (loss) per share - basic and fully diluted
            
            $
            (0.01
            )
            
            $
            (0.03
            )See
      Accompanying Notes to Financial Statements.








3


MUSICIAN'S
      EXCHANGE(A
      DEVELOPMENT STAGE COMPANY)STATEMENTS
      OF CASH FLOWS(UNAUDITED)February
      4, 2008(inception)
      toSeptember
      30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss)
            
            $
            (26,193
            )Adjustments
      to reconcile net (loss)to
      net cash used in operating activities:Shares
      issued for services
            
            
            10,000Changes
      in operating assets and liabilities:(Increase)
      in inventory
            
            
            (1,003
            )Increase
      in accounts payable
            
            
            2,000Increase
      in accounts payable - related party
            
            
            7,702Net
      cash used in operating activities
            
            
            (7,494
            )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from sale of common stock, net of offering costs
            
            
            7,500Proceeds
      from notes payable - related party
            
            
            1,500Payments
      to notes payable - related party
            
            
            (437
            )Net
      cash provided by financing activities
            
            
            8,563NET
      CHANGE IN CASH
            
            
            1,069CASH
      AT BEGINNING OF YEAR
            
            
            -CASH
      AT END OF YEAR
            
            $
            1,069SUPPLEMENTAL
      INFORMATION:Interest
      paid
            
            $
            -Income
      taxes paid
            
            $
            -Non-cash
      activities:Number
      of shares issued for services
            
            
            100,000See
      Accompanying Notes to Financial Statements.








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


NOTE
1 – 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 period February 4, 2008 (inception) through February 20, 2008
and notes thereto included in the Company’s S-1 and S-1/A filed on February 29,
2008 and March 19, 2008, respectively. 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.




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, setting up its internet website, and incurring start up costs and
expenses. As a result, the Company incurred accumulated net losses from February
4, 2008 (inception) through the period ended September 30, 2008 of ($26,193). 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. The accompanying
financial statements do not include any adjustments that might be required
should the Company be unable to recover the value of its assets or satisfy its
liabilities.




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


NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Recently Issued Accounting
Pronouncements





FAS 161


In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities", an amendment of SFAS No. 133. SFAS 161 applies to all
derivative instruments and non-derivative instruments that are designated and
qualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS 133 and
related hedged items accounted for under SFAS 133. SFAS 161 requires entities to
provide greater transparency through additional disclosures about how and why an
entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations,
and how derivative instruments and related hedged items affect an entity's
financial position, results of operations, and cash flows. SFAS 161 is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2008. The Company does not expect that the adoption of SFAS 161 will have a
material impact on its financial condition or results of operation.





FAS 162


In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS 162 will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities.  SFAS 162 will be effective 60 days
following the Securities and Exchange Commission’s approval of the Public
Company Accounting Oversight Board (PCAOB) amendments to AU Section 411. 
The Company does not expect the adoption of SFAS 162 will have a material impact
on its financial condition or results of operation.




FAS 163


In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – an interpretation of FASB Statement No. 60.”  SFAS
163 requires that an insurance enterprise recognize a claim liability prior to
an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation.  This
Statement also clarifies how Statement 60 applies to financial guarantee
insurance contracts, including the recognition and measurement to be used to
account for premium revenue and claim liabilities. Those clarifications will
increase comparability in financial reporting of financial guarantee insurance
contracts by insurance enterprises. This Statement requires expanded disclosures
about financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008.  The
Company does not expect the adoption of SFAS 163 will have a material impact on
its financial condition or results of operation.





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


NOTE
4 – INVENTORY





Inventories
consist of the following at:





September
      30, 2008Finished
      goods
            
            $
            1,003$
            1,003





NOTE
5 – NOTES PAYABLE





Notes
payable consists of the following at September 30, 2008:





September
      30, 2008Note
      payable to a shareholder, unsecured, 0% interest, due upon
      demand
            
            $
            1,000Note
      payable to an officer, director and shareholder, unsecured, 0% interest,
      due upon demand
            
            
            63$
            1,063





Interest
expense for the period of February 4, 2008 (inception) through September 30,
2008 was $0.





NOTE
6 – 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.





Common
Stock




In
February 4, 2008, the Company issued its sole officer of the Company 750,000
shares of its $0.001 par value common stock at a price of $0.01 per share for a
total amount raised of $7,500 in exchange for the founding officer's business
plan, business concept, and website.




On
February 20, 2008, the Company issued 100,000 shares of its common stock toward
legal fees at a value of $0.10 per share.




As of
September 30, 2008, there have been no other issuances of common
stock.





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


NOTE
7 – RELATED PARTY TRANSACTIONS





In
February 4, 2008, the Company issued its sole officer of the Company 750,000
shares of its $0.001 par value common stock at a price of $0.01 per share for a
total amount raised of $7,500 in exchange for the founding officer's business
plan, business concept, and website.  (See Note 6)





During
the period of February 4, 2008 (inception) through September 30, 2008, the
officer received cash of $2,800 which is considered compensation.





On August
1, 2008, the Company received inventory valued at cost of $500 from its sole
officer, director of the company which was considered a loan.  As of
September 30, 2008, the Company paid $437 toward the loan and the remaining
balance of the loan is $63.  (See Note 5)


On August
7, 2008, the Company received cash of $1,000 from a shareholder of the company
which was considered a loan.  (See Note 5)





As of
September 30, 2008, the Company had accounts payable of $7,100 due to an entity
who is a shareholder of the Company.  This entity provides legal
services to the Company.





As of
September 30, 2008, the Company had accounts payable of $602 due to an entity
who is owned and controlled by a shareholder of the Company.  This
entity provides EDGAR services to the Company.











8


FORWARD-LOOKING
STATEMENTS





This document contains forward-looking
statements. All statements other than statements of historical fact are
“forward-looking statements” for purposes of federal and state securities laws,
including, but not limited to, any projections of earnings, revenue or other
financial items; any statements of the plans, strategies and objections of
management for future operations; any statements concerning proposed new
services or developments; any statements regarding future economic conditions or
performance; any statements or belief; and any statements of assumptions
underlying any of the foregoing.





Forward-looking
statements may include the words “may,” “could,” “estimate,” “intend,”
“continue,” “believe,” “expect” or “anticipate” or other similar words. These
forward-looking statements present our estimates and assumptions only as of the
date of this report. Accordingly, readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the dates on
which they are made. We do not undertake to update forward-looking statements to
reflect the impact of circumstances or events that arise after the dates they
are made. Except for our ongoing securities laws, we do not intend, and
undertake no obligation, to update any forward-looking statement. Additionally,
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 most likely do not apply to our forward-looking statements as a result of
being a penny stock issuer. You should, however, consult further disclosures we
make in future filings of our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K.





Although we believe that the
expectations reflected in any of our forward-looking statements are reasonable,
actual results could differ materially from those projected or assumed in any or
our forward-looking statements.  Our future financial condition and
results of operations, as well as any forward-looking statements, are subject to
change and inherent risks and uncertainties.  The factors impacting
these risks and uncertainties include, but are not limited to:




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
            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;
  and


o
            other
      risks and uncertainties detailed in this
report.


9


For a
detailed description of these and other factors that could cause actual results
to differ materially from those expressed in any forward-looking statement,
please see Item 1A. Risk Factors in this document.





Item
2. Plan of Operation.





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.





Background
Overview





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.).  In February of
2008 we commenced our planned principal operations, and therefore have no
significant assets.





Since our
inception on February 4, 2008 through September 30, 2008, we have generated
$1,520 in revenues and have incurred a net loss of $26,193. For the three months
ended September 30, 2008, we generated $1,520 in revenues and incurred a net
loss of $9,603.





We
anticipate revenue will increase in the next twelve months, of which we can
provide no assurance. Recently, we filed an S-1 registration statement (declared
effective by the SEC on April 10, 2008) to raise capital, and those proceeds
have been budgeted to cover costs associated with advertising on the Internet to
draw attention to our website, costs associated with website enhancements, and
costs covering various filing fees and transfer agent fees to complete our early
money raise through the offering. We believe that listing fees generated will be
sufficient to support the limited costs associated with our initial ongoing
operations for the next twelve months. There can be no assurance that the actual
expenses incurred will not materially exceed our estimates or that cash flows
from listing fees will be adequate to maintain our business. As a result, our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern.





Plan
of Operation





We are
developing an online musically oriented advertising platform to provide a method
by which buyers and sellers of musical instruments are brought together in an
efficient format to browse, buy and sell musical instruments and music scripts
to a distinct and focused customer.  Upon completion of our website,
Musician’s Exchange is intended to have a website which will be a fully
automated, topically arranged, intuitive, and easy-to-use service that supports
a buying and selling experience in which sellers list musically oriented
products for sale and buyers provide offers on such products in a fixed-price
format.





10


We
recently filed an S-1 registration statement to raise capital, and with those
proceeds, we believe will allow us to grow, although, of course, we cannot
provide any assurance that we will be able to grow as we currently
anticipate.  The anticipated capital we expect to raise in the
recently filed offering has been budgeted to cover the costs associated with
advertising on the Internet to draw attention to our website, costs associated
with website enhancements, the offering, travel expenses, working capital, and
covering various filing fees and transfer agent fees.





Satisfaction of
our cash obligations for the next 12 months.Our plan of operation has
provided for us to develop a business plan and establish an operational website
as soon as practical. We have accomplished the goal of developing our business
plan; however, we are in the early stages of setting up an operational website
capable of providing a method of advertising musical instruments and equipment
for sale, along with merchandise and musically oriented services. In order to
operate our website, we will be required to have a scalable user interface and
transaction processing system that is designed around industry standard
architectures and externally developed non-proprietary software. The system will
be required to maintain operational data records regarding dealers, used
instruments and equipment listings and leads generated by our listings and
e-commerce partners. We do not have sufficient cash to enable us to complete our
website development, which is an integral part of our operations.





We have
filed an S-1 registration offering to provide the basic minimum amount of funds
to provide sufficient cash for the next 12 months. If we are unsuccessful in
generating the cash set forth in that offering, we will be forced into
curtailing the expenditures required to complete the website, until such time as
we are able to either raise the cash required privately or launch another
offering. Our sole officer and director, Mr. Van Ness has agreed to continue his
part time work until such time as there are either sufficient funds from
operations, or alternatively, that funds are available through private
placements or another offering in the future. We have not allocated any pay for
Mr. Van Ness out of the funds being raised in the offering. If we were to not
receive any additional funds, including the funds from the offering, we could
continue in business for the next 12 months. However, we would not be in a
position to complete the website as set forth in our business plan, or provide
any significant advertisement for our customers, thus we would not anticipate
any significant revenues. Since our website is operational, we can conduct
business and earn revenues.





Going
Concern





The
consolidated 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.


11


Summary of any
product research and development that we will perform for the term of the plan.We do not anticipate performing any significant product research and
development under our plan of operation. In lieu of product research and
development we anticipate maintaining control over our advertising, especially
on the Internet, to assist us in determining the allocation of our limited
advertising dollars. Additionally, we are researching the various software
packages available, which can be manipulated to our needs.





Expected purchase
or sale of plant and significant equipment.We do not anticipate the
purchase or sale of any plant or significant equipment; as such items are not
required by us at this time or in the next 12 months.





Significant
changes in number of employees.The number of employees required to
operate our business is currently one part time individual. After we raised the
money in our recently filed offering and have commenced our advertising program,
and at the end of the initial 12 month period, our plan of operation anticipates
our requiring additional capital to hire at least one full time
person.





Milestones:





As a result of our being a development
stage company with minimal amounts of equity capital initially available, we
have set our goals in three stages: (1) goals based upon the availability of our
initial funding of $7,500, which has been achieved; (2) goals based upon our
funding of $55,000 through the filing of out S-1 registration statement
(declared effective by the SEC on April 10, 2008); and (3) goals based upon or
funding additional equity and or debt in the approximate sum of $100,000 to
$200,000.





Stage I is based on the development of
our business operations of our President’s investment of $7,500.  With
that money we set up our corporate structure by filing for incorporation and set
up corporate governance; we developed an initial operational website at the
lowest possible cost; and we retained counsel and an auditor to assist in
preparation of documents providing for the raising of $55,000 to complete Stage
II of our Plan of Operations.





Stage II: Development of our business
operations is based upon our receipt of the net funds from our offering of
approximately $49,200. We have not commenced the majority of milestones set
forth in Stage II of our Plan of Operation as a result of our not having the
funds from the offering. In the event we do not receive the funds from the
offering, then we will be in a position to continue with the operations of
Musician’s Exchange, however no significant business will be accomplished until
other equity or debt is raised, or in the unlikely event that our website as
currently operational, generates sufficient revenues to incur additional
advertising expenses.





12


Stage III: Development of our business
operations is based upon our receipt of additional equity and/or debt in the
approximate sum of $100,000 to $200,000. If, and when we raise the $100,000 in
Stage III, we intend to pay our President a salary of $25,000 per year. There
are no accruals for past salary, and the commencement date of such salary would
not occur until such time as the additional funds (in addition to our present
offering) are acquired. An additional $20,000 would be allocated toward
salaries, and the balance of $55,000 would be utilized for legal, accounting,
website enhancements, advertising and general office expenses. In the event an
additional $100,000 were raised (in addition to the $55,000 in our present
offering, and $100,000 referenced above), we would allocate the 2nd
$100,000 primarily to additional website enhancements, advertising, office space
and additional staff. We anticipate that it will take us approximately 90 days
after the funding referenced in this Stage III to expand our advertising, hire
personnel, and obtain office space.





Until an
infusion of capital from our offering, we will not be able to complete Stage II
of our plan of operation. We currently have insufficient capital to commence any
significant advertising campaign, or complete our website. Although our website
is currently operational and we are starting to place instruments and equipment
advertisements, our plan of operation is premised upon having advertising
dollars available. We believe that the advertising dollars allocated in the
offering will assist us in generating revenues. We have suffered start up losses
and have a working capital deficiency which raises substantial concern regarding
our ability to continue as a going concern. We believe that the proceeds of the
offering will enable us to maintain our operations and working capital
requirements for at least the next 12 months, without taking into account any
internally generated funds from operations. We will need to raise $55,000, with
net proceeds of $49,200, to comply with our business plan of operations for the
next 12 months based on our capital expenditure requirements.





After the
offering, we will require additional funds to maintain and expand our operations
as referenced in our Stage III of our business plan. These funds may be raised
through equity financing, debt financing, or other sources, which may result in
further dilution in the equity ownership of our stockholders.  At this
time we have no earmarked source for these funds. Additionally, there is no
guarantee that we will be able to locate additional funds. In the event we are
unable to locate additional funds, we will be unable to generate revenues
sufficient to operate our business as planned. For example, if we receive less
than $100,000 of the funds earmarked in Stage III, we would be unable to
significantly expand our advertising to levels under Stage III. Alternatively we
may be required to reduce the payments of salary to our President and cover
legal and accounting fees required to continue our operations. There is still no
assurance that, even with the funds from the current offering, we will be able
to maintain operations at a level sufficient for an investor to obtain a return
on their investment in our common stock. Further, we may continue to be
unprofitable.





13


Liquidity
and Capital Resources





Cash will
be increasing primarily due to the receipt of funds from our recently filed
offering to offset our near term cash equivalents. 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.





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 consolidated 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.





14


Recent Accounting
Pronouncements





In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities", an amendment of SFAS No. 133. SFAS 161 applies to all
derivative instruments and non-derivative instruments that are designated and
qualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS 133 and
related hedged items accounted for under SFAS 133. SFAS 161 requires entities to
provide greater transparency through additional disclosures about how and why an
entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations,
and how derivative instruments and related hedged items affect an entity's
financial position, results of operations, and cash flows. SFAS 161 is effective
as of the beginning of an entity's first fiscal year that begins after November
15, 2008. The Company does not expect that the adoption of SFAS 161 will have a
material impact on its financial condition or results of operation.





In May 2008, the FASB issued SFAS No.
162, “The Hierarchy of Generally Accepted Accounting Principles.”  SFAS 162
will provide framework for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles (GAAP) for nongovernmental
entities.  SFAS 162 will be effective 60 days following the Securities and
Exchange Commission’s approval of the Public Company Accounting Oversight Board
(PCAOB) amendments to AU Section 411.  The Company does not expect the
adoption of SFAS 162 will have a material impact on its financial condition or
results of operation.




In May 2008, the FASB issued SFAS No.
163, “Accounting for Financial Guarantee Insurance Contracts – an interpretation
of FASB Statement No. 60.”  SFAS 163 requires that an insurance enterprise
recognize a claim liability prior to an event of default (insured event) when
there is evidence that credit deterioration has occurred in an insured financial
obligation.  This Statement also clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement to be used to account for premium revenue and claim liabilities.
Those clarifications will increase comparability in financial reporting of
financial guarantee insurance contracts by insurance enterprises. This Statement
requires expanded disclosures about financial guarantee insurance contracts. The
accounting and disclosure requirements of the Statement will improve the quality
of information provided to users of financial statements.  SFAS 163 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2008.  The Company does not expect the adoption of SFAS 163
will have a material impact on its financial condition or results of
operation.





Item
3. Quantitative and Qualitative Disclosure About Market Risk





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





15


Item
4T. Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
specified time periods.  As of the end of the period covered by this
report, Daniel Van Ness, our Chief Executive Officer and Principal Accounting
Officer evaluated the effectiveness of our disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Based on the evaluation, which disclosed
no significant deficiencies or material weaknesses, Mr. Van Ness, our Chief
Executive Officer and Principal Accounting Officer concluded that our disclosure
controls and procedures are effective in timely alerting him to material
information required to be included in our periodic SEC filings and 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.





Item
1A. Risk Factors





We
are a development stage company organized in February 2008 and have recently
commenced operations, which makes an evaluation of us extremely difficult. At
this stage of our business operations, even with our good faith efforts, we may
never become profitable or generate any significant amount of revenues, thus
potential investors have a high probability of losing their
investment.





16


We were
incorporated in February of 2008 as a Nevada corporation. As a result of our
start-up operations we have; (i) generated no revenues, (ii) accumulated
deficits of $26,193 from our inception through the period ended September 30,
2008, and (iii) we have a net loss of $26,193 from our inception through the
period ended September 30, 2008.  We have been focused on
organizational and start-up activities, business plan development, and website
design since we incorporated. Although we have established a website there is
nothing at this time on which to base an assumption that our business operations
will prove to be successful or that we will ever be able to operate
profitably.  Our future operating results will depend on many factors,
including our ability to raise adequate working capital, demand for our service,
the level of our competition and our ability to attract and maintain key
management and employees.





Our
auditor’s have substantial doubt about our ability to continue as a going
concern. Additionally, our auditor’s report reflects the fact that 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.





Our
financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Our auditor’s report reflects that the ability of
Musician’s Exchange 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. If we are unable to continue as a
going concern, you will lose your investment.  We will be required to
seek additional capital to fund future growth and expansion. No assurance can be
given that such financing will be available or, if available, that it will be on
commercially favorable terms. Moreover, favorable financing may be dilutive to
investors.





We
will require additional financing in order to implement our business plan. In
the event we are unable to acquire additional financing, we may not be able to
implement our business plan.





Due to
our very recent start-up nature, we will have to incur the costs of advertising
which is intended to generate revenue from listing fees, in addition to hiring
new employees and commencing additional marketing activities for listing
services. To fully implement our business plan we will require substantial
additional funding. The recently filed offering, if successful, will only enable
us to commence advertising for listing clients, and will assist us in further
developing our initial business operations, including the enhancement of our
website; however will not be sufficient to allow us to expand our business
meaningfully. Additionally, since the net offering proceeds have been earmarked
for advertising expenses, some website development fees, and minimal working
capital, we will not be capitalized sufficiently to hire or pay
employees.





17


Following
the offering we will need to raise additional funds to expand our operations. We
plan to raise additional funds through private placements, registered offerings,
debt financing or other sources to maintain and expand our operations. Adequate
funds for this purpose on terms favorable to us may not be available, and if
available, on terms significantly more adverse to us than are manageable.
Without new funding, we may be only partially successful or completely
unsuccessful in implementing our business plan, and our stockholders may lose
part or all of their investment.





We
are significantly dependent on our sole officer and director, who has limited
experience. The loss or unavailability of Mr. Van Ness’s services would have an
adverse effect on our business, operations and prospects in that we may not be
able to obtain new management under the same financial
arrangements.





Our
business plan is significantly dependent upon the abilities and continued
participation of Daniel R. Van Ness, our sole officer and director. It would be
difficult to replace Mr. Van Ness at such an early stage of development of
Musician’s Exchange. The loss by or unavailability to Musician’s Exchange of Mr.
Van Ness’s services would have an adverse effect on our business, operations and
prospects, in that our inability to replace Mr. Van Ness could result in the
loss of one’s investment. There can be no assurance that we would be able to
locate or employ personnel to replace Mr. Van Ness, should his services be
discontinued. In the event that we are unable to locate or employ personnel to
replace Mr. Van Ness, then we may be required to cease pursuing our business
opportunity.





Mr.
Van Ness has no experience in running a public company or framing an online
musicians advertising business. The lack of experience in operating a public
company or in framing an online musical classified advertising business could
impact our return on investment.





As a result of our reliance on Mr. Van
Ness, and his lack of experience in operating a public company or developing an
online musician’s classified marketplace, our investors are at risk in losing
their entire investment. Mr. Van Ness intends to hire personnel in the future,
when sufficiently capitalized, who may have the experience required to manage
our company; however, such management is not anticipated until the occurrence of
future financing. Since the recently filed offering will not sufficiently
capitalize our company, future offerings will be necessary to satisfy capital
needs. Until such future offering occurs, and until such management is in place,
we are reliant upon Mr. Van Ness to make the appropriate management
decisions.





Since a single stockholder, upon
completion of the recently filed offering will beneficially own the majority of
our outstanding common shares, that single stockholder will retain the ability
to control our management and the outcome of corporate actions requiring
stockholder approval notwithstanding the overall opposition of our other
stockholders. This concentration of ownership could discourage or prevent a
potential takeover of our company that might negatively impact the value of your
common shares.





18


Mr. Van
Ness will own approximately 54% of our outstanding common shares after
completion of the offering. As a consequence of his controlling stock ownership
position, Mr. Van Ness will retain the ability to elect a majority of our board
of directors, and thereby control our management. Mr. Van Ness also has the
ability to control the outcome of corporate actions requiring stockholder
approval, including mergers and other changes of corporate control, going
private transactions, and other extraordinary transactions. The concentration of
ownership by Mr. Van Ness could discourage investments in our company, or
prevent a potential takeover of our company which will have a negative impact on
the value of our securities.





As
a result of Mr. Van Ness’s majority ownership of our outstanding common shares
after this offering, Mr. Van Ness will control our issuance of securities after
the offering.





As a
consequence of Mr. Van Ness’s controlling stock ownership position, acting alone
he will be able to authorize the issuance of securities that may dilute and
otherwise adversely affect the rights of purchasers of stock in the offering,
including preferred stock. Additionally, he may authorize the issuance of these
securities to anyone he wishes, including himself and his affiliates at prices
significantly less than the offering price.





Because
of competitive pressures from competitors with more resources, Musician’s
Exchange may fail to implement its business model profitably.





The business of advertising musical
products and services for resale on the Internet is highly fragmented and
extremely competitive. There are numerous competitors offering similar services.
The market for customers is intensely competitive and such competition is
expected to continue to increase. There are no substantial barriers to entry in
this market and we believe that our ability to compete depends upon many factors
within and beyond our control, including the timing and market acceptance of new
solutions and enhancements to existing solutions developed by us, our
competitors, and their advisors.





Many of
our existing and potential competitors have longer operating histories in the
Internet market, greater name recognition, larger customer bases, established
technology driven websites, and significantly greater financial, technical and
marketing resources than we do. As a result, they will be able to respond more
quickly to new or emerging advertising techniques, technologies, and changes in
customer requirements, or to devote greater resources to the development,
promotion and marketing of their listing and advertising services than we can.
Such competitors are able to undertake more extensive marketing campaigns for
their services, adopt more aggressive pricing policies and make more attractive
offers to potential employees, and strategic advertising partners.





19


Risks Relating To Our Common
Stock





There
is no current public market for our common stock; therefore one may be unable to
sell their securities at any time, for any reason, and at any price, resulting
in a loss of their investment.





As of the
date of this filing, there is no public market for our common stock. Although we
plan, in the future, to contact an authorized OTC Bulletin Board market maker
for sponsorship of our securities on the Over-the-Counter Bulletin Board, there
can be no assurance that our attempts to do so will be successful. Furthermore,
if our securities are not quoted on the OTC Bulletin Board, or elsewhere, there
can be no assurance that a market will develop for the common stock or that a
market in the common stock will be maintained. As a result of the foregoing,
investors may be unable to liquidate their investment for any reason. We have
not originated contact with a market maker at this time, and do not plan on
doing so until completion of this offering.





Because
our common stock is deemed a low-priced “Penny” stock, an investment in our
common stock should be considered high risk and subject to marketability
restrictions.





Since our
common stock is a penny stock, as defined in Rule 3a51-1 under the Securities
Exchange Act, it will be more difficult for investors to liquidate their
investment even if and when a market develops for the common stock. Until the
trading price of the common stock rises above $5.00 per share, if ever, trading
in the common stock is subject to the penny stock rules of the Securities
Exchange Act specified in rules 15g-1 through 15g-10. Those rules require
broker-dealers, before effecting transactions in any penny stock,
to:





·
            Deliver
      to the customer, and obtain a written receipt for, a disclosure
      document;


·
            Disclose
      certain price information about the
stock;


·
            Disclose
      the amount of compensation received by the broker-dealer or any associated
      person of the broker-dealer;


·
            Send
      monthly statements to customers with market and price information about
      the penny stock; and


·
            In
      some circumstances, approve the purchaser’s account under certain
      standards and deliver written statements to the customer with information
      specified in the rules.





Consequently,
the penny stock rules may restrict the ability or willingness of broker-dealers
to sell the common stock and may affect the ability of holders to sell their
common stock in the secondary market and the price at which such holders can
sell any such securities. These additional
procedures could also limit our ability to raise additional capital in the
future.





20


FINRA
sales practice requirements may also limit a stockholder's ability to buy and
sell our stock.





In
addition to the “penny stock” rules described above, the Financial Industry
Regulatory Authority (FINRA) has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, the FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.





Our
internal controls may be inadequate, which could cause our financial reporting
to be unreliable and lead to misinformation being disseminated to the
public.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. As defined in Exchange Act Rule 13a-15(f),
internal control over financial reporting is a process designed by, or under the
supervision of, the principal executive and principal financial officer and
effected by the board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that: (i) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of Musician’s Exchange; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of Musician’s Exchange are being made only in
accordance with authorizations of management and directors of Musician’s
Exchange, and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of Musician’s
Exchange’s assets that could have a material effect on the financial
statements.





We have
one individual performing the functions of all officers and directors. This
individual developed our internal control procedures and is responsible for
monitoring and ensuring compliance with those procedures. As a result, our
internal controls may be inadequate or ineffective, which could cause our
financial reporting to be unreliable and lead to misinformation being
disseminated to the public. Investors relying upon this misinformation may make
an uninformed investment decision.





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





We have
no recent sales of unregistered securities.





21


Use
of Proceeds From Sales of Registered Securities





Our Registration Statement on Form S-1
(File No. 333-149446), related to our initial public offering, was declared
effective by the SEC on April 10, 2008.  A total of 550,000 shares of
common stock were registered with the SEC with an aggregate offering price of
$55,000.  All of these shares were registered on our
behalf.  As of the date of this filing the Company has not sold any
shares under the registration statement.





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 September 30, 2008.





Item
3. Defaults Upon Senior Securities.





None.





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







We did not submit any matters to a vote
of our security holders from the time of our inception through the period ended
September 30, 2008.





Item
5. Other Information.





None.





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)
            2/29/0810.1
            Subscription
      Agreement
            
            SB-2
            
            10.1
            2/29/0831
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act
            X32
            Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act
            X


22


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:
November 13, 2008





23