UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
¨ 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, including area code)
Copies of Communications to:
Stoecklein Law Group
Emerald Plaza
402 West Broadway
Suite 690
San Diego, CA 92101
(619) 704-1310
Fax (619) 704-0556
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ |
| | |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The number of shares of Common Stock, $0.001 par value, outstanding on May 11, 2010 was 14,500,000 shares.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
| MUSICIAN'S EXCHANGE | |
| (A DEVELOPMENT STAGE COMPANY) | |
| BALANCE SHEETS | |
| | | | | | | |
| | | | | | | |
| | | March 31, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | (Unaudited) | | | (Audited) | |
| ASSETS | | | | | | |
| | | | | | | |
| Current assets: | | | | | | |
| Cash | | $ | 21,312 | | | $ | 32,091 | |
| Inventory | | | 2,266 | | | | 2,266 | |
| Total current assets | | | 23,578 | | | | 34,357 | |
| | | | | | | | | |
| Total assets | | $ | 23,578 | | | $ | 34,357 | |
| | | | | | | | | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 49,782 | | | $ | 43,229 | |
| Notes payable | | | 1,000 | | | | 1,000 | |
| Notes payable - related party | | | 55 | | | | 55 | |
| Total current liabilities | | | 50,837 | | | | 44,284 | |
| | | | | | | | | |
| Total liabilities | | | 50,837 | | | | 44,284 | |
| | | | | | | | | |
| Stockholders' deficit: | | | | | | | | |
| Preferred stock, $0.001 par value, 10,000,000 shares | | | | | | | | |
| authorized, no shares issued and outstanding | | | | | | | | |
| as of March 31, 2010 and December 31, 2009, respectively | | | - | | | | - | |
| Common stock, $0.001 par value, 100,000,000 shares | | | | | | | | |
| authorized, 14,500,000 and 14,500,000 shares issued and outstanding | | | | | | | | |
| as of March 31, 2010 and December 31, 2009, respectively | | | 14,500 | | | | 14,500 | |
| Additional paid-in capital | | | 58,000 | | | | 58,000 | |
| Deficit accumulated during development stage | | | (99,759 | ) | | | (82,427 | ) |
| Total stockholders' deficit | | | (27,259 | ) | | | (9,927 | ) |
| | | | | | | | | |
| Total liabilities and stockholders' deficit | | $ | 23,578 | | | $ | 34,357 | |
See Accompanying Notes to Financial Statements.
| MUSICIAN'S EXCHANGE | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENTS OF OPERATIONS | |
| (Unaudited) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | Inception | |
| | | | | | | | | (February 4, 2008) | |
| | | For the three months ended | | | to | |
| | | March 31, | | | March 31, | |
| | | 2010 | | | 2009 | | | 2010 | |
| | | | | | | | | | |
| Revenue | | $ | - | | | $ | 1,413 | | | $ | 5,872 | |
| | | | | | | | | | | | | |
| Cost of goods sold | | | - | | | | 1,260 | | | | 5,441 | |
| | | | | | | | | | | | | |
| Gross profit | | | - | | | | 153 | | | | 431 | |
| | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| General and administrative | | | 313 | | | | 176 | | | | 2,204 | |
| Executive compensation - related party | | | - | | | | - | | | | 2,800 | |
| Professional fees | | | 17,019 | | | | 9,000 | | | | 95,186 | |
| Total operating expenses | | | 17,332 | | | | 9,176 | | | | 100,190 | |
| | | | | | | | | | | | | |
| Net loss | | $ | (17,332 | ) | | $ | (9,023 | ) | | $ | (99,759 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Weighted average number of common shares | | | 14,500,000 | | | | 8,500,000 | | | | | |
| outstanding - basic | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net loss per share - basic | | $ | (0.00 | ) | | $ | (0.00 | ) | | | | |
See Accompanying Notes to Financial Statements.
| MUSICIAN'S EXCHANGE | |
| (A DEVELOPMENT STAGE COMPANY) | |
| STATEMENTS OF CASH FLOWS | |
| (Unaudited) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | Inception | |
| | | | | | | | | (February 4, 2008) | |
| | | For the three months ended | | | to | |
| | | March 31, | | | March 31, | |
| | | 2010 | | | 2009 | | | 2010 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | |
| Net loss | | $ | (17,332 | ) | | $ | (9,023 | ) | | $ | (99,759 | ) |
| Adjustments to reconcile net loss | | | | | | | | | | | | |
| to net cash used in operating activities: | | | | | | | | | | | | |
| Shares issued for services | | | - | | | | - | | | | 15,000 | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| (Increase) in inventory | | | - | | | | (306 | ) | | | (2,266 | ) |
| Increase in accounts payable | | | 6,553 | | | | 9,000 | | | | 49,782 | |
| | | | | | | | | | | | | |
| Net cash used in operating activities | | | (10,779 | ) | | | (329 | ) | | | (37,243 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
| Proceeds from sale of common stock, net of offering costs | | | - | | | | - | | | | 57,500 | |
| Proceeds from notes payable | | | - | | | | - | | | | 1,000 | |
| Proceeds from notes payable - related party | | | - | | | | 337 | | | | 892 | |
| Payments to notes payable - related party | | | - | | | | (400 | ) | | | (837 | ) |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | - | | | | (63 | ) | | | 58,555 | |
| | | | | | | | | | | | | |
| NET CHANGE IN CASH | | | (10,779 | ) | | | (392 | ) | | | 21,312 | |
| | | | | | | | | | | | | |
| CASH AT BEGINNING OF YEAR | | | 32,091 | | | | 840 | | | | - | |
| | | | | | | | | | | | | |
| CASH AT END OF YEAR | | $ | 21,312 | | | $ | 448 | | | $ | 21,312 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL INFORMATION: | | | | | | | | | | | | |
| Interest paid | | $ | - | | | $ | - | | | $ | - | |
| Income taxes paid | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| Non-cash activities: | | | | | | | | | | | | |
| Number of shares issued for services | | | - | | | | - | | | | 150,000 | |
| | | | | | | | | | | | | |
See Accompanying Notes to Financial Statements.
MUSICIAN’S EXCHANGE
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The condensed interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2009 and notes thereto included in the Company’s 10-K filed on March 8, 2010. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim period are not indicative of annual results.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Earnings per share
The Company follows ASC 260-10. Basic earnings 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.
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.
MUSICIAN’S EXCHANGE
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Recent pronouncements
Below is a listing of the most recent accounting standards and their effect on the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-18 (ASU 2010-18), Receivables (Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset-a consensus of the FASB Emerging Task Force. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. The Company does not expect the provisions of ASU 2010-18 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-16 (ASU 2010-16), Entertainment-Casinos (Topic 924): Accruals for Casino Jackpot Liabilities-a consensus of the FASB Emerging Issues Task. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. The amendments should be applied by recording a cumulative-effect adjustment to opening retained earnings in the period of adoption. The Company does not expect the provisions of ASU 2010-16 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-15 (ASU 2010-15), Financial Services-Insurance (Topic 944): How Investments held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments-a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted. The amendments in this Update should be applied retrospectively to all prior periods upon the date of adoption. The Company does not expect the provisions of ASU 2010-15 to have a material effect on the financial position, results of operations or cash flows of the Company.
MUSICIAN’S EXCHANGE
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-14 (ASU 2010-14), Accounting for Extractive Activities – Oil & Gas - Amendments to Paragraph 932-10-S99-1 (SEC Update). The Amendments are designed to modernize and update the oil and gas disclosure requirements to align them with current practices and changes in technology. The Company does not expect the provisions of ASU 2010-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-13 (ASU 2010-13), Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades - a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier application is permitted. The Company does not expect the provisions of ASU 2010-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-12 (ASU 2010-12), Income Taxes (Topic 740): Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts. After consultation with the FASB, the SEC stated that it “would not object to a registrant incorporating the effects of the Health Care and Education Reconciliation Act of 2010 when accounting for the Patient Protection and Affordable Care Act”. The Company does not expect the provisions of ASU 2010-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.
In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-10 (ASU 2010-10), Consolidation (Topic 810): Amendments for Certain Investment Funds. The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for Interim periods within that first reporting period. Early application is not permitted. The Company does not expect the provisions of ASU 2010-10 to have a material effect on the financial position, results of operations or cash flows of the Company.
MUSICIAN’S EXCHANGE
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This amendment addresses both the interaction of the requirements of this Topic with the SEC’s reporting requirements and the intended breadth of the reissuance disclosure provision related to subsequent events (paragraph 855-10-50-4). All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The Company does not expect the provisions of ASU 2010-09 to have a material effect on the financial position, result s of operations or cash flows of the Company.
In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-08 (ASU 2010-08), Technical Corrections to Various Topics. This amendment eliminated inconsistencies and outdated provisions and provided the needed clarifications to various topics within Topic 815. The amendments are effective for the first reporting period (including interim periods) beginning after issuance (February 2, 2010), except for certain amendments. The amendments to the guidance on accounting for income taxes in reorganization (Subtopic 852-740) should be applied to reorganizations for which the date of the reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. For those reorganizations reflected in interim fi nancial statements issued before the amendments in this Update are effective, retrospective application is required. The clarifications of the guidance on the embedded derivates and hedging (Subtopic 815-15) are effective for fiscal years beginning after December 15, 2009, and should be applied to existing contracts (hybrid instruments) containing embedded derivative features at the date of adoption. The Company does not expect the provisions of ASU 2010-08 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-07 (ASU 2010-07), Not-for-Profit Entities (Topic 958): Not-for-Profit Entities: Mergers and Acquisitions. This amendment to Topic 958 has occurred as a result of the issuance of FAS 164. The Company does not expect the provisions of ASU 2010-07 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This amendment to Topic 820 has improved disclosures about fair value measurements on the basis of input received from the users of financial statements. This is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The C ompany does not expect the provisions of ASU 2010-06 to have a material effect on the financial position, results of operations or cash flows of the Company.
MUSICIAN’S EXCHANGE
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-05 (ASU 2010-05), Compensation – Stock Compensation (Topic 718). This standard codifies EITF Topic D-110 Escrowed Share Arrangements and the Presumption of Compensation.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-04 (ASU 2010-04), Accounting for Various Topics—Technical Corrections to SEC Paragraphs.
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 March 31, 2010 of ($99,759). 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 March 31, 2010:
| | | March 31, 2010 | December 31, 2009 |
| Finished goods | | $ 2,266 | $ 2,266 |
| | | $ 2,266 | $ 2,266 |
MUSICIAN’S EXCHANGE
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 – NOTES PAYABLE AND NOTES PAYABLE – RELATED PARTY
Notes payable consists of the following at March 31, 2010:
| | | March 31, 2010 | December 31, 2009 |
| 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 | 55 |
| | | | |
| | | $ 1,055 | $ 1,055 |
Interest expense for the three months ended March 31, 2010 and 2009 was $0 and $0, respectively.
NOTE 5 – STOCKHOLDERS’ EQUITY
The Company is authorized to issue 10,000,000 shares of it $0.001 par value preferred stock and 100,000,000 shares of its $0.001 par value common stock.
On March 14, 2010, the Company effected a 10-for-1 forward stock split of its $0.001 par value common stock.
All share and per share amounts have been retroactively restated to reflect the splits discussed above.
Common Stock
On February 4, 2008, the Company issued its sole officer of the Company 7,500,000 shares of its $0.001 par value common stock at a price of $0.001 per share for a total amount raised of $7,500 in cash.
On February 20, 2008, the Company issued 1,000,000 shares of its common stock toward legal fees totaling $10,000 at a value of approximately $0.01 per share. The shares were valued with the fair value of the services rendered.
On November 16, 2009, the Company completed its offering and issued a total of 5,500,000 shares of common stock for cash and raised a total of $55,000. The Company recorded $5,000 of direct offering costs against the proceeds.
MUSICIAN’S EXCHANGE
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
On November 18, 2009, the Company issued 500,000 shares of its common stock toward transfer agent fees totaling $5,000 at a value of approximately $0.01 per share. The shares were valued with the fair value of the common stock.
For the three months ended March 31, 2010, there have been no other issuances of common stock.
NOTE 6 – WARRANTS AND OPTIONS
As of March 31, 2010, there were no warrants or options outstanding to acquire any additional shares of common stock.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. Additionally, the safe harbor provisions of the Private S ecurities Litigation Reform Act of 1995 most likely do not apply to our forward-looking statements as a result of being a penny stock issuer. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any 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:
| o | our ability to diversify our operations; |
| o | our ability to implement our business plan of online music advertising; |
| o | inability to raise additional financing for working capital; |
| o | the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain; |
| o | our ability to attract key personnel; |
| o | our ability to operate profitably; |
| o | deterioration in general or regional economic conditions; |
| o | changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; |
| o | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; |
| o | inability to achieve future sales levels or other operating results; |
| o | the inability of management to effectively implement our strategies and business plans; |
| o | the unavailability of funds for capital expenditures; and |
| o | other risks and uncertainties detailed in this report. |
For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see Item 1A. Risk Factors in this document.
Item 2. Plan of Operation.
References in the following discussion and throughout this quarterly report to “we”, “our”, “us”, “Musician’s”, “the Company”, and similar terms refer to Musician’s Exchange unless otherwise expressly stated or the context otherwise requires.
Throughout this filing all references to shares have been restated to reflect a 10:1 forward stock split enacted on March 14, 2010.
Background Overview
Musician’s Exchange is a development stage company incorporated in the State of Nevada on February 4, 2008. We were formed to engage in the business of developing an Internet destination and marketplace for musicians through our online website, (www.musiciansxchangeonline.com.). In February of 2008 we commenced our planned principal operations, and therefore have no significant assets.
Since our inception on February 4, 2008 through March 31, 2010, we have generated $5,872 in revenues and have incurred a net loss of $99,759. For the three months ended March 31, 2010, we did not generate revenues and incurred a net loss of $17,332.
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 c ontinue 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 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 of March 31, 2010, our cash balance was $21,312. Our plan for satisfying our cash requirements for the next 12 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 sufficien t cash to enable us to complete our website development, which is an integral part of our operations.
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 through the filing of an S-1 registration statement (declared effective by the SEC on April 10, 2008); and (3) goals based upon our 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.
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. There is still no assurance that, even with the funds from the current offering, we will b e 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
The following table summarizes total current assets, total current liabilities and working capital at March 31, 2010 compared to December 31, 2009.
| | March 31, 2010 | December 31, 2009 | Increase / (Decrease) |
| $ | % |
| | | | | |
| Current Assets | $23,578 | $34,357 | $(10,779) | (31%) |
| | | | | |
| Current Liabilities | 50,837 | 44,284 | 6,553 | 15% |
| | | | | |
| Working Capital (deficit) | $(27,259) | $(9,927) | $17,323 | 174% |
Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of stock, by borrowings, and through sales-generated revenue. In the future, we anticipate we will be able to provide the necessary liquidity we need by the revenues generated from the sales of our products.
Since inception, we have financed our cash flow requirements through issuance of common stock. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending receipt of listings or some form of advertising revenues. Additionally, we anticipate obtaining additional financing to fund operations through common stock offerings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital. In the future we need to generate sufficient revenues from product sales in order to eliminate or reduce the need to sell additional stock or obtain additional loans. There can be no assurance we will be successful in raising the necessary funds to execute our business plan
We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continually develop and upgrade our website, provide national and regional industry participants with an effective, efficient and accessible website on which to promote their products and services through the Internet, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions.
Revenue Recognition
The Company's revenues are anticipated to be derived from multiple sources. Dealer services revenues are to be derived from a range of promotional services, including banner advertising, inventory pages, tiles, enhanced listings and links to the dealer's own Web site. Dealers will also be able to purchase a stand-alone Web site with their own Internet address and searchable used musical equipment inventory for an initial non-refundable set-up fee plus a monthly maintenance fee. Revenues from these services will be recognized ratably over the period in which the service is provided. The set-up fees from dealer contracts will be recognized ratably over the period in which the service is provided, generally a year. Advertising revenues are anticipated to be generated from short-term contracts in which the Company typically guarantees for a fixed fee a minimum number of impressions, or times that an advertisement appears in pages viewed by the users. These revenues are recognized ratably over the term of the agreement, provided that the amount recognized does not exceed the amount that would be recognized based upon actual impressions delivered. Such revenues will generally be derived from specific traffic referrals or transaction leads that originate on the Company's Web site and would be recognized as such referrals and leads are directed to the vendor's product.
Recent Accounting Pronouncements
Below is a listing of the most recent accounting standards and their effect on the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-18 (ASU 2010-18), Receivables (Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset-a consensus of the FASB Emerging Task Force. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. The Company does not expect the provisions of ASU 2010-18 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-16 (ASU 2010-16), Entertainment-Casinos (Topic 924): Accruals for Casino Jackpot Liabilities-a consensus of the FASB Emerging Issues Task. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. The amendments should be applied by recording a cumulative-effect adjustment to opening retained earnings in the period of adoption. The Company does not expect the provisions of ASU 2010-16 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-15 (ASU 2010-15), Financial Services-Insurance (Topic 944): How Investments held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments-a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted. The amendments in this Update should be applied retrospectively to all prior periods upon the date of adoption. The Company does not expect the provisions of ASU 2010-15 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-14 (ASU 2010-14), Accounting for Extractive Activities – Oil & Gas - Amendments to Paragraph 932-10-S99-1 (SEC Update). The Amendments are designed to modernize and update the oil and gas disclosure requirements to align them with current practices and changes in technology. The Company does not expect the provisions of ASU 2010-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-13 (ASU 2010-13), Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades - a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier application is permitted. The Company does not expect the provisions of ASU 2010-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-12 (ASU 2010-12), Income Taxes (Topic 740): Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts. After consultation with the FASB, the SEC stated that it “would not object to a registrant incorporating the effects of the Health Care and Education Reconciliation Act of 2010 when accounting for the Patient Protection and Affordable Care Act”. The Company does not expect the provisions of ASU 2010-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives. The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.
In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-10 (ASU 2010-10), Consolidation (Topic 810): Amendments for Certain Investment Funds. The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for Interim periods within that first reporting period. Early application is not permitted. The Company does not expect the provisions of ASU 2010-10 to have a material effect on the financial position, results of operations or cash flows of the Company.
In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This amendment addresses both the interaction of the requirements of this Topic with the SEC’s reporting requirements and the intended breadth of the reissuance disclosure provision related to subsequent events (paragraph 855-10-50-4). All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The Company does not expect the provisions of ASU 2010-09 to have a material effect on the financial position, result s of operations or cash flows of the Company.
In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-08 (ASU 2010-08), Technical Corrections to Various Topics. This amendment eliminated inconsistencies and outdated provisions and provided the needed clarifications to various topics within Topic 815. The amendments are effective for the first reporting period (including interim periods) beginning after issuance (February 2, 2010), except for certain amendments. The amendments to the guidance on accounting for income taxes in reorganization (Subtopic 852-740) should be applied to reorganizations for which the date of the reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. For those reorganizations reflected in interim fi nancial statements issued before the amendments in this Update are effective, retrospective application is required. The clarifications of the guidance on the embedded derivates and hedging (Subtopic 815-15) are effective for fiscal years beginning after December 15, 2009, and should be applied to existing contracts (hybrid instruments) containing embedded derivative features at the date of adoption. The Company does not expect the provisions of ASU 2010-08 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-07 (ASU 2010-07), Not-for-Profit Entities (Topic 958): Not-for-Profit Entities: Mergers and Acquisitions. This amendment to Topic 958 has occurred as a result of the issuance of FAS 164. The Company does not expect the provisions of ASU 2010-07 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This amendment to Topic 820 has improved disclosures about fair value measurements on the basis of input received from the users of financial statements. This is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The C ompany does not expect the provisions of ASU 2010-06 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-05 (ASU 2010-05), Compensation – Stock Compensation (Topic 718). This standard codifies EITF Topic D-110 Escrowed Share Arrangements and the Presumption of Compensation.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-04 (ASU 2010-04), Accounting for Various Topics—Technical Corrections to SEC Paragraphs.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
This item in not applicable as we are currently considered a smaller reporting company.
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Principal Financial Officer, Daniel Van Ness, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on that evaluation, Mr. Van Ness concluded that our disclosure controls and procedures are effective in timely alerting him to material information relating to us required to be included in our periodic SEC filings and in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding req uired disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.
Item 1A. Risk Factors
We are a development stage company organized in February 2008 and have recently commenced operations, which makes an evaluation of us extremely difficult. At this stage of our business operations, even with our good faith efforts, we may never become profitable or generate any significant amount of revenues, thus potential investors have a high probability of losing their investment.
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 $99,759 from our inception through the period ended March 31, 2010, and (iii) we have a net loss of $17,332 for the three months ended March 31, 2010. 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 ou r 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 sole officer and director, who has limited experience. The loss or unavailability of Mr. Van Ness’s services would have an adverse effect on our business, operations and prospects in that we may not be able to obtain new management under the same financial arrangements.
Our business plan is significantly dependent upon the abilities and continued participation of Daniel R. Van Ness, our 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 o ur 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 b uy 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 assuran ce 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We have no recent sales of unregistered securities.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities from the time of our inception on February, 4, 2008 through the period ended March 31, 2010.
Item 6. 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 |
| 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 the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MUSICIAN’S EXCHANGE
(Registrant)
By:/S/ Daniel Van Ness
Daniel Van Ness, Chief Executive Officer
(On behalf of the registrant and as
principal financial officer)
Date: May 13, 2010
