UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 333-149446
(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) |
Registrant's telephone number: (702) 400-4863
Copies of Communications to:
Stoecklein Law Group
402 West Broadway
Suite 690
San Diego, CA 92101
(619) 704-1310
Fax (619) 704-1325
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 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 Act).
Yes ¨ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of June 30, 2009 (the last business day of the registrant's most recently completed second fiscal quarter) was $7,000 based on a share value of $0.01.
The number of shares of Common Stock, $0.001 par value, outstanding on March 3, 2010 was 1,450,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE: None.
MUSICIAN’S EXCHANGE
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2009
Index to Report
on Form 10-K
| PART I | Page |
| | | |
| Item 1. | Business | 2 |
| Item 1A. | Risk Factors | 15 |
| Item 1B. | Unresolved Staff Comments | 19 |
| Item 2. | Properties | 20 |
| Item 3. | Legal Proceedings | 20 |
| Item 4. | Submission of Matters to a Vote of Security Holders | 20 |
| | | |
| PART II | |
| | | |
| Item 5. | Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities | 20 |
| Item 6. | Selected Financial Data | 22 |
| Item 7. | Plan of Operation | 22 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 29 |
| Item 8. | Financial Statements and Supplementary Data | 29 |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 30 |
| Item 9A (T) | Control and Procedures | 30 |
| Item 9B. | Other Information | 31 |
| | | |
| PART III | |
| | | |
| Item 10. | Directors, Executive Officers, Promoters and Corporate Governance | 31 |
| Item 11. | Executive Compensation | 35 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 36 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 36 |
| Item 14 | Principal Accounting Fees and Services | 37 |
| | | |
| PART IV | |
| | | |
| Item 15. | Exhibits, Financial Statement Schedules | 38 |
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. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. 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 the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of 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:
| · | our current lack of working capital; |
| · | inability to raise additional financing; |
| · | 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 our management to make estimates about matters that are inherently uncertain; |
| · | deterioration in general or regional economic conditions; |
| · | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; |
| · | inability to efficiently manage our operations; |
| · | inability to achieve future sales levels or other operating results; and |
| · | the unavailability of funds for capital expenditures. |
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.
Throughout this Annual Report references to “we”, “our”, “us”, “Musician’s”, “the Company”, and similar terms refer to Musician’s Exchange.
PART I
ITEM 1. BUSINESS
General Business Development
Musician’s Exchange is a development stage company incorporated in the State of Nevada in February of 2008. Musician’s Exchange is developing an Internet destination and marketplace in the United States and potentially, globally, for musicians. Musician’s Exchange is designed to be an ultimate website for musicians. It is intended to be a resource center with links to major and boutique musical companies. Our site will also offer musicians a place to list gear they might have for sale or trade. We will charge a small fee to list items. This fee will include the posting of pictures and an item description, both provided by the seller. These items will be listed until the seller requests to have the items removed. We will also have a section dedicated to band listings. Here bands can submit a brief description of their style or type of music, as well as a link to their website. Our webmaster will collect these submissions and post them according to category. Musician’s Exchange will charge a small one time fee for this service. Musician’s Exchange will also allow outside companies to advertise on our website. Musical companies and musical service organizations can submit banners to our webmaster for posting on different sections of our website. We will base the charge for this service on size as well as location of where the banner is listed.
We also intend to develop a “barter system,” allowing our various customers to obtain credits for equipment, which will be able to be utilized for bartering purposes. We are in direct talks with Itex Latin America to assist us in this venture.
This site can be marketed by word of mouth, the posting of flyers at venues and stores as well as the distribution of business cards. We can also direct market to existing band sites. Musician’s Exchange has also developed a My-Space page for additional networking.
We intend to utilize the power of the Internet to aggregate in a single location a network of industry participants and a comprehensive database of musician’s information to create an open marketplace that is local, regional, national, and global in nature. By providing this digital marketplace, we intend to bring musicians, private sellers and other industry participants, such as vendors of musical products and services and national advertisers, together with purchase-minded consumers at the moment when these consumers are directly engaged in a search for musical products and services. We believe that upon completion of our operating model, we will provide significant benefits to musicians, dealers, private sellers and other industry participants by enabling them to advertise, interact and transact with a significant online consumer audience related to the musical world. We intend to provide significant benefits to consumers by giving them the tools they need to effectively navigate a large database of musical products and services oriented to any aspect of the music industry, thereby optimizing their ability to find musically oriented product or service of their choice in their chosen geographical area.
Our business model is built on multiple revenue streams from a variety of industry participants interested in marketing their services to our consumer audience. We intend to generate revenues primarily from listing fees, and fees for consumer and dealer services. In the future, we also intend to generate revenues from facilitating electronic commerce ("e-commerce") transactions, online used musical instruments auction-style trading services and national advertising.
We have concentrated our energies on analyzing the viability of our business plan, and establishing our business model. Additionally, we are in the process of expanding our website, which upon completion will address the aspects of our business concept as set forth below. We commenced our business operations in February of 2008 through the posting of the initial page of our website (www.musiciansxchangeonline.com).
We are attempting to build Musician’s Exchange into an Internet Musical Classified Marketplace in addition to a comprehensive consumer information website. Our principal goal is to earn revenues by uniting all parties interested in the world of music online. In order to generate revenues during the next twelve months, we must:
1. Enhance our existing website – We believe that using the Internet for a musical marketplace and consumer information facility will provide us a base for operating our company. We registered the domain name www.musiciansxchangeonline.com, and have developed a preliminary website, where we expect to expand the site to be more comprehensive.
2. Develop and implement a marketing plan – Once we establish our presence on the Internet, we intend to devote our efforts to developing and implementing a plan to market our services to businesses related to the music industry. In order to promote our company and attract customers, we plan to advertise via the Internet in the form of banner ads, link sharing programs and search engine placements. We generated some revenues from musical related listings during 2008 and 2009. During 2010 we expect to formalize and implement a more comprehensive marketing scheme to provide dealers and manufacturers an additional marketing outlet.
3. Develop and implement a comprehensive consumer information website – In addition to providing a consumer (buyers and sellers) and trade (dealers and manufacturers) a musical classified marketplace, we intend to develop a consumer information website. This consumer information website is intended to let musical shoppers research the most detailed music related information including buying and selling tips, musical instrument reviews, audio equipment pricing, finance programs, as well as tools for comparing audio equipment side by side.
4. Develop Barter Ability - We are beginning to seek new methods of exchange amongst our customers. We are looking towards the development of a system to allow users to barter or exchange musical instruments, audio equipment or even music itself. We feel this will open up a new market and attract a different set of buyers and sellers to the website. To pursue this “Barter System,” we are seeking the advice of experts, such as Itex Latin America, Inc.
Musician’s Exchange commenced its Website in February of 2008, and as a result of its recent commencement of business activities has limited start-up operations and generated limited revenues. Our operations, to date, have been devoted primarily to startup and development activities, which include the following:
| · | Formation of the company; |
| · | Creation of our initial website, www.musiciansxchangeonline.com; |
| · | Research of our competition; |
| · | Development of our business plan |
| · | Research of software to assist us in our anticipated website development; |
| · | Establishment of listing criteria; and |
| · | Investigating creation of barter system |
Musician’s Exchange is an established business, with temporary offices at 2858 Erie St., San Diego, California. Mr. Van Ness, our director and president/treasurer and majority stockholder created the business as a result of his lifetime interest in musical instruments, bands, his affiliation with the audio and sound department at the Treasure Island Hotel Casino, Las Vegas, the aftermarket merchandising of musical accessories, and marketing. Musician’s Exchange may be involved in acquiring small accessory operations in the future or other musical advertising websites.
Business of Issuer
We are developing an online musically oriented advertising platform, which is discussed below, 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. The musical classified marketplace being developed by us will be designed to give music shoppers and sellers more control over the entire process of buying and selling musical products by providing detailed information to make an informed buying or selling decision. Musician’s Exchange is intending to have a website which will be a fully automated, topically arranged, intuitive, and provide an easy-to-use service which 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.
One stop at www.musiciansxchangeonline.com is intended to let shoppers of musical instruments, musical information, concert tickets, information on different music groups, video and audio equipment, etc., research online before making the actual purchase. We are designing our website, and shopping experience to let shoppers research detailed information including buying and selling tips, reviews, audio and video mechanical issues, as well as the ability to download certain types of music. Consumers will be able to list music oriented equipment on www.musiciansxchangeonline.com, making it available to a potentially large online audience of musically oriented buyers.
We intend to be an Internet destination and marketplace in the United States and Latin America for buyers and sellers of musically oriented equipment and instruments, and for consumers seeking information regarding musically oriented products and services, such as concert information, band information, music writers, different musicians available for fill in, and information on musical instruments. We intend to utilize the power of the Internet to aggregate in a single location an extensive network of industry participants and a comprehensive database of musical information on all aspects of the music industry to create an open marketplace that is local, regional, national, and global in nature. By providing a digital marketplace, we will be able, upon full implementation, to bring music dealers, private sellers and other industry participants, such as vendors of any type of musical products and services and national advertisers, together with purchase-minded consumers at the moment when these consumers are directly engaged in a search for such products and services.
Based upon our business model, we intend to provide significant benefits to dealers, private sellers and other industry participants by enabling them to not only advertise, but also to interact and transact with what we believe is a significant online consumer audience related to the music market.
We believe that our website, upon full implementation, will generate leads (potential buyers requesting a phone number, directions or an e-mail address) for dealers that allow them to precisely target purchasers of new and used musical instruments in a manner which is more effective than traditional media.
Our business model is being built on multiple revenue streams from a verity of industry participants interested in marketing their services to our consumer audience. We anticipate generating our revenues primarily from fees for consumer sales, dealer and consumer services. We also intend to generate revenues from facilitating musical e-commerce transactions, and eventually, online new and used musical auction-style trading services and national advertising as well as the new barter system.
Our objective is to build and maintain a superior online marketplace for facilitating transactions between buyers and sellers of musically oriented products and services. After developing a position in the market for our service, our main thrust of our strategy is to enhance our market position by growing our database of musically oriented products and service listings and sellers, our database of information regarding the music searching patterns of buyers, our network of dealers and the audience of users of our website.
Inefficiencies of Traditional Used Musical Equipment Buying and Selling Methods
This highly fragmented, intensely competitive distribution system has resulted in high customer acquisition costs. Dealers operate in highly localized markets, and the competition for consumers within these local markets has resulted in increased advertising and marketing costs that continue to place downward pressure on dealer profits. Traditional advertising and promotional methods are typically able to reach only consumers in a limited local or regional geographic area, thus confining the potential payback from advertising to a specific localized audience. Traditional mass advertising media, such as newspapers, radio or television, are also inefficient because they reach many consumers who are not in the musically oriented product and services market and they do not provide a means to target advertising to consumers who are likely to purchase musically oriented products and services based upon their individual preferences and interests. Moreover, the costs associated with traditional mass advertising typically rise every year, generally without attendant increases in the size or precision of the audience delivery.
For the consumer, the process of buying and selling a used musical instrument, or technologically audio specific equipment is generally viewed as an inefficient process. Although the purchase of music equipment is not one of the larger purchases made by most consumers, consumers historically have not had access in a single, centralized location to the information needed to research and evaluate purchasing decisions. In particular, many consumers express dissatisfaction with the traditional sources of musically oriented technologically specific information, such as newspaper classified advertisements or visits to a dealer, because these individual sources contain only a small percentage of the total universe of music equipment for sale in their local market. As a result, consumers must often make significant purchasing decisions and compromises with limited and incomplete information. At the time of equipment purchase, the consumer must also make decisions on, and deal with multiple parties to arrange for, other products and services such as financing, and installation and services, often with an insufficient number of options and inadequate available information.
Our Solution
We believe that by providing a marketplace on the Internet where buyers and sellers of musically oriented products and services can meet, negotiate and control their purchase decisions, we intend to have significantly improved the purchasing and selling process for both buyers and sellers. A powerful Internet marketplace can provide dealers, private sellers, vendors of music products and services and national advertisers an effective environment for reaching an economically and geographically diverse group of targeted consumers (ie buyers or sellers of music products) who have expressed an interest in musically oriented information by logging onto our website. Our website is being designed to provide consumers with a "one-stop" destination that incorporates all aspects of commerce and content related to the process for purchasing and selling musically oriented products and services.
Significant Benefits to Dealers
If we are able to structure our website the way we envision the website in our business plan, then we believe we will provide significant benefits to dealers such as:
| · | Online Consumer Audience of Musically Oriented Products. We believe that by offering dealers an online consumer audience of musically oriented shoppers that our website will provide dealers with access to a much larger and more geographically diverse consumer base than they can find through traditional, locally-oriented advertising and distribution channels. |
| · | Low Cost and Flexible Services. We intend to provide dealer listings and advertisements in a cost-effective manner, frequently reducing per transaction costs associated with advertising musically oriented products and services. Our website is being designed so that basic used music product and services listings will be posted on our website without requiring binding contracts. Enhanced listings and other promotional products such as banner advertising will be able to be purchased for various fees, which depend on contract terms. We plan on developing a listing process and user-friendly software that will allow dealers to update their listings and make changes as often as they wish, a flexibility and convenience not found in traditional advertising dependent upon fixed publishing and advertising schedules. Dealers will be able to access their listings to make these changes 24 hours a day, seven days a week through a password-protected system, and these changes will be generally posted on our website within a few hours. |
| · | Ability to Target Musically Oriented Product and Services Purchasers. We find the ability to target specific dealer listings and advertisements to users by geography and music equipment, make, model and pricing will enable our website to match demand for and supply musically oriented products and services information more efficiently than any traditional distribution channel. Upon our completion of acquiring a proprietary search engine and targeting, tracking and analysis software in the future, our website is anticipated to be able to display and monitor dealer listings and advertisements that are most likely to be of interest to a specific consumer based upon his or her search criteria and zip code. As a result, dealers may experience a level of marketing precision with Musician’s Exchange that is unavailable through traditional newspaper, radio and television advertising. |
| · | Wide Range of Listing and Advertising Products. We are also planning on our website to have targeted listing and advertising products together with, customer-driven search tools and functionality to facilitate effective presentation and matching of a dealer's inventory and services with the desired features and criteria of prospective buyers. In addition to posting basic music equipment and instrument listings on our website free of charge, dealers will be able to purchase a wide range of online listing and advertising products, including: |
| - | enhanced listings, which provide a more prominent presentation of a dealer's equipment similar to bold listings in the Yellow Pages; |
| - | inventory pages, which enable visitors to view a dealer's entire inventory of music equipment, one mouse click from any one of its equipment listings on our website; |
| - | website links, which enable visitors to our website to link through to the dealer's own website; |
| - | website design and hosting, which provide dealers with their own prominently listed Internet address in the www.musiciansxchangeonline.com Dealer Directory for maximum exposure and a searchable music equipment inventory database; |
| - | banner advertising, which displays a dealer's advertisement on a Web page as it is being viewed by a potential buyer determined by search criteria, including geography and equipment year, make, model and pricing. |
| - | a system that gives users the ability to barter equipment or inventory with other users |
| · | Access to Database of Consumer Buying Trends. Based upon the design of the software we are reviewing, we will also be able to collect, filter and report to dealers usable information on the shopping habits of music instrument and music equipment purchasers in a dealer's region. Additionally, we would provide dealers with monthly usage tracking reports with information on the number of items listed on our website by a dealer, the number of times a dealer's listings are presented on a search results page and the number of leads sent to a dealer to aid dealers in further targeting their product offerings in their markets. |
| · | Open, Non-Exclusive Marketplace. Our business plan takes into account that we may as a neutral intermediary that facilitates the interaction and exchange of information between dealers and potential equipment purchasers, rather than competing with the dealers directly by taking title to such music instruments and equipment and then selling the music instruments and equipment to users of our website. Dealers listing their equipment on our website are not precluded from also listing their products on other websites or through more traditional advertising methods. As a result, we will offer dealers a non-exclusive channel to target potential buyers without having to compete with us in the process. Furthermore, unlike many of our competitors, we would not compel dealers to follow specific marketing rules or policies such as "no haggle prices." By enabling all types of dealers and styles of selling to participate in our open marketplace, we would make it easy for dealers to include Musician’s Exchange in their marketing mix. |
Significant Benefits to Consumers
| · | Flexible, Customer-Driven Search Process. Our website is intended to employ a specialized search engine, which will allow consumers to quickly, conveniently and easily navigate through our listings of new and used music instruments and equipment to locate products that match their specific search criteria, including variables such as make, model, price and geographic location. Once a consumer finds the product or service, the consumer will be provided with the seller's or provider’s contact information as well as links to a wide range of detailed information about the product or service, including specifications, ratings, retail and trade-in values and review by industry experts. We are planning the website to also feature a decision guide software, which will help our users choose the product or service that is right for them. By completing a simple "Custom Search" question-and-answer form, users will be guided to products and services that match their desires and needs. In addition, the website would also enable consumers to review music-related products and services easily from category to category (e.g. from music instruments to audio/video equipment) without needless backtracking. Moreover, the consumer data captured by our database would enable us to provide customized advertising messages to consumers that may be based, for example, on the category of inquiries they have made. |
| · | Convenient and Efficient Shopping Experience. Our website, upon full implementation, is intended to provide a "one-stop" shopping environment that can significantly enhance the ongoing relationship between sellers and buyers by allowing consumers to select products and services and obtain musically oriented information conveniently in the privacy of their home or office. The website will also create a direct connection between the consumer and the relevant dealer or private seller by providing the consumer with contact information such as an e-mail address, telephone number and map with directions. Consumers will be able to obtain online access, at no charge, to the proposed comprehensive, up-to-date information on our website that they need to make an informed purchase decision. Information about equipment models and options, dealer costs, technological audio/video information, new and used equipment values and reviews and articles from such sources as Sound and Vision Magazine (audio/visual equipment), Guitar Player Magazine, Piano Today, Harpa, Fiddler Magazine, and Virtual Instruments, will be collected in a centralized location, providing consumers with an objective, convenient and cost-effective means to make informed purchase decisions. |
| · | Availability of Music Products and Services. Traditionally, consumers have been dependent on dealers and third-party vendors for music products and services, such as music stores. Our website is intended to offer consumers convenient access to and online connectivity with a comprehensive range of these services. In addition, we are anticipating aftermarket service offerings in the areas of repairs and maintenance by offering links to providers of these services for musicians within a consumer's chosen geographic area as well as third-party reviews and editorial content. |
| · | Private Seller Listings. We will also serve consumers by enabling them, as private sellers, to list their used equipment for sale on our website at minimal charge. With this listing option, private sellers make their listings available to a potentially large and geographically diverse number of potential buyers. In addition, private sellers would benefit from the ability of our website to more effectively target consumers in their geographic area than more traditional media. |
| · | Barter Ability. The ability to barter items instead of selling them opens up a whole new area of commerce to our consumers. More people are turning to an online barter exchange when they are low on the cash needed to make a traditional purchase. It will allow a group of buyers and sellers otherwise unable to obtain musical equipment, to barter for what they need or want. |
Significant Benefits to Other Industry Participants
| · | Vendors of Music Instruments and Equipment Products and Services. We anticipate providing vendors of music instruments and equipment products and services with access to a large and growing number of purchase-minded consumers who, in many instances, may require financing, repairs, or merely direction regarding such products and services. Consumers seeking musically oriented information are also often interested in, or may be specifically researching, information regarding competitive providers for their current music products and services. Vendors of such products and services may be able to benefit from the ability of our database and software to direct their advertised products to a targeted consumer audience, which may provide them with a competitive advantage and an opportunity to increase their product sales. |
| · | National Advertisers. By utilizing the wide range of targeted marketing offerings of Musician’s Exchange, national advertisers may be able to gain exposure to a targeted group of music purchase-minded consumers at the moment when these consumers are directly engaged in a search for information regarding musically oriented products and services on our website. We intend to establish national advertising accounts with the music and audio and video industry, however at this time no such contact has been established. |
COMPETITIVE ADVANTAGES
In terms of the number of dealers, private sellers and used music instrument and audio/video shoppers, we do not anticipate an ability to create a competitive advantage over other well established sites for some time in the future. We realize it may take several years to complete our business plan as discussed above.
STRATEGY
Our objective is to build and maintain an online marketplace for facilitating transactions between buyers and sellers of musically oriented products and services. We intend to accomplish our objective by pursuing the following strategic initiatives:
| · | Enhance and Broaden Services, Relevant E-Commerce Offerings and Content Offerings |
| | We anticipate offering products and services such as expanded advertising and promotional opportunities, forms of enhanced listings, dealer website services, additional finance, aftermarket services and inspection and certification services, in addition to tracking where the trade shows are being conducted. We also plan to enhance and expand the selection criteria of our customer-driven search tools by allowing searches that include desired after purchase product levels, options and colors to pinpoint even more effectively the products of the consumer's choice. We currently do not have the required software to provide for the type of searches we anticipate; however we have commenced the evaluation process. |
| | We intend to work with leading musically oriented content providers, such as, Sound & Vision Magazine, Guitar Player Magazine, Virtual Instruments, Piano Today, Harpa, and Fiddler Magazine, to provide consumers with product reviews and editorials, expert advice and comparisons and other information. We intend to further integrate these content offerings with our search and purchase functions by deploying new enhanced versions of our website thereby further establishing ourselves as a comprehensive, independent destination for music information and encouraging repeat user visits. Additionally, we intend to broaden the resources available to consumers by developing relationships with other leading music content providers. |
| · | Increase Brand Awareness and Consumer Traffic |
We believe that building consumer and dealer awareness of the Musician’s Exchange brand and the products and services that we intend to offer is critical to our effort to build an Internet marketplace destination for music instrument and equipment buying and selling and obtaining information regarding music products and services. We intend to focus our consumer marketing efforts primarily on online advertising with selected high traffic Internet portals and websites. Our strategy is to further increase our brand awareness and website traffic through advertising efforts encompassing online advertising methods and appearing at select trade shows for musicians.
| · | Leverage Our Business Model |
Our business model revolves around facilitating the interaction between buyers and sellers of music related products and services. By combining an expansion of consumer traffic to our website with an expansion of the size and information content of our listing database, we expect to continue to experience rapid growth in the generation of leads for sellers and other industry participants. Unlike many of our competitors, we are developing a scalable business model characterized by multiple revenue streams, a significant portion of which are recurring in nature:
| - | subscription and advertising fees from dealer services; |
| - | revenue from facilitating music e-commerce transactions (such as financing, repairs and aftermarket products); |
| - | fees from our online equipment, auction-style trading services where we intend to utilize websites such as those operated by eBay; |
| - | fees from national advertising programs, promotions and services; and |
| - | barter fees associated with a Barter Exchange System. |
Services to Consumers
We intend to offer consumers a "one-stop" shopping website with all of the information and tools a consumer needs to cover each step of the musicians shopping, selling or bartering process.
Music Equipment Search, Selection and Listing.
Our proposed website will make the music equipment and instrument search, selection and listing process easy by providing a searchable database of instruments and equipment listings, a user-friendly online instruments and equipment listing form and access to an auction-style website and a new instrument and equipment website. More specifically, we intend to provide consumers with the following services:
| · | Searchable Used Music Instrument and Equipment Listings. Search our listings database by make, model, year, price and geographic location and obtain contact information such as e-mail addresses, telephone numbers and maps with directions. |
| · | "Sell a Music Instrument" Service. List a used music instrument on our website at minimal cost by completing our online form |
| · | Product Information and Consumer Tools. Our website will help consumers select the right music audio and visual equipment for them based upon their individual preferences, price parameters and financial condition. We intend to provide consumers with expert reviews and advice relating to the music market. More specifically, we anticipate providing consumers with the following services: |
| o | Decision Guide. Complete a simple "Custom Search" question-and-answer form in our interactive decision guide to find out which piece of audio/visual equipment best fits the consumer's desires, needs and budget. |
| o | Equipment Reviews and Comparisons. Review audio and visual equipment content materials from such leading content providers as Sound and Vision Magazine (audio/visual equipment), Guitar Player Magazine, Piano Today, Harpa, Fiddler Magazine, and Virtual Instruments to find product reviews and buying and selling tips. |
| o | Pricing Guides. Obtain used equipment pricing information to learn what price the consumer should pay for a piece of equipment or what price the consumer should ask for his or her used piece of equipment. |
Services to Other Industry Participants
We intend to offer other industry participants the following services on our website:
| o | E-Commerce. We intend to provide musical instrument and audio/visual equipment manufacturers and other vendors of related products and services the ability to reach purchase-minded, or service minded consumers on our website in order to capture sales opportunities for which we receive commissions and advertising fees. |
Aftermarket Goods and Services
Advertising. If we are successful with our website, we intend to provide national and regional industry participants, who sell aftermarket goods and services, with an effective, efficient and accessible website on which to promote their products and services.
Technology
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, such as that provided by SAS. The system will be required to maintain operational data records regarding dealers, musical instrument and equipment listings and leads generated by our listings and e-commerce partners. The system will also be required to handle other aspects of the new and used musical equipment shopping and bartering process, including providing dealer contact information and submitting insurance, warranty and finance inquiries, as well as other inquiries and information, to various vendors.
The system will be required to have the capability to provide dealers, advertisers and vendors with online access to information relevant to their business. For example, these vendors should be able to access a Musician’s Exchange extranet (Dealers.musiciansexchange.com) to manage their new and used music equipment inventory by adding, modifying or updating their listings, as well as uploading pictures of such music instruments and equipment.
Our operations will be required to provide website services 24 hours a day, seven days a week with occasional short interruptions due to maintenance or system problems, such as power failures or router failures. We will be required to have two website hosting operations for redundancy and load distribution, with two separate locations. Both of these hosting facilities will be required to be state-of-the-art with multiple redundancies for power and network components. Additionally, at each facility, our systems will be required to have redundant units such as multiple Web servers and databases. These systems are expensive and cause us a capital outlay which we currently do not have.
Competition
Each of our musician’s listing services, musically oriented products and services and content offerings competes against a variety of Internet and offline providers. Barriers to entry on the Internet are relatively low; however, most other websites do not currently offer our proposed unique blend of extensive listings, music products and services and relevant content offerings. We anticipate facing significant competition in the future from new websites that offer the same emphasis on musically oriented listings and services and existing websites that introduce competing services.
Intellectual Property & Proprietary Rights
Upon completion of our website, we will regard substantial elements of our website and underlying technology as proprietary and attempt to protect them by relying on trademark, service mark and trade secret laws, restrictions on disclosure and transferring title and other methods. We currently do not have any technology we consider proprietary, as we are currently in our development stage.
Employees
We are a development stage company and currently have only two part-time employees, Daniel R. Van Ness, who is also our president/treasure and director, and Andrew Widme who is our secretary. We look to Mr. Van Ness for his entrepreneurial skills and talents, as well as Mr. Widme’s support and experience in the field of stagecraft. It is Mr. Van Ness who provided us our business plan. For a discussion of Mr. Van Ness’s experience, please see “Director, Executive Officers, Promoters and Control Persons.” Initially Mr. Van Ness will coordinate all of our business operations. Mr. Van Ness has provided the working capital to cover our initial expense. We plan to use consultants, attorneys, accountants, and technology personnel, as necessary and do not plan to engage any additional full-time employees in the near future. We believe the use of non-salaried personnel allows us to expend our capital resources as a variable cost as opposed to a fixed cost of operations. In other words, if we have insufficient revenues or cash available, we are in a better position to only utilize those services required to generate revenues as opposed to having salaried employees. We may hire marketing employees based on the projected size of the market and the compensation necessary to retain qualified sales employees: however we do not intend to hire these individuals within the next 12 months. A portion of any employee compensation likely would include the right to acquire our stock, which would dilute the ownership interest of holders of existing shares of our common stock.
Mr. Van Ness is spending the time allocated to our business in handling the general business affairs of our company such as accounting issues, including review of materials presented to our auditors, and developing our business plan and overseeing the technological aspects of our business, including the analysis of various software companies capable of generating the type of software we require.
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.
We were incorporated in February of 2008 as a Nevada corporation. As a result of our start-up operations we have; (i) generated revenues of $5,872, (ii) accumulated deficits of $82,427 from our inception through the period ended December 31, 2009, and (iii) we have a net loss of $82,427 from our inception through the period ended December 31, 2009. 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.
Following our recent 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 president/treasurer 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 president/treasurer 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, beneficially owns the majority of our outstanding common shares, that single stockholder retains 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.
Mr. Van Ness owns 52% of our outstanding common shares. As a consequence of his controlling stock ownership position, Mr. Van Ness retains 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.
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.
Risks Relating To Our Common Stock
If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Companies trading on the OTC Bulletin Board, such as us, generally must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. More specifically, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission. Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period, then we will be ineligible for quotation on the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
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.
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 two individuals performing the functions of all officers and directors. These individuals developed our internal control procedures and are 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 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We currently maintain an office at 2858 Erie St., San Diego, California. We have no monthly rent, nor do we accrue any expense for monthly rent. Mr. Van Ness, our president/treasurer and director, provides us his home in which we conduct business on our behalf. Mr. Van Ness does not receive any remuneration for the use of this facility or time spent on behalf of us. We do not believe that we will need to obtain additional office space at any time in the foreseeable future, approximately 12 months, until our business plan is more fully implemented.
As a result of our method of operations and business plan we do not require personnel other than Mr. Van Ness and Mr. Widme to conduct our business. In the future we anticipate requiring additional office space and additional personnel; however, it is unknown at this time how much space or how many individuals will be required.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Musician’s did not submit any matters to vote of its stockholders during the year ended December 31, 2009.
PART II
| ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES |
Market Information
Our Common Stock is traded in the over-the-counter securities market through the Financial Industry Regulatory Authority ("FINRA") Automated Quotation Bulletin Board System, under the symbol “MUEX”. We have been eligible to participate in the OTC Bulletin Board since January 26, 2010.
Holders of Common Stock
As of March 3, 2010, we had approximately 61 stockholders of record of the 1,450,000 shares outstanding.
Dividends
The payment of dividends is subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid or declared any dividends upon our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements, do not anticipate paying any dividends upon our common stock in the foreseeable future.
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:
| · | our financial condition; |
| · | prior claims of preferred stock to the extent issued and outstanding; and |
| · | other factors, including any applicable laws. |
Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
Securities Authorized for Issuance under Equity Compensation Plans
We currently do not maintain any equity compensation plans.
Recent Sales of Unregistered Securities
We have no recent sales of unregistered securities.
The 550,000 shares of our common stock sold in our initial public offering to 54 investors (for a total purchase price of $55,000, all of which was paid in cash) were issued on November 16, 2009. The 550,000 shares were registered in our Registration Statement on Form S-1 declared effective on April 7, 2008.
On November 18, 2009, we issued 50,000 shares of our restricted common stock toward transfer agent fees totaling $5,000 at a value of approximately $0.10 per share. The shares were valued with the fair value of the common stock. We believe that the issuance of the shares was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2). The recipient of the shares was afforded an opportunity for effective access to files and records of the Company that contained the relevant information needed to make his/her investment decision, including the Company’s financial statements and 34 Act reports. We reasonably believe that the recipient, immediately prior to issuing the shares, had such knowledge and experience in our financial and business matters that he/she were capable of evaluating the merits and risks of his/her investment. The recipient had the opportunity to speak with our president and directors on several occasions prior to his/her investment decision.
Issuer Purchases of Equity Securities
The Company did not repurchase any of its equity securities during the fourth quarter ended December 31, 2009.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. PLAN OF OPERATION
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.).
Since our inception on February 4, 2008 through December 31, 2009, we have generated $5,872 in revenues and have incurred a net loss of $82,427.
We anticipate revenue will increase in the next twelve months, of which we can provide no assurance. The capital raised in our offering has 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.
We have raised capital through an S-1 registration, and with those proceeds, we believe it 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 capital raised 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, working capital, and covering various filing fees and transfer agent fees.
Satisfaction of our cash obligations for the next 12 months. As December 31, 2009, our cash balance was $32,091. Our plan for satisfying our cash requirements for the next months is through sales generated income, additional sales of our common stock, third party financing, and/or traditional bank financing. We intend to make appropriate plans to insure sources of additional capital in the future to fund growth and expansion, and may consider additional equity or debt financing or credit facilities.
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 successfully raised the $55,000 through the S-1 declared effective on April 7, 2008. This capital raise might provide the basic minimum amount of funds to provide sufficient cash for the next 12 months. In September 2009, we began raising funds through our offering and successfully raised $55,000 by November 2009.
Both our president/treasurer and director, Mr. Van Ness and our secretary Mr. Widme have agreed to continue their 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 either Mr. Van Ness or Mr. Widme out of the funds raised in the offering.
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.
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 commencing 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, which has been achieved; and (3) goals based upon or funding additional equity and or debt in the approximate sum of $100,000 to $200,000.
With the infusion of capital from our direct public offering, we implemented Stage II of our Plan of Operation. 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. With net proceeds of $44,400 from our offering, we are able to comply with our business plan of operations for the next 12 months based on our capital expenditure requirements.
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.
Liquidity and Capital Resources
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 product sales. 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
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.
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. E-commerce revenues are derived from musical vendors such as, warranty and finance companies and music related aftermarket retailers who will be able to market their services on the Company's Web site or integrate their product with the Company's Web site. 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.
Stock-Based Compensation
The Company accounts for stock-based awards to employees in accordance with Financial Accounting Standards Board’s Accounting Standard Codification (ASC) 718 “Stock Compensation.” Options granted to consultants, independent representatives and other non-employees are accounted for using the fair value method as prescribed by ASC 718.
Recent Accounting Pronouncements
Below is a listing of the most recent accounting standards and their effect on the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-03 (ASU 2010-03), Extractive Activities—Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures. This amendment to Topic 932 has improved the reserve estimation and disclosure requirements by (1) updating the reserve estimation requirements for changes in practice and technology that have occurred over the last several decades and (2) expanding the disclosure requirements for equity method investments. This is effective for annual reporting periods ending on or after December 31, 2009. However, an entity that becomes subject to the disclosures because of the change to the definition oil- and gas- producing activities may elect to provide those disclosures in annual periods beginning after December 31, 2009. Early adoption is not permitted. The Company does not expect the provisions of ASU 2010-03 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. (See FAS 167 effective date below)
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. (See FAS 166 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. (See EITF 09-1 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance” (“EITF 09-1”). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15, 2009 and requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. The Company does not expect the provisions of EITF 09-1 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the FASB issued SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities. The provisions of SFAS 167 significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. SFAS 167 will be effective for the Company beginning in 2010. The Company does not expect the provisions of SFAS 167 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the FASB issued SFAS No. 166, (ASC Topic 860) “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). The provisions of SFAS 166, in part, amend the derecognition guidance in FASB Statement No. 140, eliminate the exemption from consolidation for qualifying special-purpose entities and require additional disclosures. SFAS 166 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. The Company does not expect the provisions of SFAS 166 to have a material effect on the financial position, results of operations or cash flows of the Company.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
This item in not applicable as we are currently considered a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules appearing on page F-1 through F-16 of this Form 10-K.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
We have had no disagreements with our independent auditors on accounting or financial disclosures.
ITEM 9A (T). 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.
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.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.
Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2009
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION
None.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The sole member of our Board of Directors serves without compensation until the next annual meeting of stockholders, or until his successor has been elected. The officers serve at the pleasure of the Board of Directors. At present, Daniel R. Van Ness and Andrew Widme are our officers and director. Information as to the director and executive officer is as follows:
| Name | Age | Title |
| Daniel R. Van Ness | 35 | President, Treasurer, Director |
| Andrew I. Widme | 26 | Secretary |
Duties, Responsibilities and Experience
Daniel R. Van Ness. Age 34, President, Treasurer, Director and founder of Musician’s Exchange from February 4, 2008 to present. Mr. Van Ness currently does not spend more than 30 hours per month on Musician’s Exchange business. From 1992 to present Mr. Van Ness was, and still is, involved in the entertainment business. Mr. Van Ness has been involved in the musical world throughout his working career and is the founder of Musician’s Exchange, combining both his musical experience and advertising and marketing experience. Mr. Van Ness holds a B.A. in Broadcast Production from Minot State University.
Andrew I. Widme. At age 26, has been Secretary of Musician’s Exchange from November 13, 2009 to present. Mr. Widme is currently in his second semester of college at the College of Southern Nevada where he is majoring in accounting. Prior to returning to school, he was employed with multiple window installation companies, as an installer in commercial and residential glazing. Mr. Widme has also assisted Mr. Van Ness in concert production and sound system installation from 1999 through 2007, throughout Las Vegas, NV and across parts of the mid-west.
Limitation of Liability of Directors
Pursuant to the Nevada General Corporation Law, our Articles of Incorporation exclude personal liability for our Directors for monetary damages based upon any violation of their fiduciary duties as Directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or any transaction from which a Director receives an improper personal benefit. This exclusion of liability does not limit any right which a Director may have to be indemnified and does not affect any Director’s liability under federal or applicable state securities laws. We have agreed to indemnify our directors against expenses, judgments, and amounts paid in settlement in connection with any claim against a Director if he acted in good faith and in a manner he believed to be in our best interests.
Election of Directors and Officers
Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders and until their successors have been elected and qualified.
No Executive Officer or Director of the Corporation has been the subject of any Order, Judgment, or Decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.
No Executive Officer or Director of the Corporation has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending.
No Executive Officer or Director of the Corporation is the subject of any pending legal proceedings.
Involvement in Certain Legal Proceedings
No Executive Officer or Director of the Corporation has been the subject of any Order, Judgment, or Decree of any Court of competent jurisdiction, or any regulatory agency permanently or temporarily enjoining, barring suspending or otherwise limiting him/her from acting as an investment advisor, underwriter, broker or dealer in the securities industry, or as an affiliated person, director or employee of an investment company, bank, savings and loan association, or insurance company or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any securities.
No Executive Officer or Director of the Corporation has been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending.
Audit Committee and Financial Expert
We do not have an Audit Committee. Our directors perform some of the same functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.
We have no financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, because of our start-up operations, we believe the services of a financial expert are not warranted.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires executive officers and directors, and persons who beneficially own more than ten percent of an issuer's common stock, which has been registered under Section 12 of the Exchange Act, to file initial reports of ownership and reports of changes in ownership with the SEC.
As a company with securities registered under Section 15(d) of the Exchange Act, our executive officers and directors, and persons who beneficially own more than ten percent of our common stock are not required to file Section 16(a) reports.
Code of Ethics
A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:
| (1) | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| (2) | Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer; |
| (3) | Compliance with applicable governmental laws, rules and regulations; |
| (4) | The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and |
| (5) | Accountability for adherence to the code. |
We have not adopted a corporate code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Our decision to not adopt such a code of ethics results from our having only two officers and one director operating as the management for the Company. We believe that the limited interaction which occurs having such a small management structure for the Company eliminates the current need for such a code, in that violations of such a code would be reported to the party generating the violation.
Corporate Governance
Nominating Committee
We do not have a Nominating Committee or Nominating Committee Charter. Our Board of Directors performs some of the functions associated with a Nominating Committee. We have elected not to have a Nominating Committee in that we are an initial-stages operating company with limited operations and resources.
Director Nomination Procedures
Generally, nominees for Directors are identified and suggested by the members of the Board or management using their business networks. The Board has not retained any executive search firms or other third parties to identify or evaluate director candidates in the past and does not intend to in the near future. In selecting a nominee for director, the Board or management considers the following criteria:
| 1. | whether the nominee has the personal attributes for successful service on the Board, such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to the affairs of the Company; |
| 2. | whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities or governmental organizations; |
| 3. | whether the nominee, by virtue of particular experience, technical expertise or specialized skills or contacts relevant to the Company’s current or future business, will add specific value as a Board member; and |
| 4. | whether there are any other factors related to the ability and willingness of a new nominee to serve, or an existing Board member to continue his service. |
The Board or management has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for Board membership. Rather, the Board or management will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations with respect to each such criterion and make a determination regarding whether a candidate should be recommended to the stockholders for election as a Director. During 2009, the Company received no recommendation for Directors from its stockholders.
The Company will consider for inclusion in its nominations of new Board of Directors nominees proposed by stockholders who have held at least 1% of the outstanding voting securities of the Company for at least one year. Board candidates referred by such stockholders will be considered on the same basis as Board candidates referred from other sources. Any stockholder who wishes to recommend for the Company’s consideration a prospective nominee to serve on the Board of Directors may do so by giving the candidate’s name and qualifications in writing to the Company’s Secretary at the following address: 2858 Erie St., San Diego, California 92117.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
During the year ended December 31, 2009, neither Mr. Van Ness nor Mr. Widme received any compensation for their roles associated as the company’s officers, or in the case of Mr. Van Ness, as its sole director. During the period of February 4, 2008 to December 31, 2008, the president received compensation totaling $2,800.
Future Compensation
Both Mr. Van Ness and Mr. Widme have agreed to provide services to us without further compensation until such time as we have sufficient earnings from our revenue.
Director Compensation
As a result of having limited resources we do not currently have an established compensation package for board members.
Board Committees
We do not currently have any committees of the Board of Directors, as our Board consisted of one member during the year ended December 31, 2009. Additionally, due to the nature of our intended business, the Board of Directors does not foresee a need for any committees in the foreseeable future.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth information, to the best of our knowledge, about the beneficial ownership of our common stock on March 3, 2010 relating to the beneficial ownership of our common stock by those persons known to beneficially own more than 5% of our capital stock and by our directors and executive officers. The percentage of beneficial ownership before the offering for the following table is based on 1,450,000 shares of common stock outstanding.
Security Ownership of Management
| Name of Beneficial Owner | Number Of Shares | Percent Beneficially Owned |
| Daniel R. Van Ness | 750,000 | 52% |
| Stoecklein Law Group | 100,000 | 7% |
| All Directors, Officers and Principle Stockholders as a Group | 850,000 | 59% |
“Beneficial ownership” means the sole or shared power to vote or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have “beneficial ownership” of any security that such person has the right to acquire within 60 days from the date of this filing.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPNDENCE |
The Company utilizes office space provided at no cost from Mr. Van Ness, our President/Treasurer and sole director. Office services are provided without charge by the Company’s director. Such costs are immaterial to the financial statements and, accordingly, have not been reflected.
During February of 2008, Mr. Van Ness received 750,000 shares of common stock, at a price of $0.01 per share as a founder of Musician’s Exchange. In his capacity as President/Treasurer and sole director and promoter of Musician’s Exchange, Mr. Van Ness has developed the website and business plan. The proceeds from the sale of the shares to Mr. Van Ness, $7,500, constituted the initial cash capitalization of the company.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
(1) AUDIT FEES
The aggregate fees billed for professional services rendered by Lawrence Scharfman & Co., CPA P.C., for the audit of our annual financial statements and review of the financial statements included in our Form 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal year 2009 and 2008 was $3,000 and $4,500, respectively.
In May 2009, the Registrant engaged Moore & Associates, Chartered to serve as the Registrant’s independent registered public accountants. The aggregate fees billed for professional services rendered by Moore & Associates, Chartered for the review of the financial statements included in our Form 10-Q for the periods ended March 31, 2009 and June 30, 2009 was $2,000.
In October 2009, the Registrant engaged De Joya Griffith & Company, LLC to serve as the Registrant’s independent registered public accountants. The aggregate fees billed for professional services rendered by De Joya Griffith & Company, LLC for the review of the financial statements included in our Form 10-Q for the period ended September 30, 2009 was $1,250.
(2) AUDIT-RELATED FEES
None.
(3) TAX FEES
None.
(4) ALL OTHER FEES
None.
(5) AUDIT COMMITTEE POLICIES AND PROCEDURES
We do not have an audit committee.
(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
Not applicable.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
| 1. | The financial statements listed in the "Index to Financial Statements" at page F-1 are filed as part of this report. |
| 2. | Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. |
| 3. | Exhibits included or incorporated herein: See index to Exhibits. |
(b) Exhibits
| | | | Incorporated by reference |
Exhibit Number | Exhibit Description | Filed herewith | Form | Period ending | Exhibit | Filing date |
| 3(i)(a) | Articles of Incorporation of Musician’s Exchange | | S-1 | | 3(i)(a) | 2/29/08 |
| 3(ii)(a) | Bylaws of Musician’s Exchange | | S-1 | | 3(ii)(a) | 2/29/08 |
| 10.1 | Subscription Agreement | | S-1 | | 10.1 | 2/29/08 |
| 31 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act | X | | | | |
| 32 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act | X | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized.
MUSICIAN’S EXCHANGE
By: /S/ Daniel R. Van Ness
Daniel R. Van Ness, President
Date: March 8, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
| | | |
| /S/ Daniel R. Van Ness | President, Treasurer and Director | March 8, 2010 |
| Daniel R. Van Ness | | |
| | | |
| /S/ Daniel R. Van Ness | Principal Executive Officer | March 8, 2010 |
| Daniel R. Van Ness | | |
| | | |
| /S/ Daniel R. Van Ness | Principal Accounting Officer | March 8, 2010 |
| Daniel R. Van Ness | | |
MUSICIAN’S EXCHANGE
INDEX TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2009, INCEPTION (FEBRUARY 4, 2008) TO DECEMBER 31, 2008 AND INCEPTION (FEBRUARY 4, 2008) TO DECEMBER 31, 2009
| | PAGES |
| | |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-2 |
| | |
| BALANCE SHEETS | F-3 |
| | |
| STATEMENTS OF OPERATIONS | F-4 |
| | |
| STATEMENT OF STOCKHOLDERS' EQUITY | F-5 |
| | |
| STATEMENTS OF CASH FLOWS | F-6 |
| | |
| NOTES TO FINANCIAL STATEMENTS | F-7 – F-16 |
DE JOYA GRIFFITH & COMPANY, LLC
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
| 2580 Anthem Village Drive | (702) 563-1600 |
| Henderson, NV 89052 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Musician’s Exchange
2858 Erie St.
San Diego, California 92117
We have audited the accompanying balance sheets of Musician’s Exchange as of December 31, 2009 and 2008 and the related statement of operations, stockholders’ deficit and cash flows for the year ended December 31, 2009, from inception (February 4, 2008) to December 31, 2008 and from inception (February 4, 2008) to December 31, 2009. These financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Musician’s Exchange as of December 31, 2009 and 2008 and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the financial statements, the Company has had difficulty in generating sufficient cash flow to meet its obligations, and is dependent on management's ability to develop profitable operations, these factors, among others raise substantial doubt about its ability to continue as a going concern. Management’s plan in regards to these matters is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/ De Joya Griffith & Company, LLC
De Joya Griffith & Co, LLC
Henderson, Nevada
March 5, 2009
| MUSICIAN'S EXCHANGE | |
| (A DEVELOPMENT STAGE COMPANY) | |
| BALANCE SHEETS | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2009 | | | 2008 | |
| ASSETS | | | | | | |
| | | | | | | |
| Current assets: | | | | | | |
| Cash | | $ | 32,091 | | | $ | 840 | |
| Inventory | | | 2,266 | | | | 1,315 | |
| Total current assets | | | 34,357 | | | | 2,155 | |
| | | | | | | | | |
| Total assets | | $ | 34,357 | | | $ | 2,155 | |
| | | | | | | | | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 43,229 | | | $ | 15,527 | |
| Notes payable | | | 1,000 | | | | 1,000 | |
| Notes payable - related party | | | 55 | | | | 118 | |
| Total current liabilities | | | 44,284 | | | | 16,645 | |
| | | | | | | | | |
| Total liabilities | | | 44,284 | | | | 16,645 | |
| | | | | | | | | |
| Stockholders' deficit: | | | | | | | | |
| Preferred stock, $0.001 par value, 10,000,000 shares | | | | | | | | |
| authorized, no shares issued and outstanding | | | | | | | | |
| as of December 31, 2009 and 2008 | | | - | | | | - | |
| Common stock, $0.001 par value, 100,000,000 shares | | | | | | | | |
| authorized, 1,450,000 and 850,000 shares issued and outstanding | | | | | | | | |
| as of December 31, 2009 and 2008, respectively | | | 1,450 | | | | 850 | |
| Additional paid-in capital | | | 71,050 | | | | 16,650 | |
| Deficit accumulated during development stage | | | (82,427 | ) | | | (31,990 | ) |
| Total stockholders' deficit | | | (9,927 | ) | | | (14,490 | ) |
| | | | | | | | | |
| Total liabilities and stockholders' deficit | | $ | 34,357 | | | $ | 2,155 | |
See Accompanying Notes to Financial Statements
| MUSICIAN'S EXCHANGE | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENTS OF OPERATIONS | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | Inception | | | Inception | |
| | | For the | | | February 4, 2008 | | | February 4, 2008 | |
| | | year ended | | | to | | | to | |
| | | December 31, | | | December 31, | | | December 31, | |
| | | 2009 | | | 2008 | | | 2009 | |
| | | | | | | | | | |
| Revenue | | $ | 3,278 | | | $ | 2,594 | | | $ | 5,872 | |
| | | | | | | | | | | | | |
| Cost of goods sold | | | 3,061 | | | | 2,380 | | | | 5,441 | |
| | | | | | | | | | | | | |
| Gross profit | | | 217 | | | | 214 | | | | 431 | |
| | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| General and administrative | | | 1,514 | | | | 377 | | | | 1,891 | |
| Executive compensation - related party | | | - | | | | 2,800 | | | | 2,800 | |
| Professional fees | | | 49,140 | | | | 29,027 | | | | 78,167 | |
| Total operating expenses | | | 50,654 | | | | 32,204 | | | | 82,858 | |
| | | | | | | | | | | | | |
| Net (loss) | | $ | (50,437 | ) | | $ | (31,990 | ) | | $ | (82,427 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Weighted average number of common shares | | | 925,342 | | | | 845,181 | | | | | |
| outstanding - basic and fully diluted | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net (loss) per share - basic and fully diluted | | $ | (0.05 | ) | | $ | (0.04 | ) | | | | |
See Accompanying Notes to Financial Statements
| MUSICIAN'S EXCHANGE | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENT OF STOCKHOLDERS' DEFICIT | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Deficit | | | | |
| | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | | | Additional | | | During | | | Total | |
| | | Preferred Shares | | | Common Shares | | | Paid-In | | | Development | | | Stockholders' | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Stage | | | Deficit | |
| February 4, 2008 | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock for cash on organization of the Company | | | - | | | $ | - | | | | 750,000 | | | $ | 750 | | | $ | 6,750 | | | $ | - | | | $ | 7,500 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| February 20, 2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock for professional fees | | | - | | | | - | | | | 100,000 | | | | 100 | | | | 9,900 | | | | - | | | | 10,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (31,990 | ) | | | (31,990 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2008 (audited) | | | - | | | | - | | | | 850,000 | | | | 850 | | | | 16,650 | | | | (31,990 | ) | | | (14,490 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| November 16, 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock for cash, net of offering costs | | | - | | | | - | | | | 550,000 | | | | 550 | | | | 49,450 | | | | - | | | | 50,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| November 18, 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock for professional fees | | | - | | | | - | | | | 50,000 | | | | 50 | | | | 4,950 | | | | - | | | | 5,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | (50,437 | ) | | | (50,437 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2009 (audited) | | | - | | | $ | - | | | | 1,450,000 | | | $ | 1,450 | | | $ | 71,050 | | | $ | (82,427 | ) | | $ | (9,927 | ) |
See Accompanying Notes to Financial Statements
| MUSICIAN'S EXCHANGE | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENTS OF CASH FLOWS | |
| | | | | | | | | | |
| | | | | | Inception | | | Inception | |
| | | For the | | | (February 4, 2008) | | | (February 4, 2008) | |
| | | year ended | | | to | | | to | |
| | | December 31, | | | December 31, | | | December 31, | |
| | | 2009 | | | 2008 | | | 2009 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | |
| Net loss | | $ | (50,437 | ) | | $ | (31,990 | ) | | $ | (82,427 | ) |
| Adjustments to reconcile net loss | | | | | | | | | | | | |
| to net cash used in operating activities: | | | | | | | | | | | | |
| Shares issued for services | | | 5,000 | | | | 10,000 | | | | 15,000 | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| (Increase) in inventory | | | (951 | ) | | | (1,315 | ) | | | (2,266 | ) |
| Increase in accounts payable | | | 27,702 | | | | 15,527 | | | | 43,229 | |
| | | | | | | | | | | | | |
| Net cash used in operating activities | | | (18,686 | ) | | | (7,778 | ) | | | (26,464 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
| Proceeds from sale of common stock, net of offering costs | | | 50,000 | | | | 7,500 | | | | 57,500 | |
| Proceeds from notes payable | | | - | | | | 1,000 | | | | 1,000 | |
| Proceeds from notes payable - related party | | | 337 | | | | 555 | | | | 892 | |
| Payments to notes payable - related party | | | (400 | ) | | | (437 | ) | | | (837 | ) |
| | | | | | | | | | | | | |
| Net cash provided by financing activities | | | 49,937 | | | | 8,618 | | | | 58,555 | |
| | | | | | | | | | | | | |
| NET CHANGE IN CASH | | | 31,251 | | | | 840 | | | | 32,091 | |
| | | | | | | | | | | | | |
| CASH AT BEGINNING OF YEAR | | | 840 | | | | - | | | | - | |
| | | | | | | | | | | | | |
| CASH AT END OF YEAR | | $ | 32,091 | | | $ | 840 | | | $ | 32,091 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL INFORMATION: | | | | | | | | | | | | |
| Interest paid | | $ | - | | | $ | - | | | $ | - | |
| Income taxes paid | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| Non-cash activities: | | | | | | | | | | | | |
| Number of shares issued for services | | | 50,000 | | | | 100,000 | | | | 150,000 | |
See Accompanying Notes to Financial Statements
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on February 4, 2008 (Date of Inception) under the laws of the State of Nevada, as Musician’s Exchange, Inc. The Company developed its business plan over the period commencing with February 4, 2008 and ending on December 31, 2009. In February of 2008, the Company created its initial website and posted the website to the Internet.
The Company has not commenced significant operations and, in accordance with ASC Topic 915, the Company is considered a development stage company.
Nature of operations
Musician’s Exchange is developing an Internet destination and marketplace in the United States and potentially, globally, for musicians. Musician’s Exchange is designed to be the ultimate website for musicians. It will be a resource center with links to major and boutique musical companies. The Company’s site will also offer musicians a place to list gear they might have for sale or trade. It will charge a small fee to list items. This fee will include the posting of pictures and an item description, both provided by the seller. These items will be listed until the seller requests to have the items removed. The Company will also have a section dedicated to band listings. Here bands can submit a brief description of their style or type of music, as well as a link to their website. Our webmaster will collect these submissions and post them according to category. Musician’s Exchange will charge a small one-time fee for this service. Musician’s Exchange will also allow outside companies to advertise on our website. Musical companies and musical service organizations can submit banners to our webmaster for posting on different sections of our website. The Company will base the charge for this service on size as well as location of where the banner is listed.
This site can be marketed by word of mouth, the posting of flyers at venues and stores as well as the distribution of business cards. We can also direct market to existing band sites. Musician’s Exchange has also developed a My Space page for additional networking.
The Company intends to utilize the power of the Internet to aggregate in a single location a network of industry participants and a comprehensive database of musician’s information to create an open marketplace that is local, regional, national, and global in nature. Because we commenced operations in February of 2008, the Company currently has minimal listings. By providing this digital marketplace, we intend to bring musicians, private sellers and other industry participants, such as vendors of musical products and services and national advertisers, together with purchase-minded consumers at the moment when these consumers are directly engaged in a search for musical products and services. The Company believes that upon completion of our operating model, it will provide significant benefits to musicians, dealers, private sellers and other industry participants by enabling them to advertise interact and transact with a significant online consumer audience related to the musical world. The Company intends to provide significant benefits to consumers by giving them the tools they need to effectively navigate a large database of musical products and services oriented to any aspect of the music industry, thereby optimizing their ability to find musically oriented product or service of their choice in their chosen geographical area.
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The Company’s business model is built on multiple revenue streams from a variety of industry participants interested in marketing their services to our consumer audience. It intends to generate revenues primarily from listing fees, and fees for consumer and dealer services. In the future, we also intend to generate revenues from facilitating electronic commerce ("e-commerce") transactions, online used musical instruments auction-style trading services and national advertising.
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.
Inventory
Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value).
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. E-commerce revenues are derived from musical vendors such as warranty and finance companies and musical aftermarket retailers who will be able to market their services on the Company's Web site or integrate their product with the Company's Web site. 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.
Advertising Costs
Advertising costs are anticipated to be expensed as incurred; however there were no advertising costs included in general and administrative expenses for the period of Inception (February 4, 2008) to December 31, 2008 and for the year ended December 31, 2009.
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2009 and 2008. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Stock-based compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. 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.
Income taxes
The Company follows ASC Topic 740 for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of those tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by the taxing authorities. As of December 31, 2009 and 2008, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material affect on the Company.
The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12 months.
The Company classifies tax-related penalties and net interest as income tax expense. As of December 31, 2009 and 2008, no income tax expense has been incurred.
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.
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 January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-03 (ASU 2010-03), Extractive Activities—Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures. This amendment to Topic 932 has improved the reserve estimation and disclosure requirements by (1) updating the reserve estimation requirements for changes in practice and technology that have occurred over the last several decades and (2) expanding the disclosure requirements for equity method investments. This is effective for annual reporting periods ending on or after December 31, 2009. However, an entity that becomes subject to the disclosures because of the change to the definition oil- and gas- producing activities may elect to provide those disclosures in annual periods beginning after December 31, 2009. Early adoption is not permitted. The Company does not expect the provisions of ASU 2010-03 to have a material effect on the financial position, results of operations or cash flows of the Company.
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. (See FAS 167 effective date below)
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. (See FAS 166 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. (See EITF 09-1 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance” (“EITF 09-1”). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15, 2009 and requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. The Company does not expect the provisions of EITF 09-1 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the FASB issued SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities. The provisions of SFAS 167 significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. SFAS 167 will be effective for the Company beginning in 2010. The Company does not expect the provisions of SFAS 167 to have a material effect on the financial position, results of operations or cash flows of the Company.
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In June 2009, the FASB issued SFAS No. 166, (ASC Topic 860) “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). The provisions of SFAS 166, in part, amend the derecognition guidance in FASB Statement No. 140, eliminate the exemption from consolidation for qualifying special-purpose entities and require additional disclosures. SFAS 166 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. The Company does not expect the provisions of SFAS 166 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 December 31, 2009 of ($82,427). 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.
NOTE 3 – INVENTORY
Inventories consist of the following at December 31, 2009 and 2008:
| | | December 31, 2009 | | December 31, 2008 |
| Finished goods | | $ 2,266 | | $ 1,315 |
| | | $ 2,266 | | $ 1,315 |
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 – NOTES PAYABLE AND NOTES PAYABLE – RELATED PARTY
Notes payable consists of the following at December 31, 2009 and 2008:
| | | December 31, 2009 | | December 31, 2008 |
| Note payable, unsecured, 0% interest, due upon demand | | $ 1,000 | | $ 1,000 |
| | | | | |
| Note payable to an officer, director and shareholder, unsecured, 0% interest, due upon demand | | 55 | | 118 |
| | | | | |
| | | $ 1,055 | | $ 1,118 |
Interest expense for the year ended December 31, 2009 and for the period of inception (February 4, 2008) through December 31, 2008 was $0 and $0, respectively.
NOTE 5 – INCOME TAXES
At December 31, 2009 and 2008, the Company had a federal operating loss carryforwards of $82,427 and $31,990, respectively, which begins to expire in 2028.
The provision for income taxes consisted of the following components for the year ended December 31, 2009 and period Inception (February 4, 2008) to December 31, 2008:
| | 2009 | | 2008 |
| Current: | | | |
| Federal | $ - | | $ - |
| State | - | | - |
| Deferred | - | | - |
| | $ - | | $ - |
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31, 2009 and 2008:
| | 2009 | | 2008 |
| Deferred tax assets: | | | |
| Net operating loss carryforward | $ 28,849 | | $ 11,197 |
| Total deferred tax assets | 28,849 | | 11,197 |
| Less: Valuation allowance | (28,849) | | (11,197) |
| Net deferred tax assets | $ - | | $ - |
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The valuation allowance for deferred tax assets as of December 31, 2009 and 2008 was $28,849 and $11,197, respectively, which will begin to expire 2028. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of December 31, 2009 and 2008 and maintained a full valuation allowance.
Reconciliation between the statutory rate and the effective tax rate is as follows at December 31, 2009 and 2008:
| | 2009 | | 2008 |
| Federal statutory rate | (35.0)% | | (35.0)% |
| State taxes, net of federal benefit | (0.00)% | | (0.00)% |
| Change in valuation allowance | 35.0% | | 35.0% |
| Effective tax rate | 0.0% | | 0.0% |
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
On 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 cash.
On February 20, 2008, the Company issued 100,000 shares of its common stock toward legal fees totaling $10,000 at a value of approximately $0.10 per share. The shares were valued with the fair value of the services rendered.
On November 16, 2009, the Company completed its offering and issued a total of 550,000 shares of common stock for cash to investors 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 50,000 shares of its common stock toward transfer agent fees totaling $5,000 at a value of approximately $0.10 per share. The shares were valued with the fair value of the common stock.
MUSICIAN’S EXCHANGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2009, there have been no other issuances of common stock.
NOTE 7 – WARRANTS AND OPTIONS
As of December 31, 2009, there were no warrants or options outstanding to acquire any additional shares of common stock.
NOTE 8 – RELATED PARTY TRANSACTIONS
During the period of inception (February 4, 2008) through December 31, 2008, the Company’s president received cash of $2,800 which is considered compensation.
During the period of inception (February 4, 2008) through December 31, 2008, the Company received inventory valued at cost of $555 from its sole officer and director of the Company which was considered a loan. As of December 31, 2008, the Company paid $437 toward the loan and the remaining balance of the loan is $55. (See Note 4)
NOTE 9 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 5, 2010, the date which the financial statements were available to be issued. As of March 5, 2010, there were no material subsequent events.
